Greenheart Group Limited - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities in the Company.

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VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

Financial adviser to Skyfame Realty (Holdings) Limited

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

Shenyin Wanguo Capital (H.K.) Limited

A letter from the independent board committee of Skyfame Realty (Holdings) Limited is set out on pages 26 to 27 of this circular. A letter from Shenyin Wanguo Capital, the independent financial adviser to the independent board committee and the independent shareholders of Skyfame Realty (Holdings) Limited, is set out on pages 28 to 49 of this circular.

A notice convening the special general meeting of Skyfame Realty (Holdings) Limited to be held at Luk Kwok Hotel, Basement, 72 Gloucester Road, Wanchai, Hong Kong on Wednesday, 18 July 2007 at 10:30 a.m. is set out on pages SGM-1 to SGM-2 of this circular. A form of proxy for use at the aforesaid special general meeting is also enclosed. Whether or not you are able to attend and vote at the aforesaid special general meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of Skyfame Realty (Holdings) Limited in Hong Kong, Abacus Share Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of the special general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the special general meeting or any adjournment thereof should you so wish.

30 June 2007

* For identification purposes only

			Page
Definitions . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			9
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			26
Letter from Shenyin Wanguo Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			28
Appendix I	—	Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	—	Financial information of the Long World Group . . . . . . . . . . . . .	II-1
Appendix III	—	Financial information of companies acquired
		since the latest published audited accounts . . . . . . . . . . . . . . . .	III-1
Appendix IV	—	Unaudited pro forma financial information
		of the New Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V	—	Property valuation of the Enlarged Group . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	—	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			SGM-1

— i —

DEFINITIONS

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

“2006 Warrants”

warrants issued by the Company on 3 August 2006 which are listed on the Stock Exchange (stock code: 584)
“Allright” Allright Investments Limited, a company incorporated in Samoa with limited liability, a wholly-owned subsidiary of the Company as at the Latest Practicable Date
“Announcement” the announcement dated 31 May 2007 made by the Company in relation to, among other things, the Tianyu Injection
“associate(s)” the meaning ascribed to it under the Listing Rules “Board” the board of Directors “Bright Able” Bright Able Developments Limited, a company incorporated in BVI with limited liability, a wholly-owned subsidiary of the Company as at the Latest Practicable Date
“Business Day” a day (excluding Saturday, public holiday and any day on which no. 8 signal or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon during a typhoon or on which a black rainstorm warning is issued or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which banks are open for business in Hong Kong
“BVI” British Virgin Islands “Bye-laws” the Bye-laws of the Company “Company” Skyfame Realty (Holdings) Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Main Board of the Stock Exchange
“Completion” the completion of the Tianyu Injection “Completion Date” 30 June 2007 or such other date as the parties may agree “connected person(s)” the meaning ascribed to it under the Listing Rules

— 1 —

	DEFINITIONS
“Consideration”	the consideration for the purchase of the Long World Sale
	Share
“controlling shareholder”	the meaning ascribed to it under the Listing Rules
“Convertible Preference Shares”	convertible preference shares of HK$0.01 par value each of
	the Company
“Directors”	directors of the Company
“Enlarged Group”	The Group, the Long World Group, and Yaubond (a 49%
	associated company of the Company as at the Latest
	Practicable Date with remaining 51% shareholding interest
	proposed to be acquired by the Group under an agreement
	dated 21 June 2007) and its subsidiary
“Fine Luck”	Fine Luck Group Limited, a company incorporated in the
	BVI with limited liability and a wholly-owned subsidiary
	of the Company
“Full Ocean”	Full Ocean Development Inc., a company incorporated in
	the BVI with limited liability and a wholly-owned subsidiary
	of Sharp Bright
“Grand Cosmos”	Grand Cosmos Holdings Limited, a company incorporated
	in the BVI with limited liability and wholly-owned by Sharp
	Bright
“Group”	the Company and its subsidiaries, from time to time
“Guangzhou Zhoutouzui”	廣州洲頭咀發展有限公司(Guangzhou Zhoutouzui
	Development Limited), a company incorporated in Hong
	Kong with limited liability, an indirect wholly-owned
	subsidiary of Loyal Way
“GZ Port”	廣州港集團有限公司(Guangzhou Port Group Co., Limited)
	(formerly known as廣州港務局(Guangzhou Port Authority
	Bureau)), a state owned enterprise in the PRC
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC

— 2 —

DEFINITIONS

“Independent Board an independent committee of the Board, comprising all Committee” independent non-executive Directors, established by the Board to advise the Independent Shareholders regarding the Tianyu Agreement and the transactions contemplated thereunder
“Independent Shareholders” Shareholders other than Mr. YU and his associates “Independent Third Party(ies)” third party(ies) independent of the Company and connected persons (as defined under the Listing Rules) of the Company and are not connected persons (as defined under the Listing Rules) of the Company
“Last Trading Day” 28 May 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the Announcement
“Latest Practicable Date” 27 June 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Letter of Intent” the letter of intent dated 8 March 2007 entered into between Fine Luck and Full Ocean in respect of the Tianyu Injection
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Long World” Long World Trading Limited, a company incorporated in BVI with limited liability which is wholly-owned by Full Ocean as at the Latest Practicable Date
“Long World Group” Long World, Trenco, and the PRC Company “Long World Sale Share” one ordinary share of US$1.00 in the share capital of Long World
“Long World Share Charge” a first priority fixed charge over Fine Luck’s 100% interest in Long World, to be created upon Completion
“Loyal Way” Loyal Way (China) Group Limited, a company incorporated in the BVI with limited liability which is an indirect whollyowned subsidiary of the Company and is owned as to 51% by Smartford and as to 49% by Bright Able as at the Latest Practicable Date

— 3 —

DEFINITIONS

“Loyal Way Group”	Loyal Way and its subsidiaries
“Mr. YU”	Mr. YU Pan, an executive Director, the chairman and
	controlling shareholder of the Company
“New Group”	the Group (excluding the Red Empire Group, Allright and
	Bright Able which were acquired by the Group after the
	year ended 31 December 2006) and the Long World Group
“New Shares”	new Shares to be issued and allotted by the Company upon
	exercise by the holder of the conversion rights attaching to
	the Tianyu CPS
“Note Purchase Agreement”	the note purchase agreement dated 2 March 2007 entered
	into between Fine Luck, Great Elegant Investment Limited,
	Smartford and Nicco Limited as chargors, the Company,
	Sharp Bright, Grand Cosmos and the Note Purchasers
	relating to the issue and purchase of the Notes, details of
	which were set out in the Company’s announcement dated
	12 March 2007 and circular dated 4 April 2007
“Note Purchaser(s)”	the purchaser(s) of the Notes under the Note Purchase
	Agreement
“Noteholder(s)”	holder(s) of the Notes
“Notes”	unlisted secured convertible notes with an aggregate
	principal amount of US$200 million due 2013 issued by the
	Company to the Note Purchasers or their nominee(s)
	pursuant to the Note Purchase Agreement
“PMA Capital”	PMA Capital Management Limited, the holding company
	of PMA Investment, which is a substantial shareholder of
	the Company
“PMA Investment”	PMA Investment Advisors Ltd., a subsidiary of PMA Capital
“Poly”	CMIC Property (China) Limited, a company incorporated
	in the BVI with limited liability and is a wholly-owned
	subsidiary of Poly Hong Kong
“Poly Hong Kong”	Poly (Hong Kong) Investments Limited, a company
	incorporated in Hong Kong with limited liability whose
	shares are listed on the Stock Exchange

— 4 —

DEFINITIONS

“Poly/Shell Westin Agreement”	the agreement dated 2 March 2007 made between Poly,
	SMC Property Investment Limited and Great Elegant
	Investment Limited in respect of the acquisition of the entire
	shareholding interest in and shareholders’ loan due by Red
	Empire and the entire shareholding interest in and
	shareholders’ loan due by Allright, details of which were
	set out in the Company’s announcement dated 12 March
	2007 and circular dated 4 April 2007
“PRC”	the People’s Republic of China, for the purpose of this
	circular, excludes Hong Kong, the Macao Special
	Administrative Region of the PRC and Taiwan
“PRC Company”	廣州市創譽房地產開發有限公司(Guangzhou Chuangyu
	Real Estate Development Company Limited), a wholly
	foreign-owned enterprise established in the PRC
“Red Empire”	Red Empire Limited, a company incorporated in the BVI
	with limited liability and a wholly-owned subsidiary of the
	Company as at the Latest Practicable Date
“Red Empire Group”	Red Empire and its subsidiaries
“RMB”	Renminbi, the lawful currency of PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be convened
	on Wednesday, 18 July 2007 to consider and if thought fit,
	to approve, among other things, the entering into of the
	Tianyu Agreement and the transactions contemplated
	thereunder, including the issue and allotment of the Tianyu
	CPS
“Share(s)”	existing ordinary share(s) of HK$0.01 each in the share
	capital of the Company
“Shareholder(s)”	holder(s) of Share(s)
“Sharp Bright”	Sharp Bright International Limited, a company incorporated
	in the BVI with limited liability and wholly-owned by Mr.
	YU

— 5 —

DEFINITIONS

“Shenyin Wanguo Capital” Shenyin Wanguo Capital (H.K.) Limited, a licensed corporation to carry on 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 in respect of the Tianyu Injection
“Smartford” Smartford Limited, a company incorporated in the BVI with limited liability and is indirectly wholly-owned by the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“substantial shareholder(s)” the meaning ascribed to it under the Listing Rules
“Tianhe Project” the property development project situated at 廣州天河區天河北路 (Tianhe Bei Road, Tianhe District, Guangzhou), PRC, which comprises a roughly rectangular-shaped site for commercial and service uses, with a site area of approximately 7,217 square metres, of which 6,057 square metres is the granted area and the remaining portion with an area of 1,160 square metres is designated for the use as public roads, and abuts 廣東省社會科學院 (Guangdong Academy of Social Science) on its eastern boundary; 天河北路 (Tianhe Bei Road) on its southern boundary; 林和東路 (Linhe Dong Road) on its western boundary; and 天河區婦幼保健院 (Tianhe District Women and Children’s Hospital and Health Institute) on its northern boundary
“Tianyu Agreement” the agreement dated 28 May 2007 entered into by Fine Luck as purchaser and Full Ocean as vendor in respect of the Tianyu Injection
“Tianyu CPS” 145,537,077 Convertible Preference Shares to be issued to Grand Cosmos as directed by Full Ocean as consideration for the Tianyu Injection under the Tianyu Agreement
“Tianyu Injection”
the proposed acquisition by Fine Luck from Full Ocean of the Long World Sale Share pursuant to the terms and conditions of the Tianyu Agreement

— 6 —

	DEFINITIONS
“Tianyu Project”	all shops on the second, fifth and sixth floors and Units
	402-403 of the fourth floor of the commercial podium of天
	譽花園第二期(Tianyu Garden Phase 2), a completed
	property development situated at廣州天河區林和中路136-
	146號(Nos. 136-146 Linhe Zhong Road, Tianhe District,
	Guangzhou), PRC, with a total site area of approximately
	10,111 square metres, and abuts紫荊花園(Zijing Garden)
	on its eastern boundary; The Westin, Guangzhou and the
	office annex on its southern boundary;林和中路(Linhe
	Zhong Road) on its western boundary; and天譽花園第一
	期(Tianyu Garden Phase 1) on its northern boundary
“Tianyu Property Management”	廣州天譽物業管理有限公司(Guangzhou Tianyu Property
	Management Company Limited), a company established in
	the PRC and controlled by Mr. YU
“Trenco”	Trenco Holdings Limited, a company incorporated in Hong
	Kong with limited liability and wholly-owned by Long
	World
“Trenco Share Charge”	a first priority fixed charge over Long World’s 100% interest
	in Trenco, to be created upon Completion
“US$”	United States dollars, the lawful currency of the United
	States of America
“Westin CPS”	190,447,209 Convertible Preference Shares issued to Grand
	Cosmos as consideration for the acquisition of Wise Gain
	Investment Limited’s 29% shareholding interest in and
	shareholders’ loan due by Yue Tian, details of which were
	set out in the Company’s announcement dated 12 March
	2007 and circular dated 4 April 2007
“Westin Project”	the property development project situated at廣州天河區
	林和中路(Linhe Zhong Road, Tianhe District, Guangzhou),
	PRC, which occupies a roughly rectangular-shaped site with
	a site area of approximately 9,121 square metres, of which
	7,672 square metres is the granted area, and abuts the
	Concordia (a site under construction) on its eastern
	boundary;薈雅苑(Huiya Garden) on its southern boundary
	partitioned by林和街(Linhe Jie);林和中路(Linhe Zhong
	Road) on its western boundary; and天譽花園第二期
	(Tianyu Garden Phase 2) on its northern boundary

— 7 —

DEFINITIONS

“Yaubond”	Yaubond Limited, a company incorporated in BVI with
	limited liability which is owned by Sunny Billion Holdings
	Limited (a wholly-owned subsidiary of Poly Hong Kong)
	as to 51% and by Nicco Limited (an indirect wholly-owned
	subsidiary of the Company) as to 49% as at the Latest
	Practicable Date
“Yue Tian”	Yue Tian Development Limited, a company incorporated in
	Hong Kong with limited liability and an indirect wholly-
	owned subsidiary of the Company as at the Latest Practicable
	Date
“Yue Tian Group”	Yue Tian and its subsidiaries
“Yuexiu”	廣州越秀企業（集團）公司(Guangzhou Yuexiu Enterprise
	(Group) Company Limited), a state owned enterprise in the
	PRC
“Zhoutouzui Agreement”	the agreement dated 24 April 2007 entered into by
	Smartford, a wholly owned subsidiary of the Company, and
	Poly in respect of the acquisition by Smartford of 100%
	shareholding interest in and shareholders’ loan due by Bright
	Able, details of which were set out in the Company’s
	announcement dated 26 April 2007 and circular dated 17
	May 2007
“Zhoutouzui Project”	the property development project located at廣州海珠區洲
	頭咀客運站(Zhoutouzui pier, Haizhu District, Guangzhou),
	PRC, which comprises a plot of site zoned for commercial
	and residential uses with a site area of approximately
	106,273 square metres, and abuts residential buildings on
	its eastern boundary;洪德路(Hongde Road) on its southern
	boundary, the Pearl River on its western boundary; and同
	福西路(Tongfu Xi Road) and洲頭咀公園(Zhoutouzui
	Park) on its northern boundary
“%”	per cent

For reference purposes only, the Chinese names of the PRC entities, departments or facilities have been translated into English in this circular.

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

Unless otherwise specified in this circular, translations of RMB into HK$ and US$ into HK$ are made in this circular, for illustration only, at the rate of RMB1.00 to HK$1.00 and US$1.00 to HK$7.8119 respectively. No representation is made that any amount in RMB or US$ could have been or could be converted at those rates or any other rates.

— 8 —

LETTER FROM THE BOARD

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Executive Directors: Mr. YU Pan Mr. LAU Yat Tung, Derrick Mr. WONG Lok Mr. WEN Xiao Bing

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 30 June 2007

To the Shareholders and, for information only, the holders of 2006 Warrants

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

INTRODUCTION

Further to the Letter of Intent entered into between Fine Luck and Full Ocean in respect of the Tianyu Injection as announced by the Company on 12 March 2007, on 31 May 2007, the Board announced that on 28 May 2007, Full Ocean as the vendor and Fine Luck, a whollyowned subsidiary of the Company, as the purchaser entered into the Tianyu Agreement. According to the Tianyu Agreement, Fine Luck conditionally agreed to purchase, and Full Ocean conditionally agreed to sell the Long World Sale Share at a consideration of HK$196,475,055 (subject to adjustments) which will be satisfied by way of issue of the Tianyu CPS by the Company at an issue price of HK$1.35 per Tianyu CPS to Grand Cosmos as directed by Full Ocean.

* For identification purposes only

— 9 —

LETTER FROM THE BOARD

(including the issue of the Tianyu CPS) therefore constitutes a connected transaction for the Company under Rule 14A.13(1)(a) of the Listing Rules.

The purpose of this circular is to give you details of the Tianyu Injection; the recommendations of the Independent Board Committee in relation to the Tianyu Injection; the advice of Shenyin Wanguo Capital to the Independent Board Committee and the Independent Shareholders in relation to the Tianyu Injection and a notice convening the SGM.

Tianyu Agreement

Date

28 May 2007

Parties

Vendor: Full Ocean, an investment holding company wholly-owned by Sharp Bright, which in turn is wholly-owned by Mr. YU.
Purchaser: Fine Luck, an investment holding company directly wholly-owned by the Company.

Asset to be acquired

The Long World Sale Share, being the entire issued share capital of Long World.

For further information on the Long World Group, please refer to the paragraphs headed “Information on the Long World Group” and “Shareholding structure of the Long World Group” below.

Consideration

The consideration for the Long World Sale Share is HK$196,475,055, subject to adjustments. The Consideration will be settled by way of issue of the Tianyu CPS by the Company at an issue price of HK$1.35 per Tianyu CPS to Grand Cosmos as directed by Full Ocean. No fractional Tianyu CPS will be issued but the balance of the Consideration will be paid in cash by Fine Luck.

The Consideration is arrived at after arm’s length negotiation between the parties to the Tianyu Agreement with reference to the unaudited net assets value of the Long World Group as at 30 April 2007.

— 10 —

LETTER FROM THE BOARD

Adjustments to consideration

In the event that the net liabilities (being total assets excluding properties less total liabilities excluding deferred taxation) of the Long World Group as at the date of completion of the Tianyu Injection is more than HK$3,000,000 above or below that disclosed in the relevant unaudited management accounts as at 30 April 2007, the Consideration shall be reduced, or as the case may be, increased by an amount equal to such difference on a dollar-for-dollar basis and the relevant party shall reimburse the other party such amount in cash. As at 30 April 2007, the unaudited net liabilities (being total assets excluding properties less total liabilities excluding deferred taxation) of the Long World Group was approximately HK$123.5 million.

Conditions precedent

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

(a) completion by Fine Luck of a due diligence review and investigation on the Long World Group and Fine Luck being reasonably satisfied with the results thereof;
(b) the warranties given by Full Ocean in the Tianyu Agreement being true and correct and not misleading in any material respects as if repeated at all times between the date of the Tianyu Agreement and Completion and as at the date of Completion by reference to the facts and circumstances then subsisting;
(c) the passing of the necessary resolutions by the Shareholder (or if required, the Independent Shareholders) at the SGM approving the Tianyu Agreement and the transactions contemplated thereunder, in compliance with the Listing Rules;
(d) all necessary statutory, governmental and regulatory consents, authorizations or other approvals and requirements (or, as the case may be, the relevant wavier) of any kind in connection with the entering into and performance of the terms of the Tianyu Agreement and the transactions contemplated thereunder having been obtained and complied with by Full Ocean;
(e) the obtaining of all consents from other third parties which are necessary or desirable in connection with the execution and performance of the Tianyu Agreement and any transactions contemplated thereunder;
(f) the delivery by Full Ocean to Fine Luck of the BVI Registered Agent’s certificate confirming that Long World has been duly incorporated and is in good standing together with certificates of incumbency certifying the directors and shareholders of Long World;

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LETTER FROM THE BOARD

(g) save as disclosed in writing to Fine Luck on the date of the Tianyu Agreement, no material adverse change on the financial position, management, business or property, results of operation, legal or financing structure, business prospects or assets or liabilities of any member of the Long World Group or Long World Group taken as a whole having occurred between the date of the Tianyu Agreement and the date of Completion;
(h) all necessary statutory, governmental and regulatory consents, authorizations or other approvals and requirements (or, as the case may be, the relevant wavier) of any kind in connection with the entering into and performance of the terms of the Tianyu Agreement and the transactions contemplated thereunder having been obtained and complied with by Fine Luck and/or the Company, including those under the Listing Rules;
(i) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the New Shares; and
(j) the delivery by Full Ocean to Fine Luck of a legal opinion issued by the PRC firm of lawyers acceptable to Fine Luck and addressed to Fine Luck in respect of the PRC Company, its business, the properties owned by the PRC Company and the tenancies entered into by the PRC Company, in such form and substance to the satisfaction of Fine Luck and to be dated no earlier than seven Business Days prior to the Completion Date.

Fine Luck may at any time in writing waive conditions (a), (b), (f), (g) and (j). Neither Fine Luck nor Full Ocean may waive conditions (c), (d), (e), (h) and (i).

If any of the above conditions has not been fulfilled (or waived by Fine Luck except conditions (c), (d), (e), (h) and (i)) by the Completion Date, or the conditions (b) and (g) do not remain fulfilled on the Completion Date (unless waived by Fine Luck), the Tianyu Agreement shall lapse and be terminated as between Fine Luck and Full Ocean and thereafter all rights, obligations and liabilities of Fine Luck and Full Ocean shall cease and determine and neither Fine Luck nor Full Ocean shall have any claim against the other under the Tianyu Agreement except for antecedent breach. As at the Latest Practicable Date, except for condition (f) which has been waived, none of the above conditions have been fulfilled or waived.

Completion

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

— 12 —

LETTER FROM THE BOARD

UNDERTAKING TO NOTEHOLDERS

Under the trust deed constituting the Notes executed pursuant to the Note Purchase Agreement, the Company has undertaken to the Noteholders that, among other things, so long as any Note remains outstanding, save with the approval of an extraordinary resolution of the Noteholders, the Company will upon Completion, procure that (1) Fine Luck executes the Long World Share Charge and (2) Long World executes the Trenco Share Charge as further security for the Notes.

INFORMATION ON THE LONG WORLD GROUP

Long World is an investment holding company incorporated in the BVI on 13 April 2006 with limited liability. Through its wholly-owned subsidiary, Trenco, Long World is interested in the entire issued share capital of the PRC Company which in turn is holding the entire interest in the Tianyu Project. As at the Latest Practicable Date, each of Long World, Trenco and the PRC Company does not have any operating business or major assets other than their direct or indirect (as the case may be) interest in the Tianyu Project. Upon Completion, each of Long World, Trenco and the PRC Company will become wholly-owned subsidiaries of the Company and the Company will hold the entire interest in the Tianyu Project.

Long World was established for the purpose of holding and taking over the operation of the PRC Company through its interest in Trenco. Immediately before Long World becoming the holding company of Trenco on 21 June 2006, Trenco was wholly-owned by Mr. YU and was interested in 100% equity interest in the PRC Company (25% equity interest of which has been held by Trenco since the incorporation of the PRC Company and 75% equity interest of which was acquired by Trenco on 30 April 2006 from a related company which was approximately 90% controlled by Mr. YU). The total investment cost to Mr. YU in the Long World Group was approximately US$6.0 million (equivalent to approximately HK$46.9 million). Further details of the reorganisation of the Long World Group are set out in note 1 of “Notes to the financial information” of the Long World Group in Appendix II to this circular.

The current principal activity of the Long World Group is the rental of properties in the Tianyu Project. Tianyu Garden Phase 2 is a completed property development located at a prime location at Tianyu Garden Phase 2, Nos.136-146 Linhe Zhong Road, Tianhe District, Guangzhou City, Guangdong Province, the PRC, with a site area of approximately 10,111 square metres, and abuts Zijing Garden on its eastern boundary; The Westin, Guangzhou and the office annex on its southern boundary; Linhe Zhong Road on its western boundary; and Tianyu Garden Phase 1 on its northern boundary and the Tianyu Project comprises all shops on the second, fifth and sixth floors and Units 402-403 of the fourth floor of the commercial podium of Tianyu Garden Phase 2 and has a total gross floor area of approximately 21,161 square metres. The commercial podium of Tianyu Garden Phase 2 obtained its occupation permit on 13 September 2001. Apart from the units in the Tianyu Project, all other units of the commercial podium were sold. The occupancy rate of the Tianyu Project (including the lease

— 13 —

LETTER FROM THE BOARD

to Tianyu Property Management) is approximately 70%. Lease terms of the units in the Tianyu Project ranges from 2 years to 10 years and certain tenants are renowned international companies, including Fortune 500 company.

According to the valuation report prepared by Greater China Appraisal Limited, an independent valuer, as set out in Appendix V to this circular, the Tianyu Project had a market value of approximately RMB480 million (equivalent to approximately HK$480 million) as at 30 April 2007.

The Long World Group had an unaudited net assets value of approximately HK$245.1 million as at 30 April 2007. The audited financial results of the Long World Group for each of the two years ended 31 December 2005 and 31 December 2006 respectively are set out below:

	For the year	For the year
	ended 31 December
	2005	2006
	HK$ million	HK$ million
Turnover	16.5	27.4
Net profit before taxation	41.0	74.0
Net profit after taxation	27.9	42.0

In addition, based on the unaudited accounts of the Long World Group as at 30 April 2007, the Long World Group did not have any major liabilities other than bank and other borrowings and deferred taxation.

Based on the unaudited pro forma financial information as set out in Appendix IV to this circular, the Group’s net assets value would be enhanced by approximately HK$245.6 million (as a result of the increase in total assets and liabilities of approximately HK$499.4 million and HK$253.8 million respectively) while its profits attributable to equity holders of the Company for the period would be increased by HK$53.8 million upon Completion . The details of the financial effect of the Tianyu Injection on the financial position and results of the Group together with the bases and assumptions taken into account in preparing the unaudited pro forma financial information are set out, for illustration purpose only, in Appendix IV to this circular.

— 14 —

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE LONG WORLD GROUP

The shareholding structure of the Long World Group before and after the Tianyu Injection is illustrated as follows:

Existing structure

Mr. YU 100% Sharp Bright 100% Full Ocean 100% Long World 100% Trenco 100% PRC Company The Tianyu Project

Upon completion of the Tianyu Injection

The Company 100% Fine Luck 100% Long World 100% Trenco 100% PRC Company The Tianyu Project

— 15 —

LETTER FROM THE BOARD

PRINCIPAL TERMS OF THE TIANYU CPS

The Tianyu CPS will form part of the Convertible Preference Shares, the creation of which has been approved by the independent Shareholders at a general meeting of the Company held on 26 April 2007. As at the Latest Practicable Date, 190,447,209 Convertible Preference Shares is in issue and has been issued to Grand Cosmos as consideration for the acquisition by the Group of the 29% interest in and shareholder’s loan due by Yue Tian, details of which were set out in the Company’s announcement dated 12 March 2007 and circular dated 4 April 2007. The principal terms of the Tianyu CPS are as follows:

Issue price: HK$1.35 per Tianyu CPS

Conversion ratio: each Tianyu CPS carries the right to convert to one new Share (subject to adjustment for subdivision or consolidation of Shares, bonus issues, rights issues, dividend payments and distributions, upon a reset of the conversion price on all reset dates with reference to the volume weighted average price of a Share under the terms and conditions of the Notes (subject to a maximum conversion ratio of one Tianyu CPS to 1.35 new Share) or other usual dilutive events)
Conversion rights: each holder of the Tianyu CPS shall have the right to convert all or any of its Tianyu CPS into new Shares at any time at the ratio (subject to adjustments as referred to in the paragraph above) of one Tianyu CPS for each new Share. The conversion right shall be exercisable in whole or in part at any time that the aggregate holdings of Shares by the holders of the Tianyu CPS and its connected persons are less than 75% of the total issued and outstanding Shares, subject to the extent that the Company will be able to meet the minimum 25% public float requirement upon conversion
Redemption: the Tianyu CPS are not redeemable
Dividend entitlement: nil

Transferability: the Tianyu CPS are freely transferable

Voting rights: a holder of the Tianyu CPS shall not be entitled to vote at any meeting of the Company by reason only of it being a holder of the Tianyu CPS

— 16 —

LETTER FROM THE BOARD

Listing:

no application will be made for the listing of the Tianyu CPS on the Stock Exchange or any other stock exchange. An application has been made by the Company for the listing of, and permission to deal in, the new Shares to be issued as a result of the exercise of the conversion rights attaching to the Tianyu CPS

Ranking:

the Tianyu CPS shall be subordinated, in terms of payment, to the Notes. The new Shares to be issued upon exercise of the conversion rights attaching to the Tianyu CPS shall rank pari passu in all respects with all other existing Shares outstanding at the date of conversion of the Tianyu CPS

Issue price

As the Tianyu CPS will be part of the Convertible Preference Shares, the issue price of which shall be HK$1.35 per Tianyu CPS. The issue price represents:

(a) a premium of approximately 7.1% over the closing price of HK$1.260 per Share as quoted on the Stock Exchange on 2 March 2007, being the last trading day of the Shares immediately prior to the entering into of the Letter of Intent;
(b) a premium of approximately 0.8% over the closing price of HK$1.339 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 2 March 2007;
(c) a discount of approximately 28.2% to the closing price of HK$1.880 per Share as quoted on the Stock Exchange on the Last Trading Day;
(d) a discount of approximately 29.8% to the average closing price of HK$1.924 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;
(e) a discount of approximately 27.9% to the closing price of HK$1.872 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day;
(f) a discount of approximately 34.5% to the closing price of HK$2.060 per Share as quoted on the Stock Exchange on the Latest Practicable Date;
(g) a discount of approximately 31.1% to the average closing price of HK$1.960 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Latest Practicable Date; and

— 17 —

LETTER FROM THE BOARD

(h) a premium of approximately 193.5% over the audited consolidated net assets value per Share of approximately HK$0.46 (being the audited total equity attributable to the equity holders of the Company of approximately HK$499.3 million as at 31 December 2006 divided by 1,093,971,156 Shares in issue as at the date of the Announcement).

The Directors consider the terms of the Tianyu CPS, including the issue price per Tianyu CPS of HK$1.35 (which is the issue price of the Convertible Preference Shares and was determined with reference to the then prevailing closing prices of Shares prior to the date of the Letter of Intent), are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

EFFECT OF CONVERSION OF THE TIANYU CPS ON THE ISSUED SHARE CAPITAL OF THE COMPANY

Upon full conversion of the Tianyu CPS at the initial conversion ratio, a total of 145,537,077 New Shares will be issued, representing (i) approximately 13.3% of the issued share capital of the Company as at the Latest Practicable Date; (ii) approximately 11.7% of the issued share capital of the Company as enlarged by the issue of such New Shares; and (iii) approximately 5.2% of the issued share capital of the Company as enlarged by the issue of the new Shares upon full conversion of the Tianyu CPS and the Westin CPS respectively at the initial conversion ratio, the issue of the conversion Shares upon full conversion of the Notes at the initial conversion price of HK$1.35 per Share and the issue of new Shares upon exercise of subscription rights attaching to 2006 Warrants.

The Directors consider that there will not be a change in control of the Company as a result of the issue of the Tianyu CPS, the Westin CPS and the Notes.

Set out below is a table showing the Company’s shareholding structure (i) as at the Latest Practicable Date; (ii) upon full conversion of the Tianyu CPS at the initial conversion ratio of 1 Tianyu CPS to 1 New Share; and (iii) upon full conversion of the Tianyu CPS, the Westin CPS, the Notes and the 2006 Warrants, assuming that there will be no change to the issued

— 18 —

LETTER FROM THE BOARD

share capital of the Company as at the Latest Practicable Date, the Tianyu CPS and the Westin CPS are converted at the initial conversion ratio of 1 Tianyu CPS or Westin CPS to 1 New Share and the Notes are converted at the initial conversion price of HK$1.35:

Mr. YU and/ or Grand Cosmos_(Note 1) PMA Capital and/or PMA Investment(Note 2) Public shareholding: Noteholders (other than PMA Investment)(Note 5)_ Other public Shareholders Total	As at the Latest Practicable Date No. of Shares % 627,791,985 57.4 155,082,000 14.2 22,700,000 2.1 288,397,171 26.3 1,093,971,156 100	As at the Latest Practicable Date No. of Shares % 627,791,985 57.4 155,082,000 14.2 22,700,000 2.1 288,397,171 26.3 1,093,971,156 100	Solely upon full conversion of the Tianyu CPS (Note 3) No. of Shares % 773,329,062 62.4 155,082,000 12.5 22,700,000 1.8 288,397,171 23.3 1,239,508,233 100	Solely upon full conversion of the Tianyu CPS (Note 3) No. of Shares % 773,329,062 62.4 155,082,000 12.5 22,700,000 1.8 288,397,171 23.3 1,239,508,233 100	Upon full conversion of the Tianyu CPS, the Westin CPS (Notes 3 and 4), the Notes and the 2006 Warrants (Note 6) No. of Shares % 1,006,511,271 36.1 261,419,338 9.3 1,093,219,630 39.2 428,941,540 15.4 2,790,091,779 100	Upon full conversion of the Tianyu CPS, the Westin CPS (Notes 3 and 4), the Notes and the 2006 Warrants (Note 6) No. of Shares % 1,006,511,271 36.1 261,419,338 9.3 1,093,219,630 39.2 428,941,540 15.4 2,790,091,779 100
		100		100		100

— 19 —

LETTER FROM THE BOARD

Set out below is a table showing the Company’s shareholding structure (i) as at the Latest Practicable Date; (ii) upon full conversion of the Tianyu CPS at the adjusted conversion ratio of 1 Tianyu CPS to 1.35 New Shares; and (iii) upon full conversion of the Tianyu CPS, the Westin CPS, the Notes and the 2006 Warrants, assuming that there will be no change to the issued share capital of the Company as at the Latest Practicable Date, the Tianyu CPS and the Westin CPS are converted at the adjusted conversion ratio of 1 Tianyu CPS or Westin CPS to 1.35 New Shares and the Notes are converted at the adjusted conversion price of HK$1.00:

Mr. YU and/ or Grand Cosmos_(Note 1) PMA Capital and/or PMA Investment(Note 2) Public shareholding: Noteholders (other than PMA Investment)(Note 5)_ Other public Shareholders Total	As at the Latest Practicable Date No. of Shares % 627,791,985 57.4 155,082,000 14.2 22,700,000 2.1 288,397,171 26.3 1,093,971,156 100	As at the Latest Practicable Date No. of Shares % 627,791,985 57.4 155,082,000 14.2 22,700,000 2.1 288,397,171 26.3 1,093,971,156 100	Solely upon full conversion of the Tianyu CPS (Note 3) No. of Shares % 824,267,038 63.9 155,082,000 12.0 22,700,000 1.8 288,397,171 22.3 1,290,446,209 100	Solely upon full conversion of the Tianyu CPS (Note 3) No. of Shares % 824,267,038 63.9 155,082,000 12.0 22,700,000 1.8 288,397,171 22.3 1,290,446,209 100	Upon full conversion of the Tianyu CPS, the Westin CPS (Notes 3 and 4), the Notes and the 2006 Warrants(Note 6) No. of Shares % 1,124,105,771 33.9 291,798,950 8.8 1,467,901,500 44.3 428,941,540 13.0 3,312,747,761 100	Upon full conversion of the Tianyu CPS, the Westin CPS (Notes 3 and 4), the Notes and the 2006 Warrants(Note 6) No. of Shares % 1,124,105,771 33.9 291,798,950 8.8 1,467,901,500 44.3 428,941,540 13.0 3,312,747,761 100
		100		100		100

Notes:

Grand Cosmos is beneficially and wholly-owned by Mr. YU, an executive Director, chairman and controlling shareholder of the Company.
The 155,082,000 Shares held by PMA Capital as at the Latest Practicable Date include Shares held by PMA Asia Opportunities Fund, Diversified Asian Strategies Fund and Asia Diversified Total Return Limited Duration Company, all of which are wholly controlled by PMA Capital. Upon full conversion of the Notes held by PMA Investment at the initial conversion price of HK$1.35 per Share, 86,798,888 conversion Shares will be issued while upon full conversion at the adjusted conversion price of HK$1.00 per Share, 117,178,500 conversion Shares will be issued. Since PMA Capital is the holding company of PMA Investment, PMA Capital is deemed to be interested in the Shares held by PMA Investment upon conversion of the Notes.

— 20 —

LETTER FROM THE BOARD

The conversion right attaching to the Tianyu CPS and the Westin CPS shall be exercisable if the aggregate holdings of Shares by the holders of the Convertible Preference Shares and its connected persons are less than 75% of the total issued and outstanding Shares, subject to the extent that the Company will be able to meet the minimum 25% public float requirement upon conversion.
As at the Latest Practicable Date, there are 190,447,209 Westin CPS in issue. Upon full conversion of the Westin CPS at the initial conversion ratio of 1 Westin CPS to 1 new Share, 190,447,209 new Shares will be issued while upon full conversion of the Westin CPS at the adjusted conversion ratio of 1 Westin CPS to 1.35 new Shares, 257,103,733 new Shares will be issued.
As at the Latest Practicable Date, the principal amount of the Notes outstanding is US$200 million. Upon full conversion of the Notes held by Noteholders (other than PMA Investment) at the initial conversion price of HK$1.35 per Share, 1,070,519,630 conversion Shares will be issued while upon full conversion at the adjusted conversion price of HK$1.00 per Share, 1,445,201,500 conversion Shares will be issued. As at the Latest Practicable Date, Noteholders (other than PMA Investment) are regarded as public Shareholders assuming that no Noteholder will become substantial shareholder and therefore connected person of the Company upon conversion of the Notes.
Being warrants issued by the Company on 3 August 2006 which are listed on the Stock Exchange (stock code: 584). As at the Latest Practicable Date, there are 202,817,819 outstanding 2006 Warrants of which 42,735,000 2006 Warrants are held by Mr. YU and/ or Grand Cosmos, 19,538,450 2006 Warrants are held by PMA Capital and 140,544,369 2006 Warrants are held by public Shareholders.

REASONS FOR AND BENEFITS OF THE TIANYU INJECTION

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

Leveraging on the Company’s management expertise in the property development market and in light of the Company’s confidence and optimism for the prospects in the Guangzhou property market, the Group is committed to focus in the property development activities which has promising earning potentials and which will bring in steady revenues to the Group. Based on the track records of the PRC Company and the Tianyu Project and the prime location where the Tianyu Project is located, the Directors expect that Tianyu Injection would broaden the Group’s income stream and generate a stable source of recurring income for the Group. In addition, contributed by the prosperous economic growth in Guangzhou where Tianhe District is the nuclear business hub, the strong potential in capital value growth in properties of high quality like the Tianyu Project is well expected. The asset value appreciation will in turn enhance the value for and benefits of the Shareholders as a whole. Accordingly, the Directors consider that the Tianyu Injection is in-line with the Group’s business strategy and will enhance the Group’s properties portfolio and financial performance, which represents better return for the Company and Shareholders.

In addition, the issue of the Tianyu CPS as consideration for the Tianyu Injection will not incur any cashflow pressure to the Group or result in immediate dilution of the shareholding of existing Shareholders.

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LETTER FROM THE BOARD

Based on the above, the Directors consider that the Tianyu Agreement is on normal commercial terms which are fair and reasonable and the Tianyu Injection is in the interests of the Company and the Shareholders as a whole.

POSSIBLE CONTINUING CONNECTED TRANSACTIONS

At present, the Tianyu Garden Phase 2 is managed by Tianyu Property Management, a company controlled by Mr. YU, and which is occupying certain premises of approximately 2,500 square metres in the Tianyu Project. Upon Completion, the provision of management service by Tianyu Property Management to the PRC Company in respect of the Tianyu Project and the leasing of premises to Tianyu Property Management by the PRC Company will constitute continuing connected transactions of the Company under the Listing Rules. The Company will make further announcement and comply with the relevant Listing Rules in respect thereof as and when required by the Listing Rules.

FUND RAISING ACTIVITIES OF THE COMPANY IN THE 12 MONTHS IMMEDIATELY PRECEDING THE LATEST PRACTICABLE DATE

In August 2006, the Company raised net proceeds of approximately HK$234.5 million by way of 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 2006 Warrants for every 13 offer shares taken up). The Company intended to apply the net proceeds to finance the consideration for the acquisition of an indirect 51% interest in the Zhoutouzui Project. As at the Latest Practicable Date, the entire HK$234.5 million has been utilized for the purpose.

In May 2007, the Company raised net proceeds of approximately US$192.5 million (equivalent to approximately HK$1,503.8 million) from the issue of the Notes. As disclosed in the Company’s circular dated 4 April 2007, approximately US$80.7 million (equivalent to approximately HK$630.4 million) of such net proceeds was intended to be applied for payment of the consideration under the Poly/Shell Westin Agreement, US$16.0 million (equivalent to approximately HK$125.0 million) was intended to be held in an escrow account for the payment of the interest due and payable on the Notes, US$45.0 million (equivalent to approximately HK$351.5 million) for the payment of the consideration under the Zhoutouzui Agreement, US$30.0 million (equivalent to approximately HK$234.4 million) for the acquisition of GZ Port’s entitlement in the Zhoutouzui Project (or for the automatic redemption of the Notes if certain conditions in relation to the Zhoutouzui Agreement and the acquisition of GZ Port’s entitlement in the Zhoutouzi Project cannot be met), and the payment of the unpaid registered capital of the project company of the Westin Project of US$17.5 million (equivalent to approximately HK$136.7 million) to finance the working capital of the Westin Project. The balance of the net proceeds was intended to be used as general working capital of the Group. As at the Latest Practicable Date, US$136.6 million (equivalent to approximately HK$1,067.1 million) has been utilized, of which US$78.9 million (equivalent to approximately HK$616.4 million) was used for the acquisition of the Westin Project, US$17.5 million (equivalent to approximately HK$136.7 million) was used for the payment of the unpaid registered capital of the project company of the Westin Project and US$40.2 million (equivalent to approximately HK$314.0 million) was used for the acquisition of the Zhoutouzui Project. The Group will use the remaining net proceeds from the issue of the Notes as proposed in the Company’s circular dated 4 April 2007.

— 22 —

LETTER FROM THE BOARD

GENERAL

The Tianyu Injection constitutes a very substantial acquisition of the Company pursuant to Rule 14.06(5) of the Listing Rules. As Full Ocean is ultimately wholly-owned by Mr. YU, who is an executive Director, the chairman and controlling shareholder of the Company, Full Ocean is a connected person of the Company under the Listing Rules. The Tianyu Injection (including the issue of the Tianyu CPS) therefore constitutes a connected transaction for the Company under Rule 14A.13(1)(a) of the Listing Rules. Accordingly, completion of the Tianyu Injection (including the issue of the Tianyu CPS) is subject to, among other things, approval by the Independent Shareholders at the SGM by poll. Given that Full Ocean is ultimately wholly-owned by Mr. YU, Mr. YU and his associates, including Sharp Bright and Grand Cosmos, shall abstain from voting on the resolution to approve the Tianyu Agreement and the transactions contemplated thereunder at the SGM. As at the Latest Practicable Date, to the Company’s best knowledge after reasonable enquiries, Mr. YU and his associates controlled approximately 57.4% of the voting rights of the Company. To the best knowledge, information and belief of the Directors after reasonable enquiry, save for the aforesaid, there are no other Shareholders who have material interests in the Tianyu Injection and are required to abstain from voting on the resolution to approve the Tianyu Injection (including the issue of the Tianyu CPS) at the SGM.

As Completion is subject to the satisfaction and/or waiver of certain conditions precedent and may or may not complete, the Shareholders, the holders of the 2006 Warrants, the Noteholders and potential investors of the Company are advised to exercise caution when dealing in the securities of the Company.

THE SGM

Set out on pages SGM-1 to SGM-2 of this circular is a notice convening the SGM to be held at Luk Kwok Hotel, Basement, 72 Gloucester Road, Wanchai, Hong Kong on Wednesday, 18 July 2007 at 10:30 a.m. at which resolution will be proposed to the Independent Shareholders to consider and, if thought fit, approve the Tianyu Agreement and the transactions contemplated therein.

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

— 23 —

LETTER FROM THE BOARD

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

Pursuant to Bye-law 66 of the Bye-laws, 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.

In compliance with the Listing Rules, the Company will procure the Chairman of the SGM to demand a poll for the resolution to be proposed at the SGM to approve the Tianyu Agreement and the transactions contemplated thereunder.

— 24 —

LETTER FROM THE BOARD

RECOMMENDATION

The Directors consider the terms of the Tianyu Agreement and the transactions contemplated thereunder are fair and reasonable and the entering into of the Tianyu Agreement and the transactions contemplated thereunder are in the interest of the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Tianyu Agreement and the transactions contemplated thereunder. Your attention is also drawn to the text of the letter of advice from Shenyin Wanguo Capital containing its recommendation and the principal factors they have taken into account in arriving at their recommendation set out on pages 28 to 49 of this circular. You are advised to read the letter from the Independent Board Committee and the letter from Shenyin Wanguo Capital before deciding how to vote at the SGM.

FURTHER INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter of advice from Shenyin Wanguo Capital, and the additional information set out in the Appendices to this circular.

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

Chairman

— 25 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [263 x 65] intentionally omitted <==

30 June 2007

To the Independent Shareholders and,

for information only, holders of the 2006 Warrants

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

We refer to the circular of the Company dated 30 June 2007 (the “Circular”), of which this letter forms part. Terms used herein have the same meanings as those defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to advise you as to whether, in our opinion, the terms of the Tianyu Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable so far as in the interests of the Independent Shareholders are concerned and are in the interests of the Company and the Independent Shareholders as a whole.

Shenyin Wanguo Capital has been appointed as the independent financial adviser to advise us and you regarding the terms of the Tianyu Agreement and the transactions contemplated thereunder. Details of its advice, together with the principal factors and reasons it has taken into consideration in giving its advice, are set out in its letter on pages 28 to 49 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 9 to 25 of the Circular and the additional information set out in the Appendices to the Circular.

* For identification purposes only

— 26 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Tianyu Agreement and the advice of Shenyin Wanguo Capital, we are of the opinion that the terms of the Tianyu Agreement and the transactions contemplated thereunder are on normal commercial terms which are fair and reasonable so far as the Company and the Independent Shareholders are concerned and are in the interests of the Company and the Independent Shareholders as a whole. We therefore recommend that the Independent Shareholders vote in favour of the ordinary resolution to be proposed at the SGM to approve the Tianyu Agreement and the transactions contemplated thereunder.

Yours faithfully, Independent Board Committee Mr. CHOY Shu Kwan Mr. CHENG Wing Keung, Raymond Ms. CHUNG Lai Fong Independent non-executive Independent non-executive Independent non-executive Director Director Director

— 27 —

LETTER FROM SHENYIN WANGUO CAPITAL

The following is the text of a letter of advice from Shenyin Wanguo Capital to the Independent Board Committee and the Independent Shareholders in connection with the Tianyu Injection, which has been prepared for the purpose of incorporation into this circular.

Shenyin Wanguo Capital (H.K.) Limited

28th Floor, Citibank Tower Citibank Plaza 3 Garden Road Hong Kong

30 June 2007

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

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

INTRODUCTION

We refer to our appointment to act as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the terms of the Tianyu Injection. The details of the Tianyu Injection are contained in the circular of the Company to the Shareholders dated 30 June 2007 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

On 28 May 2007, Full Ocean as the vendor and Fine Luck, a wholly-owned subsidiary of the Company, as the purchaser entered into the Tianyu Agreement. Pursuant to the Tianyu Agreement, Fine Luck conditionally agreed to purchase, and Full Ocean conditionally agreed to sell the Long World Sale Share at a consideration of HK$196,475,055 (subject to adjustments) which will be satisfied by way of issue of the Tianyu CPS by the Company at an issue price of HK$1.35 per Tianyu CPS (the “Issue Price”) to Grand Cosmos as directed by Full Ocean.

— 28 —

LETTER FROM SHENYIN WANGUO CAPITAL

The Independent Board Committee comprising all three independent non-executive Directors has been established to advise the Independent Shareholders regarding the Tianyu Injection. We have been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Tianyu Injection.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and statements supplied, opinions and representations expressed by the Company and the Directors and have assumed that all such information, statements, opinions and representations as set out in the Circular were reasonably made after due and careful inquiry and were true, accurate and complete at the time they were made and continue to be true at the date of the Circular, and we have relied on the same. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information, statements, opinions and representations referred to in the Circular.

We consider that we have been provided sufficient information to enable us to reach an informed view regarding the Tianyu Injection, and to justify reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis of our opinion. We have no reason to suspect that any material facts or information (which is known to the Company) have been omitted or withheld from the information or statements supplied, or opinions or representations expressed in the Circular nor to doubt the truth and accuracy of the information and facts, or the reasonableness of the opinions expressed by the Company and the Directors which have been provided to us. We have not, however, carried out any independent verification on the information provided to us by the Directors, nor have we conducted an independent in-depth investigation into the business or affairs or future prospects of the Group, the Long World Group and the Tianyu Project.

The Directors collectively and individually accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other matters the omission of which would make any statement in the Circular misleading.

— 29 —

LETTER FROM SHENYIN WANGUO CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion with regard to the Tianyu Injection, we have taken the following principal factors and reasons into consideration:

i. Background

On 12 March 2007, the Board announced that on 2 March 2007, the Company entered into the Note Purchase Agreement under which it would raise net proceeds of approximately US$192.5 million (or approximately HK$1,503.8 million) through the issue of the Notes to the Note Purchasers. The amount of financing proposed to be raised under the Note Purchase Agreement would amount to approximately 3.5 times of the Group’s Adjusted NAV (as defined under the paragraph headed “Financing of the Tianyu Injection” below) at that time. Due to the substantial size of the Notes relative to the Adjusted NAV, we understand from the Directors that, for the purpose of strengthening the financial position of the Group, the placing agent and the Note Purchasers had requested, among other things, the Company’s controlling shareholder, Mr. YU, to undertake to inject property interest owned by him prior to 30 June 2007, after arm’s length negotiation. Therefore, as stated in the Note Purchase Agreement, each of Sharp Bright and Grand Cosmos has undertaken to the Note Purchasers that, among other things, Sharp Bright and Grand Cosmos will, subject to the approval of the Stock Exchange and the approval of the Shareholders in general meeting, on or prior to 30 June 2007, transfer Sharp Bright’s entire beneficial ownership interest in the Tianyu Project, amounting to 100% of the total shareholding in the Tianyu Project, to the Company or one of its subsidiaries in exchange for Convertible Preference Shares to be issued to Grand Cosmos at a price per Convertible Preference Share equal to the initial conversion price at which the Shares will be issued and allotted upon exercise of the conversion rights attaching to the Notes, being HK$1.35 per Share, subject to adjustments. For further details of the Note Purchase Agreement, please refer to the announcement of the Company dated 12 March 2007 and the circular of the Company dated 4 April 2007.

The Company also announced on 12 March 2007 that on 8 March 2007, Fine Luck, a wholly-owned subsidiary of the Company, entered into the Letter of Intent in respect of the Tianyu Injection with Full Ocean, a wholly-owned subsidiary of Sharp Bright and ultimately wholly-owned by Mr. YU. Pursuant to the Letter of Intent, the parties agreed to settle the consideration in respect of the Tianyu Injection by way of issue of Convertible Preference Shares at an issue price of HK$1.35 per Convertible Preference Share.

On 28 May 2007, Full Ocean as the vendor and Fine Luck as the purchaser entered into the Tianyu Agreement pursuant to which Fine Luck conditionally agreed to purchase, and Full Ocean conditionally agreed to sell the Long World Sale Share at a consideration

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LETTER FROM SHENYIN WANGUO CAPITAL

of HK$196,475,055 (subject to adjustments) which will be satisfied by way of issue of the Tianyu CPS by the Company at the Issue Price to Grand Cosmos as directed by Full Ocean.

ii. Information on Long World Group

Long World is an investment holding company incorporated in the BVI on 13 April 2006 with limited liability. Through its wholly-owned subsidiary, Trenco, Long World is interested in the entire issued share capital of the PRC Company which in turn holds the entire interest in the Tianyu Project. As at the Latest Practicable Date, each of Long World, Trenco and the PRC Company did not have any operating business or major assets other than their direct or indirect (as the case may be) interest in the Tianyu Project. Upon Completion, each of Long World, Trenco and the PRC Company will become wholly-owned subsidiaries of the Company and the Company will hold the entire interest in the Tianyu Project. For information regarding the Tianyu Project, please refer to the sub-paragraph headed “The Tianyu Project” below.

As confirmed by the Directors, the current principal activity of the Long World Group is the leasing of properties in the Tianyu Project. We understand from the Directors that for the two years ended 31 December 2006, Long World recorded an audited consolidated profit after taxation of approximately HK$27.9 million and HK$42.0 million respectively, arising mainly from the increase in fair value of investment properties of approximately HK$36.6 million and HK$95.6 million respectively.

Long World had an unaudited consolidated net asset value of approximately HK$245.1 million as at 30 April 2007 and recorded an unaudited consolidated loss after taxation of approximately HK$13.9 million for the four months ended 30 April 2007 which was mainly attributable to the write off of an amount due from its shareholder, being Mr. YU, of approximately HK$12.9 million. For further information on the Long World Group, please refer to the section headed “Information on the Long World Group” in the letter from the Board of the Circular.

iii. Reasons for the Tianyu Injection

A. Business and strategy of the Group

The Group is principally engaged in investment holding, property development, and the provision of project management and related services in the PRC. As at the Latest Practicable Date, the Company has been participating in three property development projects, namely, the Zhoutouzui Project, the Tianhe Project and the Westin Project. The Group has an interest of 100%, 49% and 100% in the Zhoutouzui Project, the Tianhe Project and the Westin Project respectively.

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LETTER FROM SHENYIN WANGUO CAPITAL

As advised by the Directors, the Zhoutouzui Project principally comprises the development and construction on a piece of land located in Haizhu District in Guangzhou, the PRC with a site area of approximately 106,273 square metres of luxury high rise residential apartments, serviced apartments, a five-star hotel, a community centre and other ancillary facilities such as retail commercial mall, club house and underground parking spaces. The pre-sale of the residential properties of the Zhoutouzui Project is expected to commence in the first quarter of 2009 and the construction is expected to be completed and ready for occupation in 2010. We also understand from the Directors that based on the current plan, the Tianhe Project, which is located in Tianhe District, Guangzhou, the PRC, will comprise a hotel, serviced apartments and parking spaces, and related construction is scheduled for completion in 2010. As disclosed in the announcement of the Company dated 22 June 2007, the Group entered into an agreement in respect of the proposed acquisition of the remaining 51% interest in the Tianhe Project. The Westin Project comprises a hotel building, namely The Westin, Guangzhou and an annexed office tower with a total gross floor area (“GFA”) of approximately 137,315 square metres. The Westin, Guangzhou, which will be an international five-star hotel in the business hub of Tianhe District, Guangzhou, is planned to have its grand opening in July 2007 and the office will be ready for lease simultaneously.

As confirmed by the Directors, the Group will continue its prudent land reserve strategy and explore more premium grade projects in the PRC especially in Guangzhou. The Group believes that its extensive premiere grade property portfolio will bring in steady revenues to the Group and fruitful returns to Shareholders. With the prospects of the Tianyu Project, the Company considers the Tianyu Injection represents a valuable opportunity to the Company, which allows the Company not only to expand its property portfolio with premium grade properties, but also to broaden the Group’s income stream and generate a stable source of recurring revenue to the Group. By acquiring the Tianyu Project, the Directors believe the Company can further strengthen its position as a major player in the premium grade property market in Guangzhou. We are of the view that the Tianyu Injection is in line with the business strategy of the Company.

B. The Tianyu Project

The Tianyu Project comprises all shops on the second, fifth and sixth floors and Units 402-403 of the fourth floor of the commercial podium of Tianyu Garden Phase 2 and has a total GFA of approximately 21,161 square metres. Tianyu Garden Phase 2 is a completed property development project located at a prime location at Nos. 136-146 Linhe Zhong Road, Tianhe District, Guangzhou, the PRC with a site area of approximately 10,111 square metres. As advised by the Directors, Tianyu Garden Phase 2 is certainly a property project with geographic

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LETTER FROM SHENYIN WANGUO CAPITAL

supremacy as it is within a walkable distance from the Hong Kong-Guangzhou direct train station in the Tianhe central business district, and abuts The Westin, Guangzhou and the office annex on its southern boundary. The following map shows the geographical location of the Tianyu Project.

==> picture [223 x 238] intentionally omitted <==

Tianyu Garden Phase 2 consists of four 31-storey residential towers all surmounting a 6-storey commercial podium and three basement levels completed in October 2001. As stated in the letter from the Board, the commercial podium of Tianyu Garden Phase 2 obtained its occupation permit on 13 September 2001. Apart from the units in the Tianyu Project, all other units of the commercial podium were sold. The occupancy rate of the Tianyu Project (including the lease to Tianyu Property Management) is approximately 70%. Lease terms of the units in the Tianyu Project range from 2 years to 10 years and certain tenants are renowned international companies, including a Fortune 500 company.

As stated in the letter from the Board, Tianyu Garden Phase 2 is presently managed by Tianyu Property Management, a company controlled by Mr. YU, and which is occupying certain premises of approximately 2,500 square metres in the Tianyu Project. Please refer to the section headed “Possible continuing connected transactions” in the letter from the Board for the implication under the Listing Rules in relation to the provision of management service by Tianyu Property Management to the PRC Company in respect of the Tianyu Project and the leasing of premises to Tianyu Property Management by the PRC Company upon Completion.

As confirmed by the Directors, the Tianyu Project will be held by the Group for investment purpose. The Directors expect that, based on the track record of the Long World Group and the prime location of the Tianyu Project, the Tianyu

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LETTER FROM SHENYIN WANGUO CAPITAL

Injection would broaden the Group’s income stream and generate a stable source of recurring revenue to the Group. For the two years ended 31 December 2006, Long World recorded audited consolidated rental income of approximately HK$11.7 million and HK$15.4 million respectively. As advised by the Directors, the current monthly gross rental income of the Tianyu Project is approximately RMB1,166,000, amounting to approximately RMB14.0 million per annum.

We consider that the Tianyu Injection will provide an opportunity for the Group to expand its premium grade property portfolio and build up a recurring revenue base.

C. Retail property market in Guangzhou

(a) Economic growth of Guangzhou

The PRC economy has attained rapid growth during the ten year period from 1997 to 2006. According to the National Bureau of Statistics of China, the gross domestic product (“GDP”) of PRC increased from approximately RMB7,897.3 billion in 1997 to approximately RMB20,940.7 billion in 2006, representing a compound annual growth rate (“CAGR”) of approximately 10.2%. The economic growth rate of Guangzhou, the capital of Guangdong province in the PRC, as expressed by the growth rate of its GDP has exceeded the national growth rate for the ten year period as stated above. Based on the data published on the website of Statistics Bureau of Guangzhou Municipality, the GDP of Guangzhou during the ten year period from 1997 to 2006 increased from approximately RMB167.8 billion to approximately RMB606.8 billion, representing a CAGR of approximately 13.7%. The wealth of the residents in Guangzhou has been improved along with the economic growth of the city. According to the Statistics Bureau of Guangdong Province, the per capita annual disposable income of urban residents in Guangzhou increased from approximately RMB10,445 in 1997 to approximately RMB19,851 in 2006, representing a CAGR of approximately 6.6%.

With the growth of the Guangzhou economy and the increase in per capita annual disposable income of urban residents in Guangzhou, retail sales of consumer goods in Guangzhou have experienced continuous growth. According to the statistics published by the Statistics Bureau of Guangdong Province, total retail sales of consumer goods in Guangzhou increased from approximately RMB80.3 billion in 1997 to approximately RMB218.3 billion in 2006, representing a CAGR of approximately 10.5%.

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LETTER FROM SHENYIN WANGUO CAPITAL

(b) Retail property market in Guangzhou

The Directors believe that the continuous growth in income level in Guangzhou, together with the liberalisation of the PRC retail sector including the relaxation of restrictions on foreign retailers entering the PRC after the accession of the PRC into the World Trade Organisation in 2000, has stimulated retailer demand for high quality retail space in prime location in Guangzhou. As referred to in the research report headed “2006 Guangzhou commercial property market research” issued by Jingwei Real Estate and published on a website set up by the Information Centre of the Ministry of Land and Resources, PRC, total floor space of retail properties transacted increased from approximately 462,200 square meters in 2001 to approximately 825,400 square meters in 2006, representing a CAGR of approximately 10.1%. We also note from the statistics published on the website of Statistics Bureau of Guangzhou Municipality that the annual supply of new retail properties increased from approximately 688,803 square meters in 2001 to approximately 759,000 square meters in 2006, representing a CAGR of approximately 1.6%. As noted in a research report published on the website of CB Richard Ellis titled “People’s Republic of China Market Review”, the vacancy rate of prime retail properties was approximately 15.8% in Guangzhou in the fourth quarter of 2006.

Given the continuing economic growth in Guangzhou and the positive outlook of the retail property market in Guangzhou as stated above, we concur with the Directors that the prospects of attracting potential buyers to purchase the retail properties of the Tianyu Project or tenants to lease the available units look favourable.

Having considered that (i) the Tianyu Injection is in line with the Company’s business strategy; (ii) the Tianyu injection will provide an opportunity for the Group to expand its premium grade property portfolio and build up a recurring revenue base; and (iii) the outlook for the retail property market in Guangzhou is in general positive, we are of the view that the Tianyu Agreement is entered into in the ordinary and usual course of the business of the Group, and the Tianyu Injection is in the interests of the Company and the Independent Shareholders as a whole.

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LETTER FROM SHENYIN WANGUO CAPITAL

iv. Consideration

A. Consideration and terms of payment

The consideration for the Long World Sale Share is HK$196,475,055, subject to adjustments. The Consideration will be settled by way of issue of the Tianyu CPS by the Company at the Issue Price to Grand Cosmos as directed by Full Ocean. No fractional Tianyu CPS will be issued but the balance of the Consideration will be paid in cash by Fine Luck.

B. Adjustments to the Consideration

As mentioned in the letter from the Board, in the event that the net liabilities (being total assets excluding properties less total liabilities excluding deferred taxation) of the Long World Group as at the Completion Date is more than HK$3 million above or below that disclosed in the relevant unaudited management accounts as at 30 April 2007, the Consideration shall be reduced, or as the case may be, increased by an amount equal to such difference on a dollar-for-dollar basis and the relevant party shall reimburse the other party such amount in cash.

As advised by the Directors, the Consideration was arrived at after arm’s length negotiation between the parties to the Tianyu Agreement with reference to the unaudited net asset value of the Long World Group as at 30 April 2007 of approximately HK$245.1 million, which reflects the market value of the Tianyu Project of RMB480 million as at 30 April 2007. We understand from the Directors that (i) the entire amount of investment properties of approximately HK$487.2 million recorded in the unaudited consolidated accounts of Long World as at 30 April 2007 (the “April 2007 Accounts”) comprised the Tianyu Project; and (ii) deferred taxation of approximately HK$118.6 million as shown in the April 2007 Accounts arose from the revaluation of the Tianyu Project at the market value of RMB480 million. As advised by the Directors, the adjustment mechanism under the Tianyu Agreement as mentioned above is intended to account for any change in the net asset value of the Long World Group which may arise between 30 April 2007 and the date of completion of the Tianyu Injection. As confirmed by the Directors, as the parties to the Tianyu Agreement have agreed that the value of the Tianyu Project is HK$480 million with respect to the Tianyu Injection, they consider changes in the value of the Tianyu Project and deferred taxation as recorded in the unaudited management accounts of the Long World Group arising from revaluation of the Tianyu Project subsequent to 30 April 2007 need not be taken into account when making adjustments to the Consideration. Therefore, any change in the net asset value of the Long World Group to be accounted for under the adjustment mechanism would only reflect the net effect of any change in total assets excluding investment properties and any change in

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LETTER FROM SHENYIN WANGUO CAPITAL

total liabilities excluding deferred taxation. As shown in the April 2007 Accounts, total assets (excluding investment properties) of approximately HK$27.1 million less total liabilities (excluding deferred taxation) of approximately HK$150.6 million would result in unaudited net liabilities (being total assets excluding properties less total liabilities excluding deferred taxation) of approximately HK$123.5 million as at 30 April 2007.

The Directors have confirmed that the threshold amount above or below which the adjustment mechanism will kick in, being HK$3 million, was arrived at after arm’s length negotiations between the parties to the Tianyu Agreement. The Directors also consider that, based on their experience in the PRC property development market, such threshold amount in respect of the adjustment mechanism is acceptable and we concur with their view.

C. Evaluation of the Consideration

The Directors confirmed that the Consideration was arrived at after arm’s length negotiation between the parties to the Tianyu Agreement with reference to the unaudited net asset value of the Long World Group as at 30 April 2007.

(a) Net asset value

The Consideration of HK$196,475,055 represents a discount of approximately 19.8% to the unaudited net asset value of the Long World Group as at 30 April 2007 of approximately HK$245.1 million.

(b) Price to earnings ratio

The Long World Group recorded audited profit after taxation of approximately HK$42.0 million for the year ended 31 December 2006. The Consideration represents a price to earnings ratio (“P/E”) of approximately 4.7 times.

The current principal activity of the Long World Group is the leasing of properties in the Tianyu Project. In order to assess the fairness and reasonableness of the Consideration, we have attempted to identify, based on our research of published information, companies listed on the Main Board of the Stock Exchange, with principal business similar to that of the Long World Group, being holding of units of a developed property for lease in the PRC, and perform a P/E analysis. However, no appropriate comparables could be identified and, as such, no comparison can be made.

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LETTER FROM SHENYIN WANGUO CAPITAL

(c) Valuation of the Tianyu Project

As advised by the Directors, the Consideration was determined with reference to the unaudited net asset value of the Long World Group as at 30 April 2007 of approximately HK$245.1 million, which reflects the market value of the Tianyu Project of RMB480 million as at 30 April 2007. The Tianyu Project was valued by Greater China Appraisal Limited (the “Valuer”), a firm of independent valuers, at RMB$480 million (or approximately HK$480 million) (the “Market Value”) as at 30 April 2007. A copy of the valuation report is set out in Appendix V to the Circular. In assessing the fairness and reasonableness of the Consideration, we have reviewed the valuation report prepared by the Valuer. As referred to in the valuation report, the Tianyu Project comprises all shops on the second, fifth and sixth floors and Units 402-403 of the fourth floor of the commercial podium of Tianyu Garden Phase 2 and has a total GFA of approximately 21,161 square metres.

We have also discussed with the Valuer the methodology adopted, and the bases and assumptions used in arriving at the Market Value. We understand that the Valuer has carried out inspection on the property and adopted the comparison method where comparison based on prices realised or market prices of comparable properties was made. Based on our review of the valuation report and discussions with the Valuer, we accept the fairness and reasonableness of the methodology adopted and the bases and the assumptions applied by the Valuer in arriving at the Market Value.

Given that (i) the Consideration was arrived at after arm’s length negotiations between the parties to the Tianyu Agreement; (ii) the Consideration represents a discount of approximately 19.8% to the unaudited net asset value of the Long World Group as at 30 April 2007; and (iii) we accept the fairness and reasonableness of the methodology adopted and the bases and the assumptions applied by the Valuer in arriving at the Market Value, we consider the Consideration to be fair and reasonable so far as the Company and the Independent Shareholders are concerned and is on normal commercial terms.

v. Financing of the Tianyu Injection

Pursuant to the Tianyu Agreement, the Consideration will be satisfied by way of issue of the Tianyu CPS by the Company at the Issue Price to Grand Cosmos as directed by Full Ocean. The Tianyu CPS will form part of the Convertible Preference Shares, the creation of which has been approved by the independent Shareholders at a general meeting of the Company held on 26 April 2007. As at the Latest Practicable Date, 190,447,209 Convertible Preference Shares, being

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LETTER FROM SHENYIN WANGUO CAPITAL

the Westin CPS, were in issue and were issued to Grand Cosmos as consideration for the acquisition by the Group of the 29% interest in and shareholder’s loan due by Yue Tian, details of which were set out in the announcement of the Company dated 12 March 2007 and the circular of the Company dated 4 April 2007.

A. Principal terms of the Tianyu CPS

As set out in the letter from the Board, upon full conversion of the Tianyu CPS at the initial conversion ratio of one Tianyu CPS to one New Share, a total of 145,537,077 New Shares will be issued. The principal terms of the Tianyu CPS include:

(i) the Tianyu CPS will be issued at HK$1.35 each;
(ii) each Tianyu CPS carries the right to convert to one new Share (subject to adjustment for subdivision or consolidation of Shares, bonus issues, rights issues, dividend payments and distributions, upon a reset of the conversion price on all reset dates with reference to the volume weighted average price of a Share under the terms and conditions of the Notes (subject to a maximum conversion ratio of one Tianyu CPS to 1.35 New Share) or other usual dilutive events);
(iii) each holder of the Tianyu CPS shall have the right to convert all or any of its Tianyu CPS into New Shares at any time at the ratio (subject to adjustments as referred to in the paragraph above) of one Tianyu CPS for each New Share. The conversion right shall be exercisable in whole or in part at any time that the aggregate holdings of Shares by the holders of the Tianyu CPS and its connected persons is less than 75% of the total issued and outstanding Shares, subject to the extent that the Company will be able to meet the minimum 25% public float requirement upon conversion;
(iv) the Tianyu CPS are not redeemable;
(v) the Tianyu CPS do not confer on the holders of the Tianyu CPS any right to dividend; and
(vi) a holder of the Tianyu CPS shall not be entitled to vote at any meeting of the Company by reason only of it being a holder of the Tianyu CPS.

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LETTER FROM SHENYIN WANGUO CAPITAL

We also note from the Bye-laws that holders of the Convertible Preference Shares, including Tianyu CPS rank after the Noteholders and Shareholders on a return of capital on liquidation or winding up or transaction with a similar effect.

B. The Issue Price

As mentioned under the paragraph headed “Background” above, as stated in the Note Purchase Agreement dated 2 March 2007, each of Sharp Bright and Grand Cosmos has undertaken to the Note Purchasers that, among other things, Sharp Bright and Grand Cosmos will, on or prior to 30 June 2007, transfer 100% of the total shareholding in the Tianyu Project to the Company or one of its subsidiaries in exchange for Convertible Preference Shares to be issued by the Company at HK$1.35 per Convertible Preference Share, subject to adjustments. As advised by the Board, the Issue Price was arrived at between Full Ocean and the Company prior to the entering into of the Note Purchase Agreement with reference to the then prevailing market prices of the Shares. We have reviewed the closing prices of the Shares as quoted on the Stock Exchange over the 12-month period prior to the entering into of the Note Purchase Agreement from 1 March 2006 to 2 March 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the announcement dated 12 March 2007 made by the Company in relation to, among other things, the proposed issue of the Notes, the proposed acquisition of the Westin Project and the entering into of the Letter of Intent (the “March Announcement”). Chart 1 below illustrates the closing prices of the Shares as quoted on the Stock Exchange during the period from 1 March 2006 to 2 March 2007.

Chart 1. Closing prices of the Shares as quoted on the Stock Exchange from 1 March 2006 to 2 March 2007

==> picture [308 x 198] intentionally omitted <==

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

1.6
1.4
1.35
1.2
1
0.8
0.6
0.4
0.2
0
1/3/2006
7/4/2006 19/5/2006 27/6/2006 2/8/2006 7/9/200616/10/200622/11/2006 2/1/2007 7/2/20072/3/2007
----- End of picture text -----

Source: Bloomberg

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LETTER FROM SHENYIN WANGUO CAPITAL

As illustrated in Chart 1 above, during the period under review, the closing prices of the Shares ranged from HK$0.864 to HK$1.68 and the Issue Price lies within the upper end of the range.

The Issue Price represents:

(i) a premium of approximately 7.1% over the closing price of HK$1.26 per Share as quoted on the Stock Exchange on 2 March 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the March Announcement;
(ii) a premium of approximately 3.8% over the closing price of HK$1.30 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including 2 March 2007; and
(iii) a premium of approximately 0.8% over the average closing price of HK$1.34 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 2 March 2007.

We have compared the Issue Price to the unaudited pro forma net asset value per Share of the then enlarged Group attributable to equity holders of the Company prior to the entering into of the Note Purchase Agreement. Based on the circular of the Company dated 2 August 2006 in relation to the Group’s acquisition of 51% interest in the Zhoutouzui Project (the “51% Zhoutouzui Acquisition”) and as set out in Appendix IV to the circular of the Company dated 4 April 2007 in relation to, among others, the proposed issue of the Notes and the acquisition of the Westin Project, assuming completion of the open offer by the Company (details of which were set out in the Company’s announcement dated 7 June 2006, circular dated 27 June 2006 and prospectus dated 13 July 2006) and the 51% Zhoutouzui Acquisition as at 31 December 2005, the unaudited pro forma net assets of the enlarged group comprising the Group and the Loyal Way Group attributable to equity holders of the Company amounted to approximately HK$426.8 million (the “Adjusted NAV”) prior to the entering into of the Note Purchase Agreement. The Issue Price represents a premium of approximately 245.3% over the Adjusted NAV per Share of approximately HK$0.391 (based on 1,090,343,286 Shares in issue as at the date of the March Announcement).

Closing prices of the Shares started an upward trend in March 2007 after the date of the March Announcement. Chart 2 below illustrates the closing prices of the Shares as quoted on the Stock Exchange during the period from 1 March 2006 to the Latest Practicable Date.

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LETTER FROM SHENYIN WANGUO CAPITAL

Chart 2. Closing prices of the Shares as quoted on the Stock Exchange from 1 March 2006 to the Latest Practicable Date

==> picture [326 x 210] intentionally omitted <==

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

2.5
C
B
2
A
1.5
1.35
1
0.5
0
1/3/2006 11/4/2006 25/5/2006 5/7/2006 14/8/2006 21/9/2006 2/11/200612/12/2006 24/1/20072/3/2007 24/4/2007Latest Practicable Date28/5/2007
----- End of picture text -----

Source: Bloomberg

Notes:

A represents the period from 1 March 2006 to 2 March 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the March Announcement.
B represents the period from 2 March 2007 to 24 April 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the announcement of the Company dated 26 April 2007 in relation to, among other things, the proposed acquisition of 49% interest in the Zhoutouzui Project.
C represents the period from 24 April 2007 to 28 May 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the announcement of the Company dated 31 May 2007 in relation to, among other things, the Tianyu Injection.

As illustrated in Chart 2 above, during the period under review from 1 March 2006 to the Latest Practicable Date (the “Review Period”), the closing prices of the Shares ranged from HK$0.864 to HK$2.07 and the Issue Price lies within this range. In addition, prices of the Shares have closed at levels above the Issue Price subsequent to the date of the March Announcement (being 12 March 2007) during the periods marked B and C in Chart 2 above. Shortly after the announcement of the Company dated 26 April 2007 in relation to the proposed acquisition of 49% interest in the Zhoutouzui Project (the “49% Zhoutouzui Acquisition”), the closing price of the Shares

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LETTER FROM SHENYIN WANGUO CAPITAL

reached a high of HK$2.05 on 4 May 2007 during the period marked C in Chart 2 above. As at the Latest Practicable Date, the Share price closed at HK$2.06.

The Issue Price represents:

(i) a discount of approximately 28.2% to the closing price of HK$1.88 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 29.7% to the average closing price of HK$1.92 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day; and
(ii) a discount of approximately 34.5% to the closing price of HK$2.06 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

We note that the Issue Price represents a premium of approximately 193.5% over the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.46 (being the audited consolidated net asset value attributable to equity holders of the Company of approximately HK$499.3 million as at 31 December 2006 divided by 1,093,971,156 Shares in issue as at the Latest Practicable Date).

We have identified, based on our research of published information, and made reference to several recent transactions in relation to placing or subscription of new shares conducted by companies listed on the Main Board of the Stock Exchange which (i) had a market capitalisation between HK$1 billion to HK$2.5 billion as at the Latest Practicable Date; and (ii) raised gross funds from the placing or subscription of new shares up to

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LETTER FROM SHENYIN WANGUO CAPITAL

HK$200 million announced in 2007 up to the Last Trading Day (the “Comparable Transactions”):

					(Discount)
					represented by
Initial					the placing or
announcement		Stock	Market	Gross funds	subscription
date	Issuer	code	capitalisation	raised	price
			(HK$ million)	(HK$ million)	(Note 1)
31 January 2007	Capital Strategic Investment Ltd.	497	2,168	134	(8.02)
1 February 2007	China Water Industry Group Ltd.	1129	2,095	113	(7.55)
13 February 2007	Cheuk Nang (Holdings) Ltd.	131	1,701	164	(4.67)
15 February 2007	U-Right International	627	1,322	75	(3.33)
	Holdings Ltd.
21 February 2007	Freeman Corporation Ltd.	279	1,217	100	(18.70)
22 February 2007	Sunlink International	2336	1,342	55	(15.79)
	Holdings Ltd.
26 February 2007	Willie International	273	1,717	82	(18.37)
	Holdings Ltd.
27 February 2007	Get Nice Holdings Ltd.	64	1,448	164	(9.60)
27 March 2007	Willie International Holdings Ltd.	273	1,717	131	(14.73)
30 March 2007	China Glass Holdings Ltd.	3300	1,584	116	(6.80)
11 April 2007	Hong Kong Health Check and	397	1,154	148	(19.08)
	Laboratory Holdings Co. Ltd.
16 April 2007	Ming Hing Holdings Ltd.	402	1,023	51	(56.52)
24 April 2007	Softbank Investment	648	1,550	188	(36.87)
	International (Strategic) Ltd.
27 April 2007	Matrix Holdings Ltd.	1005	1,097	195	(9.50)
3 May 2007	Chevalier iTech Holdings Ltd.	508	1,065	119	(13.95)
	(currently known as Chevalier
	Pacific Holdings Ltd.)
4 May 2007	Magnificent Estates Ltd.	201	1,776	139	(4.14)
15 May 2007	Lo’s Enviro-Pro Holdings Ltd.	309	1,476	100	(25.93)
18 May 2007	Macau Prime Properties	199	1,787	168	(8.20)
	Holdings Ltd.
21 May 2007	Freeman Corporation Ltd.	279	1,217	64	(14.47)
31 May 2007	The Company	59	2,253	Not	(28.20)
				Applicable
				(Note 2)

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LETTER FROM SHENYIN WANGUO CAPITAL

Notes:

Discount represented by the placing or subscription price to closing price of the shares of the companies on their respective last trading day of shares prior to the date of their initial announcement.
Pursuant to the Tianyu Agreement, the Company would settle the Consideration of HK$196,475,055 by way of issue of the Tianyu CPS.

As set out above, the discount represented by the placing or subscription price to closing price of the shares under the Comparable Transactions on the last trading day of the shares prior to the date of the respective initial announcement of the Comparable Transactions ranges from approximately 3.33% to approximately 56.52%. The discount represented by the Issue Price to the closing price of the Shares on the Last Trading Day lies within the above mentioned range.

We consider that as (i) the Issue Price lies within the range of the closing prices of the Shares during the Review Period; (ii) the Issue Price represents a premium over the closing price of Share as quoted on the Stock Exchange on 2 March 2007, being the last trading day of the Shares immediately prior to the suspension of trading in the Shares pending release of the March Announcement; (iii) the discount represented by the Issue Price to the closing price of the Shares on the Last Trading Day lies within the range of that of the Comparable Transactions; and (iv) the Issue Price represents a premium of approximately 245.3% over the Adjusted NAV per Share and approximately 193.5% over the audited consolidated net asset value per Share attributable to equity holders of the Company as at 31 December 2006, the Issue Price is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

C. Potential dilution effect

Upon full conversion of the Tianyu CPS at the initial conversion ratio of one Tianyu CPS to one New Share, a total of 145,537,077 New Shares will be issued, representing:

(i) approximately 13.3% of the issued share capital of the Company as at the Latest Practicable Date;
(ii) approximately 11.7% of the issued share capital of the Company as enlarged by the issue of such New Shares; and

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LETTER FROM SHENYIN WANGUO CAPITAL

(iii) approximately 5.2% of the issued share capital of the Company as enlarged by the issue of the new Shares upon full conversion of the Tianyu CPS and the Westin CPS respectively at the initial conversion ratio of one Tianyu CPS or one Westin CPS to one new Share, the issue of the conversion Shares upon full conversion of the Notes at the initial conversion price of HK$1.35 per Share and the issue of new Shares upon exercise of subscription rights attaching to the 2006 Warrants.

The maximum adjustment to the conversion ratio of the Tianyu CPS would be one Tianyu CPS to 1.35 New Shares. For further information, please refer to the section headed “Principal terms of the Tianyu CPS” in the letter from the Board.

According to the tables set out in the section headed “Effect of conversion of the Tianyu CPS on the issued share capital of the Company” in the letter from the Board, the Independent Shareholders (being Shareholders other than Mr. YU and his associates) will suffer a dilution to their shareholdings from approximately 42.6% to approximately 37.6% and to approximately 36.1% solely upon full conversion of the Tianyu CPS at the conversion ratio of one Tianyu CPS to one New Share and 1 Tianyu CPS to 1.35 New Shares respectively.

We also note from the tables as mentioned above that upon full conversion of the Notes at the initial conversion price of HK$1.35, the Tianyu CPS and the Westin CPS at the initial conversion ratio of one Tianyu CPS or Westin CPS to one new Share and the 2006 Warrants, and upon full conversion of the Notes at the adjusted conversion price of HK$1.00, the Tianyu CPS and the Westin CPS at the adjusted conversion ratio of 1 Tianyu CPS or Westin CPS to 1.35 new Shares and the 2006 Warrants, the aggregate shareholdings of the Independent Shareholders will increase from approximately 42.6% to approximately 63.9% and to approximately 66.1% respectively.

Having taken into account that:

(i) the Consideration will be satisfied by way of issue of the Tianyu CPS, and as such, there will be no cash outlay; and
(ii) the Tianyu injection will provide an opportunity for the Group to expand its premium grade property portfolio and build up a recurring revenue base,

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LETTER FROM SHENYIN WANGUO CAPITAL

we consider that the potential dilution on the shareholding interest of the existing Independent Shareholders as mentioned above is acceptable.

Based on the above, we are of the view that the terms of the Tianyu CPS are fair and reasonable so far as the Independent Shareholders are concerned.

vi. Financial effects of the Completion

A. Net asset value

The Group had an audited consolidated net asset value attributable to equity holders of the Company of approximately HK$499.3 million as at 31 December 2006. According to the unaudited pro forma financial information of the New Group as set out in Appendix IV to the Circular prepared based on the assumption that the Completion took place on 31 December 2006 and without taking into account the increase in net assets as a result of completion of the acquisition of the Westin Project and the issue of the Notes, the unaudited pro forma net asset value of the New Group attributable to equity holders of the Company will be approximately HK$744.9 million, representing an increase of approximately HK$245.6 million. Accordingly, there will be no adverse impact on the net asset value attributable to equity holders of the Company upon the Completion. As set out in Appendix IV to the circular of the Company dated 17 May 2007 in relation to the 49% Zhoutouzui Acquisition, the amount of the unaudited pro forma net asset value of the Group (including the Loyal Way Group but excluding the Red Empire Group and Allright) and Bright Able attributable to equity holders of the Company upon completion of the 49% Zhoutouzui Acquisition remained unchanged.

B. Earnings

The Company recorded an audited consolidated profit attributable to equity holders of approximately HK$4.6 million for the year ended 31 December 2006. Upon the Completion, members of the Long World Group will become indirect wholly-owned subsidiaries of the Company and their respective accounts will be consolidated in the financial statements of the Company. Long World recorded an audited consolidated profit after taxation of approximately HK$42.0 million for the year ended 31 December 2006. According to the unaudited pro forma financial information of the New Group as set out in Appendix IV to the Circular prepared based on the assumption that the Completion took place on 1 January 2006, the unaudited

— 47 —

LETTER FROM SHENYIN WANGUO CAPITAL

pro forma profit of the New Group attributable to equity holders of the Company would amount to approximately HK$58.4 million, representing an increase of approximately HK$53.8 million. As such, there will be no adverse impact on the profit attributable to equity holders of the Company upon the Completion.

C. Working capital

The Group had audited consolidated net current assets of approximately HK$47.8 million as at 31 December 2006. According to the unaudited pro forma financial information of the New Group as set out in Appendix IV to the Circular prepared based on the assumption that the Completion took place on 31 December 2006 and without taking into account the increase in the working capital as a result of completion of acquisition of the Westin Project and the issue of the Notes and the decrease in the working capital as a result of completion of the 49% Zhoutouzui Acquisition, the amount of unaudited pro forma net current assets of the New Group will be approximately HK$8.0 million. The increase in current liabilities amounting to approximately HK$55.8 million was mainly attributable to (i) current portion of bank borrowings of approximately HK$18.0 million; and (ii) trade and other payables of approximately HK$36.1 million recorded by the Long World Group as at 31 December 2006.

Having taking into account (i) the Consideration will be satisfied by way of issue of the Tianyu CPS, and as such, there will be no cash outlay; (ii) as the Tianyu Project comprises units in Tianyu Garden Phase 2, which is a completed property development project, the Group does not have any further capital commitment in respect of the development of the Tianyu Project; and (iii) the Tianyu Project would enable the Group to generate cash inflow from its rental revenue, there will be no significantly adverse impact on the working capital position of the Company.

D. Gearing ratio

The gearing ratio (being the ratio of total liabilities over total assets) of the Group was approximately 43.2% as at 31 December 2006. According to the unaudited pro forma consolidated balance sheet of the New Group as set out in Appendix IV to the Circular prepared based on the assumption that the Completion took place on 31 December 2006, the gearing ratio will be slightly increased by approximately 2.6% to approximately 45.8% for the unaudited pro forma New Group as a result of the Completion. As such, there will be no significantly adverse impact on the gearing ratio of the Group upon the Completion.

— 48 —

LETTER FROM SHENYIN WANGUO CAPITAL

RECOMMENDATION

Having considered the principal factors and reasons above, we consider that the Tianyu Injection (including the issue of the Tianyu CPS) is on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we would recommend the Independent Shareholders, and advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the resolution to approve and implement the Tianyu Injection at the SGM.

Yours faithfully, For and on behalf of

Shenyin Wanguo Capital (H.K.) Limited Tanny Chau

Director

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

A summary of the results, assets and liabilities of the Group for the three financial years ended 31 December 2004, 2005 and 2006, as prepared by reference to the published audited financial statements for the three years ended 31 December 2004, 2005 and 2006, is set out below.

Results
Turnover
— Continuing operations
— Discontinued operations
Profit/(loss) before income tax
— Continuing operations
— Discontinued operations
Income tax expenses
— Continuing operations
— Discontinued operations
Profit/(loss) for the year
— Continuing operations
— Discontinued operations
Attributable to
— Equity holders of the Company
— Minority interests
Financial position
Total assets
Total liabilities
Total equity attributable to
— Equity holders of the Company
— Minority interests

For the three years
ended 31 December
2006
2005
2004
HK$’000
HK$’000
HK$’000
23,456
4,757
—
—
457
9,709
23,456
5,214
9,709
3,926
(2,580)
(7,425)
—
(2,234)
(38,704)
3,926
(4,814)
(46,129)
(1,062)
(33)
—
—
—
(1,359)
(1,062)
(33)
(1,359)
2,864
(2,613)
(7,425)
—
(2,234)
(40,063)
2,864
(4,847)
(47,488)
4,616
(4,847)
(47,487)
(1,752)
—
(1)
2,864
(4,847)
(47,488)
At 31 December
2006
2005
2004
HK$’000
HK$’000
HK$’000
958,813
250,120
13,836
(414,166)
(57,786)
(5,802)
544,647
192,334
8,034
499,302
192,334
8,034
45,345
—
—
544,647
192,334
8,034

— I-1 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006

Set out below are the audited consolidated financial statements of the Group for the financial year ended 31 December 2006 together with the comparative figures for the financial year ended 31 December 2005 and the notes to the financial statements which were extracted from the annual report of the Company for the financial year ended 31 December 2006.

Consolidated Income Statement

For the year ended 31 December 2006

Notes Continuing operations: Turnover 4 Cost of services provided Gross profit Other income 6 Administrative expenses Other operating expenses Profit (loss) from operations 7 Share of loss of associate 20 Finance costs 9 Finance income 9 Profit (loss) before income tax expense Income tax expense 10 Profit (loss) for the year from continuing operations Discontinued operations: Loss for the year from discontinued operations 11 Profit (loss) for the year Attributable to: — Equity holders of the Company — Minority interests Dividends 13 Basic earnings (loss) per share attributable to equity holders of the Company 14 — from continuing operations — from discontinued operations — from continuing and discontinued operations Diluted earnings per share attributable to equity holders of the Company 14 — from continuing operations — from discontinued operations — from continuing and discontinued operations	2006 HK$’000 23,456 (1,841) 21,615 114 (17,980) — 3,749 (112) (2,347) 2,636 3,926 (1,062) 2,864 — 2,864 4,616 (1,752) 2,864 Nil HK0.482 cent N/A HK0.482 cent HK0.474 cent N/A HK0.474 cent	2005 HK$’000 4,757 — 4,757 117 (7,457) (17) (2,600) — (220) 240 (2,580) (33) (2,613) (2,234) (4,847) (4,847) — (4,847) Nil (HK2.300 cents) (HK1.967 cents) (HK4.267 cents) N/A N/A N/A

— I-2 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2006

Notes Non-current assets Plant and equipment 17 Properties held for development 18 Goodwill 19 Interest in associate 20 Current assets Trade and other receivables 23 Cash and cash equivalents 24 Current liabilities Trade and other payables 25 Income tax payable Net current assets Total assets less current liabilities Non-current liabilities Other payable 25 Loan from minority shareholder 26 Convertible note 27 Deferred tax liabilities 28 Net assets Capital and reserves Share capital 29 Reserves 30 Total equity attributable to equity holders of the Company Minority interests Total equity	2006 HK$’000 1,648 698,945 49,655 155,203 905,451 ------------------- 8,588 44,774 53,362 ------------------- 5,168 367 5,535 ------------------- 47,827 953,278 ------------------- 63,573 244,936 — 100,122 408,631 ------------------- 544,647 10,899 488,403 499,302 45,345 544,647	2005 HK$’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 —
		192,334

— I-3 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

As at 31 December 2006

Notes Non-current asset Interests in subsidiaries 21 Current assets Amounts due from subsidiaries 21 Trade and other receivables 23 Cash and cash equivalents 24 Current liability Trade and other payables 25 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 30 Total equity	2006 HK$’000 450,990 ------------------- 9,688 1,073 34,216 44,977 969 44,008 494,998 ------------------- — — — ------------------- 494,998 10,899 484,099 494,998	2005 HK$’000 172,667 ------------------- — 206 77,172
		77,378
		2,090
		75,288
		247,955 ------------------- 55,087 860
		55,947 ------------------- 192,008

		6,407 185,601
		192,008

— I-4 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2006

-		Attributable to equity holders of the	Attributable to equity holders of the	Attributable to equity holders of the	Company		Total HK$’000 8,034 ---------- (4,354) 1
	Share capital HK$’000 68,474 --------- — — — — — --------- (81,204) — — — 13,550 667 4,920 — — (62,067) --------- 6,407	Contributed Share surplus premium reserve HK$’000 HK$’000 532,609 — ---------- ---------- (4,354) — — — (4,354) — — — (4,354) — ---------- ---------- — 81,204 (542,404) 542,404 — (608,111) — — 8,130 — 19,333 — 142,693 — — — — — (372,248) 15,497 ---------- ---------- 156,007 15,497	Share- based payment reserve HK$’000 — ---------- — — — — — ---------- — — — — — — — — — — ---------- —	Convertible note equity reserve HK$’000 — ---------- — — — — — ---------- — — — — — — — 5,100 (893) 4,207 ---------- 4,207	Foreign exchange reserve HK$’000 — ---------- — 1 1 — 1 ---------- — — — — — — — — — — ---------- 1	Retained profits HK$’000 (593,049) ---------- — — — (4,847) (4,847) ---------- — — 608,111 — — — — — — 608,111 ---------- 10,215
							(4,353) (4,847)
-							(9,200) ---------- — — — — 21,680 20,000 147,613 5,100 (893)
-							193,500 ----------
							192,334

— I-5 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

-		Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company		Total HK$’000 192,334 ---------- (5,531) 10,444 25,425
	Share capital HK$’000 6,407 --------- — — — — — — --------- 1,818 2,674 — — — 4,492 --------- 10,899	Contributed Share surplus premium reserve HK$’000 HK$’000 156,007 15,497 ---------- ---------- (5,531) — — — — — (5,531) — — — (5,531) — ---------- ---------- 58,496 — 237,919 — 11 — — — — — 296,426 — ---------- ---------- 446,902 15,497	Share- based payment reserve HK$’000 — ---------- — — — — — — ---------- — — — 3,584 — 3,584 ---------- 3,584	Convertible note equity reserve HK$’000 4,207 ---------- — — — — — — ---------- (4,207) — — — — (4,207) ---------- —	Foreign exchange reserve HK$’000 1 ---------- — 7,588 — 7,588 — 7,588 ---------- — — — — — — ---------- 7,589	Retained profits HK$’000 10,215 ---------- — — — — 4,616 4,616 ---------- — — — — — — ---------- 14,831
							30,338 2,864
-							33,202 ---------- 56,107 240,593 11 3,584 18,816
-							319,111 ----------
							544,647

— I-6 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2006

Notes Net cash (used in) generated from operating activities 32(a) Investing activities Interest received Acquisition of subsidiary 32(b) Disposal of subsidiaries, net of cash disposed of 32(c) Proceeds from sale of other investments Acquisition of associate 32(d) Repayment of loan from an associate Additions to properties held for development Purchase of plant and equipment Net cash used in investing activities Financing activities Proceeds from issue of ordinary shares Exercise of bonus warrants Expenses incurred on issue of shares Interest paid Proceeds from borrowings Repayments of borrowings Decrease in amount due to director Net cash from financing activities Decrease (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 24	2006 HK$’000 (2,044) 2,636 (285,767) — — — 14,652 (1,911) (1,748) (272,138) 240,593 11 (5,531) (331) — — — 234,742 (39,440) 467 83,747 44,774	2005 HK$’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

— I-7 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31 December 2006

1. General

Skyfame Realty (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 (the “Stock Exchange”). Its registered office and principal place of business is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda and 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong respectively.

The Company’s parent and ultimate holding company is Grand Cosmos Holdings Limited (“Grand Cosmos”), which is incorporated in the British Virgin Islands (the “BVI”).

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.

The financial statements are presented in Hong Kong dollars, which is same as the Company’s functional currency while the functional currency of its subsidiaries is Renminbi (the “RMB”).

2. Principal accounting policies

(a) Statement of compliance

The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations (hereinafter collectively referred to as the “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 and by the Hong Kong Companies Ordinance.

(b) Basis of preparation

The financial statements have been prepared under the historical cost basis except for certain financial instruments which are measured at fair value.

In the current year, the Group has applied all the new and revised standards, amendments and interpretations (“new HKFRSs”) issued by the HKICPA that are relevant to its operation and effective for accounting periods beginning on or after 1 January 2006. The adoption of these new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods are prepared and presented.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.

— I-8 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The HKICPA has issued the following new standards, amendment and interpretations that have been issued but are not yet effective. The directors of the Company has commenced considering the potential impact of these new HKFRSs but are not yet in a position to determine whether these HKFRSs would have a significant impact on how the results and the financial position of the Group are prepared and presented.

		Effective for
		accounting
		periods
		beginning on
		or after
HKAS 1 (Amendment)	Capital Disclosures	1 January 2007
HKFRS 7	Financial Instruments: Disclosures	1 January 2007
HKFRS 8	Operating Segments	1 January 2009
HK(IFRIC) — Interpretation 7	Applying the Restatement Approach under	1 March 2006
	HKAS 29 Financial Reporting in
	Hyperinflationary Economies
HK(IFRIC) — Interpretation 8	Scope of HKFRS 2	1 May 2006
HK(IFRIC) — Interpretation 9	Reassessment of Embedded Derivatives	1 June 2006
HK(IFRIC) — Interpretation 10	Interim Financial Reporting and Impairment	1 November 2006
HK(IFRIC) — Interpretation 11	HKFRS 2 — Group and Treasury Share	1 March 2007
	Transactions
HK(IFRIC) — Interpretation 12	Service Concession Arrangements	1 January 2008

(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 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 in preparing the financial statements.

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 shareholder 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.

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity shareholders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company.

— I-9 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

In the Company’s balance sheet, investments in subsidiaries are stated at cost less impairment loss, if any.

(d) Subsidiaries

A subsidiary is an entity over which the Company is able to exercise control. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

(e)

Associates

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, investment in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

(f) Joint ventures

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

— I-10 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Interests in jointly controlled entities are included in the financial statements using proportionate consolidation. The Groups’ share of each of the jointly controlled entity’s assets, liabilities, income and expenses are combined a line-by-line with similar items of the Group. Any premium paid for an interest in a jointly controlled entity above the fair value of the Group’s share of identifiable assets, liabilities and contingent liabilities is dealt with under the goodwill policy.

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

(g) 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 consolidated 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 consolidated income statement.

For the purpose of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units (the “CGU”) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired.

For goodwill arising on an acquisition in a financial year, the CGU to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount to each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

(h) Plant and equipment

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

Plant and equipment are depreciated so as 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 useful lives are as follows:

Computer equipment and software	2-5 years
Furniture and fixtures	5 years
Motor vehicles	4 years

— I-11 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of a fixed asset is the difference between the net sale proceeds and its carrying amount, and is recognised in the income statement on disposal.

(i) Properties held for development

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

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

(j) 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. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 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.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the income statement in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences is also recognised directly in equity.

On consolidation, the results of foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rate approximating to those ruling when the transactions took place. All assets and liabilities of overseas 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.

— I-12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the foreign exchange reserve.

(k) 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. The Group’s accounting policy for each category is as follows:

Financial assets at fair value through profit or loss: include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Financial assets may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or loss on them on a different basis; (ii) the assets are part of a group of financial assets which is managed and its performance evaluated on a fair value basis according to a documented management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in the income statement in the period in which they arise.

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 method, less any identified impairment losses.

— I-13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(ii) Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liabilities was incurred. The Group’s accounting policy for each category is as follows:

(a) Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Financial liabilities may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis; (ii) the liabilities are part of a group of financial liabilities which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or (iii) the financial liability contains an embedded derivative that would need to be separately recorded.

(b) 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 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.

— I-14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(iii) Convertible debt

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

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

(iv) Derecognition

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

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

(l) Employee benefits

(i) Defined contribution pension plan

Contributions to defined contribution retirement plan are recognised as an expense in the income statement when the services are rendered by the employees.

(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.

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

— I-15 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(m) 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 with a corresponding increase in the share-based payment reserve with equity. Non-market 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 unless the goods or services qualified for recognition as assets. A corresponding increase in the share-based payment reserve with equity is recognised.

(n) 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.

(o) Revenue recognition

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

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

(p) 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.

— I-16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

(q) 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.

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

(r) Impairment

At each balance sheet date, the Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

plant and equipment; and
investments in subsidiaries, associate and joint ventures

If the recoverable amount (i.e. the greater of the net selling price and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

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

(s) Borrowing costs

Borrowing costs are expensed in the income statement in the year 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.

— I-17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

(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.

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. Critical accounting estimates

Certain critical accounting judgments in applying the Group’s accounting policies are described below:

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the CGU to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. As at 31 December 2006, the carrying amounts of goodwill in respect of the subsidiary and the associate are approximately HK$49,655,000 and HK$3,692,000 respectively and no indication of impairment on goodwill was noted during the impairment test for goodwill. Details of the recoverable amount calculation are disclosed in notes 19 and 20.

— I-18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Turnover

Turnover represents the net invoiced value of property development project management fees 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 and interior decoration service fee Discontinued operations (note 11(b)) Web design and development service fee Rental income from advertising space	2006 HK$’000 23,456 -------------- — — -------------- — 23,456	2005 HK$’000 4,757 -------------- 450 7 --------------
		457
		5,214

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) Project management segment refers to the provision advisory of and management services rendered for property development projects and interior decoration projects;
(b) Property development segment refers to the development of properties (note: this segment did not generate any revenue in 2005 and 2006) ;

Discontinued operations

(c) Advertising space leasing and securities holding segment refers to the investment in securities and leasing of advertising space;
(d) Online segment refers to the provision of web design and development services; and
(e) Trading and financial advisory segment refers to the general trading and the provision of financial advisory services.

— I-19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As over 90% of the Group’s revenue, results, assets and liabilities were derived from the People’s Republic of China (“the PRC”). Accordingly, no segment information has been disclosed in respect of the Group’s geographical segments.

Business segments

*Results for the year* *ended 31 December 2006* Segment turnover Segment results Unallocated net operating expenses Profit from operations Finance costs Finance income Share of loss of associate Profit before income tax expense Income tax expense Profit for the year *Financial position at* *31 December 2006* Assets Interest in associate Properties held for development Other segment assets Other unallocated assets TOTAL ASSETS Liabilities Segment liabilities Other unallocated liabilities TOTAL LIABILITIES *Other segment information* *Year ended 31 December 2006* Capital expenditure Depreciation and amortisation		Continuing	operations	Continuing total HK$’000 23,456 12,415 (8,666) 3,749 (2,347) 2,636 (112 ) 3,926 (1,062) 2,864 155,203 698,945 67,559 37,106 958,813 312,887 101,279 414,166 3,659 338	Discontinued operations(note 11(b)) Advertising Trading space and leasing and Online financial securities Discontinued operations advisory holding total HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Discontinued operations(note 11(b)) Advertising Trading space and leasing and Online financial securities Discontinued operations advisory holding total HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Total HK$’000 23,456 12,415 (8,666 ) 3,749 (2,347 ) 2,636 (112 ) 3,926 (1,062 ) 2,864 155,203 698,945 67,559 37,106 958,813 312,887 101,279 414,166 3,659 338
	Property management HK$’000 23,456 12,519 — — — 16,867 784 15 18	Property development HK$’000 — (104 ) (112 ) 155,203 698,945 50,692 312,103 1,916 —	Unallocated HK$’000 1,728 320		Online operations HK$’000 — — — — — — — — —	Trading and financial advisory HK$’000 — — — — — — — — —

— I-20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

*Results for the year* *ended 31 December 2005* Segment turnover Segment results Unallocated net operating (expenses) income Loss from operations Finance costs Finance income Loss before income tax expense Income tax expense Gain on disposal of discontinued operation, net of tax Loss for the year *Financial position as at* *31 December 2005* Assets Interest in associate Other segment assets Other unallocated assets TOTAL ASSETS Liabilities Segment liabilities Other unallocated liabilities TOTAL LIABILITIES *Other segment information* *Year ended 31 December 2005* Capital expenditure Impairment losses on promissory note receivable and account receivable Fair value losses (including loss on disposal) on financial assets at fair value through profit of loss Depreciation and amortisation		Continuing	operations	Continuing total HK$’000 4,757 4,190 (6,790) (2,600) (220 ) 240 (2,580) (33 ) — (2,613) 165,807 6,498 77,815 250,120 170 57,616 57,786 183 — — 78	Discontinued operations(note 11(b)) Advertising Trading space and leasing and Online financial securities Discontinued operations advisory holding total HK$’000 HK$’000 HK$’000 HK$’000 450 — 7 457 130 (3,998 ) (1,534 ) (5,402 ) 178 (5,224 ) — — (5,224 ) — 2,990 (2,234 ) — — — — — — — — — — — — — — — — — — — — — 3,431 1,251 4,682 — — 267 267 — 43 — 43	Discontinued operations(note 11(b)) Advertising Trading space and leasing and Online financial securities Discontinued operations advisory holding total HK$’000 HK$’000 HK$’000 HK$’000 450 — 7 457 130 (3,998 ) (1,534 ) (5,402 ) 178 (5,224 ) — — (5,224 ) — 2,990 (2,234 ) — — — — — — — — — — — — — — — — — — — — — 3,431 1,251 4,682 — — 267 267 — 43 — 43	Total HK$’000 5,214 (1,212 ) (6,612 ) (7,824 ) (220 ) 240 (7,804 ) (33 ) 2,990 (4,847 ) 165,807 6,498 77,815 250,120 170 57,616 57,786 183 4,682 267 121
	Property management HK$’000 4,757 4,190 — 6,498 170 86 — — —	Property development HK$’000 — — 165,807 — — 97 — — —	Unallocated HK$’000 — — — 78		Online operations HK$’000 450 130 — — — — — — —	Trading and financial advisory HK$’000 — (3,998 ) — — — — 3,431 — 43

— I-21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. Other income

Write-back of trade and other payable Net exchange gains Others	Continuing operations 2006 2005 HK$’000 HK$’000 — 117 41 — 73 — 114 117	Discontinued operations (note 11(b)) 2006 2005 HK$’000 HK$’000 — 20 — — — 158 — 178	Total 2006 2005 HK$’000 HK$’000 — 137 41 — 73 158 114 295	Total 2006 2005 HK$’000 HK$’000 — 137 41 — 73 158 114 295
				295

7. Profit (loss) from operations

Profit (loss) from operations for the year has been arrived at after charging:

	Continuing	Continuing	Discontinued	Discontinued
	operations		operations			Total
			(note	11(b))
	2006	2005	2006	2005		2006	2005
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
Cost of services provided	1,841	—	—		280	1,841	280
Share-based payment
expenses_(note 31)_
— Staff and directors	1,386	—	—		—	1,386	—
— Non-employees	2,198	—	—		—	2,198	—
	3,584	—	—		—	3,584	—
Auditors’ remuneration
— Under-provision for
prior years	80	120	—		—	80	120
— Current year	643	452	—		—	643	452
	723	572	—		—	723	572
Depreciation of plant
and equipment	342	78	—		43	342	121
_Less:_depreciation
capitalised
as properties held
for development	(4)	—	—		—	(4)	—
	338	78	—		43	338	121
Minimum lease payments
under operating lease
in respect of land
and buildings	484	80	—		—	484	80
Impairment losses on
promissory note receivable
and account receivable	—	—	—	4,682		—	4,682
Fair value losses (including
loss on disposal) on
financial assets at
fair value through
profit or loss	—	—	—		267	—	267

— I-22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Staff costs

Staff costs (including directors’ remuneration) comprise: — Basic salaries and other benefits — Bonus — Pension scheme contributions — Share-based payment expenses_(note 31) _Less:_expenses capitalised as properties held for development Staff costs charged to consolidated income statement 9. Finance costs and income Continuing operations: Finance income: Bank interest income Finance costs: Interest on convertible note wholly repayable within five years(note 27) Imputed interest on loan from minority shareholder wholly repayable within five years(note 26)_ Interest on short-term loan from a director Interest on other borrowings	2006 HK$’000 7,939 941 104 1,386 10,370 (521) 9,849 2006 HK$’000 2,636 595 1,752 — — 2,347	2005 HK$’000 3,388 436 70 —
		3,894 —
		3,894

		2005 HK$’000 240

		187 — 13 20
		220

— I-23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Income tax expense

Continuing operations: Provision for current tax for the year: — Hong Kong profits tax — outside Hong Kong Deferred tax Total income tax expenses	2006 HK$’000 — 1,166 (104) 1,062	2005 HK$’000 62 4 (33) 33

No provision for Hong Kong profits tax has been made as the Group has no estimated assessable profits earned in Hong Kong for the year ended 31 December 2006.

Hong Kong profits tax for last year was calculated at 17.5% on the estimated assessable profits of last 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 profit (loss) per the consolidated income statement as follows:

Profit (loss) before income tax expense from: Continuing operations Discontinued operations Tax calculated at the domestic tax rate of 17.5% (2005: 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 Others Income tax expense	2006 HK$’000 3,926 — 3,926 687 (275) 2,243 (2,362) 1,331 (562) 1,062	2005 HK$’000 (2,580) (2,234) (4,814) (843) 2 1,111 (598) 371 (10) 33

— I-24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Discontinued operations

Last year, the Group disposed of or wound up certain of its subsidiaries which were engaged in businesses in online services, general trading and financial advisory services, and securities and property investment activities. The disposals and liquidations were 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 last year from the discontinued operations was analysed as follows:

Notes Loss of discontinued operations for the year Gain on disposal of subsidiaries 32(c) Loss for the year attributable to equity holders of the Company (b) An analysis of the results of the discontinued operations, which have been included in the consolidated income statement, is as follows: Turnover 4 Cost of services provided Gross profit Other income 6 Administrative expenses Other operating expenses Loss before income tax expense 7 Income tax expense 10 Loss for the year (c) No tax charge or credit arose from gain on disposal of subsidiaries (d) During the year, the cash flows from discontinued operations are as follows: Net cash from operating activities Net cash from investing activities Increase in cash and cash equivalents	2006 HK$’000 — — — — — — — — — — — — — — —	2005 HK$’000 (5,224) 2,990 (2,234) 457 (280) 177 178 (630) (4,949) (5,224) — (5,224) 3,614 2,349 5,963

12. Profit 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$8,226,000 (2005: HK$9,890,000).

— I-25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Dividends

The directors do not recommend payment of any dividend for the year ended 31 December 2006 (2005: Nil).

14. Earnings (loss) per share

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

Earnings (loss) — from continuing operations — from discontinued operations — from continuing and discontinued operations, earnings (loss) for the purposes of basic earnings (loss) per share and diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic earnings (loss) per share Effect of dilutive potential ordinary shares: — Bonus warrants Weighted average number of ordinary shares for the purpose of diluted earnings per share	2006 HK$’000 4,616 — 4,616 957,052,369 16,502,568 973,554,937	2005 HK$’000 (2,613) (2,234) (4,847) 113,604,879 N/A N/A

For the year ended 31 December 2006, 63,850,000 share options in issue were excluded from diluted weighted average shares outstanding as their effects were anti-dilutive.

The weighted average number of ordinary shares for the purpose of basic loss per share for 2005 has been adjusted for the impact on the right issue arising from the Company’s open offer in August 2006.

— I-26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. Directors’ emoluments

The aggregate amounts of the directors’ emoluments are as follows:

			Salaries		Compensation
			and other		for loss	Share-based		Retirement
			benefits		of office	payment		scheme
		Fees	(note (i))	Bonuses	(note (v))	expenses	contributions		Total
	Notes	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000
2006
Executive directors
Yu Pan		—	1,709	350	—	—		12	2,071
Lau Yat Tung, Derrick		—	576	82	—	168		12	838
Wen Xiao Bing	(ii)	—	210	179	—	281		—	670
Wong Lok		—	260	—	—	—		12	272
Zheng Jian Wei	(iii)	—	183	—	—	—		—	183
Mai Zhi Hui	(iv)	—	—	—	—	—		—	—
Independent non-executive directors
Choy Shu Kwan		100	—	—	—	34		—	134
Cheng Wing Keung, Raymond		100	—	—	—	34		—	134
Chung Lai Fong		100	—	—	—	34		—	134
Lo Chi Man, Joseph		—	—	—	20	—		—	20
		300	2,938	611	20	551		36	4,456
2005
Executive directors
Yu Pan		—	1,200	200	—	—		12	1,412
Mai Zhi Hui		—	100	19	—	—		—	119
Lau Yat Tung, Derrick		—	235	50	—	—		8	293
Wong Lok		—	82	27	—	—		4	113
Independent non-executive directors
Choy Shu Kwan		100	—	8	—	—		—	108
Cheng Wing Keung, Raymond		100	—	8	—	—		—	108
Chung Lai Fong		100	—	8	—	—		—	108
Wong Kwong Lung, Terence		—	—	—	50	—		—	50
		300	1,617	320	50	—		24	2,311

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

— I-27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) Salaries and other benefits included basic salaries, housing, other allowances and benefits in kind.
(ii) Appointed on 30 June 2006.
(iii) Appointed on 11 January 2006 and resigned on 30 June 2006.
(iv) Resigned on 1 January 2006.
(v) Save as to the payment to Mr. Lo Chi Man, Joseph and Mr. Wong Kwong Lung, Terence, former directors 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 three (2005: two) directors, details of whose emoluments are set out in note 15 above. Details of the emoluments of the remaining two (2005: three) individuals are as follows:

Basic salaries and other benefits Bonuses Share-based payment expenses Retirement scheme contributions	2006 HK$’000 1,625 210 337 24 2,196	2005 HK$’000 1,071 107 — 23
		1,201

The number of highest paid individuals in 2006 and 2005 whose emoluments fall within the band set out below is as follows:

	No of	employees
	2006	2005
Nil to HK$1,000,000	1	3
HK$1,000,001 to HK$2,000,000	1	—

— I-28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Plant and equipment

Computer equipment The Group and software HK$’000 Cost At 1 January 2005 21,203 Additions 121 Disposal of subsidiaries (21,203) At 1 January 2006 121 Foreign currency translation 2 Additions 139 Acquisition of subsidiary (note 32(b)) — At 31 December 2006 262 -------------- Accumulated depreciation At 1 January 2005 21,159 Eliminated on disposals of subsidiaries (21,178) Charge for the year 35 At 1 January 2006 16 Charge for the year 60 At 31 December 2006 76 -------------- Net book value At 31 December 2006 186 At 31 December 2005 105 18. Properties held for development Properties held for development in PRC are as follows: The Group Land use right, premium paid for the acquisition of the interest of the land, and demolition and settlement costs Construction costs Others	Furniture and fixtures HK$’000 254 62 (254) 62 1 62 76 201 -------------- 225 (249) 28 4 24 28 -------------- 173 58	Furniture and fixtures HK$’000 254 62 (254) 62 1 62 76 201 -------------- 225 (249) 28 4 24 28 -------------- 173 58	Motor vehicles HK$’000 280 — (280) — — 1,547 — 1,547 -------------- 140 (198) 58 — 258 258 -------------- 1,289 — 2006 HK$’000 688,504 5,967 4,474 698,945	Total HK$’000 21,737 183 (21,737) 183 3 1,748 76 2,010 -------------- 21,524 (21,625) 121 20 342 362 -------------- 1,648 163 2005 HK$’000 — — — —
	4 24
	28 -------------- 173

	58

— I-29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Land use right comprises cost of acquiring rights to use certain land, which are all located in the PRC, for property development over fixed periods between 40 to 70 years.

19. Goodwill

The Group As at 1 January Acquired through acquisition of subsidiary_(note 32(b)) Disposal of subsidiary(note 32(c))_ As at 31 December	2006 HK$’000 — 49,655 — 49,655	2005 HK$’000 8 — (8
		—

Impairment test for goodwill

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

20. Interest in associate

The Group Notes Share of net assets other than goodwill (c) Goodwill (e) Loan to associate (a)	2006 HK$’000 151,177 3,692 334 155,203	2005 HK$’000 79,223 3,692 82,892
		165,807

Notes:

(a) The loan to associate is unsecured, interest-free and has no fixed repayment terms. On 28 June 2006, HK$71,905,000 of the loan balance was capitalised as share capital of the associate.
(b) Details of the associate are as follows:

					Attributable
	Form of				equity interest
Name of	business	Place of	Place of	Particulars of issued	indirectly held by
associate	structure	incorporation	operation	and paid-up capital	the Company	Principal activity
Yaubond Limited	Incorporated	BVI	Hong Kong	18,813,500 ordinary shares	49%	Investment holding
				of US$1 each

— I-30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

	2006		2005
	HK$’000		HK$’000
Total assets	320,150		327,205
Total liabilities	(72,280)		(234,340)
Net assets	247,870		92,865
Fair value adjustment at acquisition	68,814		68,814
Carrying amount of net assets	316,684		161,679

The Group’s share of net assets of associate	155,175		79,223
Elimination for capitalisation of project
management fee paid to the Group	(3,998)		—
	151,177		79,223

		16 December
	For the	2005 (date of
	year ended	acquisition) to
	31 December	31 December
	2006		2005
	HK$’000		HK$’000
Revenue	—		—

Loss for the year/period	(228)		—

The Group’s share of loss of associate	(112)		—

(d) Pledge of assets

As at 31 December 2006 and 2005, the Group has pledged its shares in 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 which has been appointed, as the property project manager of the associate pursuant to a deed of appointment dated 16 December 2005 (the “Deed”). Subsequent to the balance sheet date, the Deed was mutually terminated and the assets pledged will be released.

(e) Impairment test for goodwill

— I-31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. Interests in subsidiaries

The Company Notes Unlisted investments, at cost (a) Amounts due from subsidiaries — non-current portion (b) Interests in subsidiaries Amounts due from subsidiaries — current portion (c)	2006 HK$’000 49,206 401,784 450,990 9,688 460,678	2005 HK$’000 — 172,667
		172,667 —
		172,667

Notes:

(a) Details of the Company’s principal subsidiaries as at 31 December 2006 are as follows:

		Particulars of
		issued ordinary	Percentage of
		share/	interest held by
	Place of	registered	the Company
Name of subsidiaries	incorporation	capital	Directly	Indirectly	Principal activities
Guangzhou Yu Jun	PRC	HK$5,000,000	—	100%	Provision of property
Consulting Service					development project
Company Limited					management services
(“Yu Jun”)					and acting as the
（廣州譽浚咨詢					project manager to
服務有限公司）					supervise the
					construction of
					properties in the PRC
Guangzhou Zhoutouzui	Hong Kong	HK$100	—	51%	Investment holding
Development Limited
(“GZ ZTZ”)
Loyal Way (China)	BVI	US$100	—	51%	Investment holding
Group Limited
(“Loyal Way”)
Nicco Limited	BVI	US$100	—	100%	Investment holding
Skyfame Management	Hong Kong	HK$1	100%	—	Provision of management
Services Limited					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
					supervise the
					construction of
					properties in the PRC

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.

— I-32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

(b) Amounts due from subsidiaries are unsecured, interest-free and will not be repayable within twelve months from the balance sheet date. The fair values of the amounts due from subsidiaries at initial recognition had been determined based on the present value of the estimated future cash flows discounted using the prevailing market rates.
(c) Amounts due from subsidiaries are unsecured, interest-free and repayable on demand.

22. Interest in a jointly controlled entity

The Group

GZ ZTZ has a 100% interest in the jointly controlled entity, 廣州市譽城房地產開發有限公司 (Guangzhou Yucheng Real Estate Development Limited (“Yucheng”)), which is accounted for in the accounts of the Group by proportionate consolidation. Details of the Group’s interest in the jointly controlled entity are as follows:

	Form of			Issued and	Attributable equity
Name of jointly	business	Place of	Place of	paid-in	interest indirectly
controlled entity	structure	incorporation	operation	capital	held by the Company	Principal activity
Yucheng	Incorporated	PRC	PRC	US$12,000,000	51%(Note)	Property
						development

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

Financial information of Yucheng is as follows:

Non-current assets Current assets Current liabilities Non-current liabilities Net assets	2006 HK$’000 555,700 281 (299,716 (52,826
	203,439

— I-33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13 October 2006 (date of acquisition) to 31 December 2006 HK$’000

Revenue — — Loss for the period

23. Trade and other receivables

The Group has a policy of allowing an average credit period of 60 days to its trade customers. The following includes an ageing analysis of trade receivables at the balance sheet date:

Aged 0-30 days Aged 31-90 days Aged over 90 days Total trade receivables Deposits, prepayments and other receivables	The Group 2006 2005 HK$’000 HK$’000 1,176 — 1,408 — 2,720 — 5,304 — 3,284 403 8,588 403	The Company 2006 2005 HK$’000 HK$’000 — — — — — — — — 1,073 206 1,073 206	The Company 2006 2005 HK$’000 HK$’000 — — — — — — — — 1,073 206 1,073 206
			— 206
			206

Total trade receivables include an amount due from associate of HK$4,080,000. 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.

24. Cash and cash equivalents

Short-term bank deposits Cash at bank and in hand	The Group 2006 2005 HK$’000 HK$’000 23,604 75,331 21,170 8,416 44,774 83,747	The Company 2006 2005 HK$’000 HK$’000 19,657 74,029 14,559 3,143 34,216 77,172	The Company 2006 2005 HK$’000 HK$’000 19,657 74,029 14,559 3,143 34,216 77,172
			77,172

— I-34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in cash and cash equivalents is the following significant amount denominated in currency other than the functional currency of the Group and the Company:

	The	Group	The	Company
	2006	2005	2006	2005
	’000	’000	’000	’000
RMB	RMB522	RMB1,434	—	—

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 3.1% to 4.5% per annum (2005: 2.6% to 3.8% per annum). These deposits have an average maturity of approximately 20 days.

25. Trade and other payables

The following includes an ageing analysis of trade payables at balance sheet date:

Aged 31-90 days Aged over 90 days Total trade payables Other payables and accruals Balance consideration payable for acquisition of a subsidiary (note 32(b)) Amounts due to subsidiaries Amounts due after one year Amounts due within one year	The Group 2006 2005 HK$’000 HK$’000 3 — 40 — 43 — 5,125 1,773 63,573 — — — 68,741 1,773 (63,573) — 5,168 1,773	The Company 2006 2005 HK$’000 HK$’000 — — — — — — 969 1,495 — — — 595 969 2,090 — — 969 2,090	The Company 2006 2005 HK$’000 HK$’000 — — — — — — 969 1,495 — — — 595 969 2,090 — — 969 2,090
			— 1,495 — 595
			2,090 —
			2,090

This represents balance consideration payable to the vendor for acquisition of a subsidiary. The amount is expected to be settled in the form of a two-year promissory note, to be issued upon obtaining of the land use rights certificate attributable to Zhoutouzui Project, bearing an interest rate at 8% per annum.

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.

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

— I-35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in trade and other payables is the following significant amount denominated in currency other than the functional currency of the Group and the Company:

	The	Group	The	Company
	2006	2005	2006	2005
	’000	’000	’000	’000
RMB	RMB3,850	RMB153	—	—

26. Loan from minority shareholder

The loan from minority shareholder is unsecured, interest-free and has no fixed repayment date but is expected to be repayable by 2008.

The fair value of the loan at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the prevailing market rate.

The movements of the loan from minority shareholder were as follows:

The Group Balance at 1 January 2005 and 31 December 2005 Acquired through acquisition of subsidiary_(note 32(b)) Contributions from minority shareholder Imputed interest expense(note 9)_ Carrying amount at 31 December 2006	HK$’000 — 268,609 (25,425 1,752
	244,936

Interest expense on loan from minority shareholder is calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amount.

The fair value of the loan as at 31 December 2006 approximates to its respective carrying amount.

— I-36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. Convertible note

On 16 December 2005, the Company issued a 3% convertible note with a face value of HK$60 million.

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 in 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.

On 20 February 2006, Grand Cosmos exercised the conversion right attached to the convertible note with a face value of HK$60 million to convert the note into 181,818,181 ordinary shares of HK$0.01 each in the Company at the conversion price of HK$0.33 per share. No convertible note was outstanding at 31 December 2006.

The movements of convertible note were as follows:

The Group and the Company Initial recognition at 16 December 2005 Accrued interest expense_(note 9) Carrying amount at 31 December 2005 and 1 January 2006 Conversion of the convertible note Accrued interest expense(note 9)_ Interest paid Carrying amount at 31 December 2006	Liability Equity component component of the of the convertible convertible note note(note 30) HK$’000 HK$’000 54,900 5,100 187 — 55,087 5,100 (55,352) (5,100) 595 — (330) — — —	Total HK$’000 60,000 187 60,187 (60,452) 595 (330) —

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 taxes.

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.

— I-37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Deferred tax liabilities

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

	Revaluation	Revaluation
		of prepaid
	Arising from	lease
The Group	convertible note	payments	Total
	HK$’000	HK$’000	HK$’000
At 1 January 2005	—	—	—
Charged to equity_(note 30)_	893	—	893
Credited to income statement_(note 10)_	(33)	—	(33)
At 31 December 2005 and 1 January 2006	860	—	860
Conversion of the convertible note	(756)	—	(756)
Credited to income statement_(note 10)_	(104)	—	(104)
Acquired through acquisition of subsidiary
(note 32(b))	—	99,140	99,140
Translation adjustment	—	982	982
At 31 December 2006	—	100,122	100,122

		Arising from
The Company		convertible note
			HK$’000
At 1 January 2005			—
Charged to equity_(note 30)_			893
Credited to income statement_(note 10)_			(33)
At 31 December 2005 and 1 January 2006			860
Conversion of the convertible note			(756)
Credited to income statement_(note 10)_			(104)
At 31 December 2006			—

At the balance sheet date, the Group and the Company have estimated unutilised tax losses of HK$32,903,000 (2005: HK$16,469,000) and HK$28,834,000 (2005: HK$16,148,000) respectively which are available to offset against future assessable 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 in Hong Kong.

— I-38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Share capital

The Group and the Company Notes Authorised: At beginning of year, ordinary shares of HK$0.01 each Capital re-organisation — 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 Issue of shares — share placing 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 Cancellation of paid-up ordinary share capital Issue of shares: — Conversion of convertible note (i) — Open offer (ii) — Exercise of bonus warrants (iii) — Acquisition of associate — Rights issue At end of year, ordinary shares of HK$0.01 each	2006 Nominal value Number of share of shares capital ‘000 HK$’000 30,000,000 300,000 — — — — 30,000,000 300,000 640,719 6,407 — — — — — — 181,818 1,818 267,324 2,674 10 — — — — — 1,089,871 10,899	2005 Nominal value Number of share of shares capital ‘000 HK$’000 30,000,000 300,000 (29,700,000) — 29,700,000 — 30,000,000 300,000 6,847,373 68,474 1,355,000 13,550 (8,120,350) (81,204) (16) — — — — — — — 66,667 667 492,045 4,920 640,719 6,407

— I-39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(i) On 16 February 2006, Grand Cosmos, a company wholly owned by the Group’s chairman, Mr. Yu Pan, acquired the convertible note with a face value of HK$60 million from the note holder and on 20 February 2006 exercised the conversion right in full to convert the note into 181,818,181 ordinary shares of HK$0.01 each in the Company at the conversion price of HK$0.33 per share.
(ii) On 3 August 2006, the Company completed an open offer of 267,324,486 ordinary shares of HK$0.01 each in the Company at HK$0.90 per share in the proportion of 13 offer shares for every 40 existing shares held with 10 bonus warrants for every 13 offer shares taken up (“Open Offer”) and has raised a net proceed of approximately HK$234.5 million, which was mainly used for the acquisition of 51% equity interest in a subsidiary.

In connection with the Open Offer, a bonus issue of 205,634,220 warrants were issued which are exercisable at an initial subscription price of HK$1.10 per share at any time during a two-year period ending 2 August 2008. The Company will receive net proceeds of approximately HK$225 million upon the warrants being exercised in full.

(iii) During the year ended 31 December 2006, some bonus warrant holders exercised their subscription rights to subscribe 9,901 ordinary shares of HK$0.01 each in the Company at the initial subscription price of HK$1.10 per share. No convertible note was outstanding at 31 December 2006.

All new shares issued as a result of conversion of convertible note, open offer and exercise of bonus warrants rank pari passu with the existing shares in the Company in all respects.

— I-40 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

30. Reserves

The Group Notes At 1 January 2005 Capital re-organisation: 29 — Capital reduction — Cancellation of share premium — Set-off against accumulated losses of the Company Cancellation of paid-up ordinary share capital 29 Issue of shares: — Share placing 29 — Acquisition of associate 29 — Rights issue 29 Recognition of equity component of convertible note 27 Tax on equity component of convertible note 28 Expenses incurred on issue of shares Exchange differences arising on consolidation of overseas entities Loss for the year At 31 December 2005 Conversion of convertible note 29(i) Issue of shares: — Open offer 29(ii) — Exercise of bonus warrants 29(iii) Recognition of equity-settled share-based payment expenses Expenses incurred on issue of shares Exchange differences arising on consolidation of overseas entities Profit for the year At 31 December 2006	Share premium HK$’000 532,609 — (542,404 ) — — 8,130 19,333 142,693 — — (4,354 ) — — 156,007 58,496 237,919 11 — (5,531 ) — — 446,902	Contributed surplus reserve HK$’000 — 81,204 542,404 (608,111 ) — — — — — — — — — 15,497 — — — — — — — 15,497	Share-based payment reserve HK$’000 — — — — — — — — — — — — — — — — — 3,584 — — — 3,584	Convertible note equity reserve HK$’000 — — — — — — — — 5,100 (893 ) — — — 4,207 (4,207 ) — — — — — — —	Foreign exchange reserve HK$’000 — — — — — — — — — — — 1 — 1 — — — — — 7,588 — 7,589	Retained profits HK$’000 (593,049 ) — — 608,111 — — — — — — — — (4,847 ) 10,215 — — — — — — 4,616 14,831	Total HK$’000 (60,440 ) 81,204 — — — 8,130 19,333 142,693 5,100 (893 ) (4,354 ) 1 (4,847 ) 185,927 54,289 237,919 11 3,584 (5,531 ) 7,588 4,616 488,403

— I-41 —

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Company Notes At 1 January 2005 Capital re-organisation: 29 — Capital reduction — Cancellation of share premium — Set-off against accumulated losses of the Company Cancellation of paid-up ordinary share capital 29 Issue of shares: — Share placing 29 — Acquisition of associate 29 — Rights issue 29 Recognition of equity component of convertible note 27 Tax on equity component of convertible note 28 Expenses incurred on issue of shares Profit for the year At 31 December 2005 Conversion of convertible note 29(i) Issue of shares: — Open offer 29(ii) — Exercise of bonus warrants 29(iii) Recognition of equity-settled share-based payment expenses Expenses incurred on issue of shares Profit for the year At 31 December 2006	Contributed Share-based Convertible Share surplus payment note equity premium reserve reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 532,609 — — — — 81,204 — — (542,404) 542,404 — — — (608,111) — — — — — — 8,130 — — — 19,333 — — — 142,693 — — — — — — 5,100 — — — (893) (4,354) — — — — — — — 156,007 15,497 — 4,207 58,496 — — (4,207) 237,919 — — — 11 — — — — — 3,584 — (5,531) — — — — — — — 446,902 15,497 3,584 —	Retained profits HK$’000 (608,111) — — 608,111 — — — — — — — 9,890 9,890 — — — — — 8,226 18,116	Total HK$’000 (75,502 ) 81,204 — — — 8,130 19,333 142,693 5,100 (893 ) (4,354 ) 9,890 185,601 54,289 237,919 11 3,584 (5,531 ) 8,226 484,099

(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.

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.

— I-42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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(k)(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(j).

(v) Share-based payment reserve

The capital reserve comprises the fair value of the actual or estimated number of unexercised share options granted to employees and non-employees of the Group recognised in accordance with the accounting policy adopted for share based payments in note 2(m).

(b) Distributable reserves

At 31 December 2006, the distributable reserves available for distribution to equity holders of the Company were HK$33,613,000 (2005: HK$25,387,000).

31. Equity-settled share-based transactions

Pursuant to a resolution passed on 4 August 2005, new share option scheme was adopted (the “2005 Scheme”). 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 2006 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 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”.

— I-43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 in 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.

The options are exercisable six months (or a later date as determined by the directors of the Company) after the date on which the options are granted for a period up to ten years or 31 July 2015, whichever is earlier. Each option gives the holder the right to subscribe for one ordinary share in the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table discloses details of the Company’s options under the 2005 Scheme held by employees (including directors) and non-employees, and movement in such holdings during the year:

(a) The terms and conditions of the grants that existed during the year are as follows whereby all options are settled by physical delivery of shares:

Date of Exercise Vesting Exercise grant period conditions price 12.9.2006 13 March 2007 Six months HK$1.31 to 31 July 2015 from the date of grant 12.9.2006 13 March 2008 One and half HK$1.31 to 31 July 2015 years from the date of grant 12.9.2006 13 March 2009 Two and half HK$1.31 to 31 July 2015 years from the date of grant Note of category of directors: Mr. Wen Xiao Bing Mr. Lau Yat Tung, Derrick Mr. Choy Shu Kwan Mr. Cheng Wing Keung, Raymond Ms. Chung Lai Fong	Directors (Note) Number of options granted 3,266,000 3,266,000 3,268,000 9,800,000 5,000,000 3,000,000 600,000 600,000 600,000 9,800,000	Category	Non- employees Number of options granted 13,044,000 13,044,000 13,062,000 39,150,000	2006 Total Category Number of options granted 21,268,000 21,268,000 21,314,000 63,850,000	2005 Number of options granted — — —
		Employees Number of options granted 4,958,000 4,958,000 4,984,000 14,900,000
					—

No option has been exercised, cancelled or lapsed under the 2005 Scheme during the year ended 31 December 2006 (2005: Nil).

— I-45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Fair value of share options and assumption

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted as the fair value of the services received could not be estimated reliably. The estimate of the fair value of the share options granted is measured based on Black-Scholes Option Pricing Model (“BSOP Model”). The contractual life of the share option is used as an input into this model.

Fair value of share options and assumptions

Fair value at measurement date (weighted average) HK$0.28 Closing share price at date of grant HK$1.30 Exercise price HK$1.31 Expected volatility (expressed as weighted average volatility used in the modelling under BSOP Model) 35.06% Option life (expressed as weighted average life used in the modelling under BSOP Model) 1.92 years Expected dividend yield Nil Risk-free interest rate (based on Exchange Fund Notes) 3.66% to 3.92%

The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility based on public available information. Expected dividends are based on historical dividends. Changes in the subjective input assumptions could materially affect the fair value estimate.

There were service conditions associated with the share options granted.

(c) The Group recognised HK$3,584,000 as share-based payment expenses (note 7) for the year ended 31 December 2006 (2005: Nil) in relation to share options granted by the Company.

— I-46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. Notes to the consolidated cash flow statement

(a) Reconciliation of profit (loss) before income tax expense to net cash (used in) generated from operating activities

Profit (loss) before income tax expense Adjustment for: Finance costs Finance income Equity-settled share-based payment expenses Depreciation of plant and equipment Share of loss of associate Impairment losses on promissory note receivable and account receivable Fair value losses (including loss on disposal) on financial assets at fair value through profit and loss Gain on disposal of subsidiaries_(note c)_ Write-back of trade and other payables Operating profit (loss) before working capital change (Increase) decrease in trade and other receivables Decrease in trade and other payables Cash (used in) generated from operations Income tax paid Net cash (used in) generated from operating activities	2006 HK$’000 3,926 2,347 (2,636) 3,584 338 112 — — — — 7,671 (8,032) (818) (1,179) (865) (2,044)	2005 HK$’000 (4,814) 220 (240) — 121 — 4,682 267 (2,990) (137) (2,891) 5,600 (439) 2,270 — 2,270

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Acquisition of subsidiary

On 13 October 2006, the Group completed a transaction to acquire from the vendor, Mr. Luo Dong Liang, 51 shares of US$1 each in the issued share capital of Loyal Way representing 51% of the issued share capital of Loyal Way, and assigned the total loan of HK$282,568,000 extended by the then shareholder at an aggregate consideration of approximately HK$351,807,000.

Notes Net assets acquired: Plant and equipment 17 Properties held for development Trade and other receivable Cash and cash equivalents Trade and other payables Deferred tax liabilities 28 Amount due to the then shareholder Loan from minority shareholder 26 Net (liabilities) assets Minority interests 51% share of net equity acquired Goodwill arising on acquisition 19 Satisfied by: Cash consideration paid Consideration payable 25 Total consideration Shareholder’s loan acquired Net outflow arising from the acquisition of subsidiary: Cash consideration paid Direct costs relating to the acquisition Cash and cash equivalents acquired	Acquiree’s carrying amount before acquisition HK$’000 76 548,279 146 2,467 (4,168) (52,308) (282,568) (268,609) (56,685)	Fair value adjustment HK$’000 — 141,917 — — — (46,832) — — 95,085	2006 Fair value HK$’000 76 690,196 146 2,467 (4,168) (99,140) (282,568) (268,609) 38,400 (18,816) 19,584 49,655 69,239 288,234 63,573 351,807 (282,568) 69,239 286,995 1,239 288,234 (2,467) 285,767	2005 Fair value HK$’000 — — — — — — — —
				— —
				— —
				—

				— —
				— —
				—

				— —
				— —
				—

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Disposal of subsidiaries

Notes Net assets disposal of: Plant and equipment Investment property Other investments Accounts receivable Promissory notes receivable Trade and other receivables Cash and cash equivalents Trade and other payables Income tax payable Net liabilities Gain on disposal of subsidiaries 11(a) Goodwill written off 19 Satisfied by: Cash Net inflow arising from the disposal of subsidiaries: Cash received Bank balances and cash disposed of	2006 HK$’000 — — — — — — — — — — — — — — — — —	2005 HK$’000 112 300 119 469 171 308 43 (818) (1,359) (655) 2,990 8 2,343 2,343 2,343 (43) 2,300

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Acquisition of associate

Net assets acquired: Cash and cash equivalents Properties held for development Other receivables Other payables Shareholders’ loans Deferred tax liabilities Net assets 49% share of net assets acquired Goodwill arising on acquisitions_(note 20)_ Total consideration paid for equity interest Satisfied by: Cash consideration paid Direct costs relation to the acquisition Fair value of shares issued Issue of convertible note Total consideration Shareholder’s loan acquired Net outflow arising from the acquisition of associate: Cash consideration paid Direct costs relating to the acquisition	2006 HK$’000 — — — — — — — — — — — — — — — — — — — —	2005 HK$’000 483 400,961 28,468 (145) (169,168) (98,920) 161,679 79,223 3,692 82,915 84,819 988 20,000 60,000 165,807 (82,892) 82,915 84,819 988 85,807

(e) Major non-cash transactions

During the year, Grand Cosmos exercised the conversion right attached to the convertible note with a face value of HK$60 million to convert the note into 181,818,181 ordinary shares of HK$0.01 each in the Company at the conversion price of HK$0.33 per share, which is set out in note 27 to the financial statements.

During the year, HK$71,905,000 of the loan advance to an associate was capitalised as share capital of the associate, which is set out in note 20(a) to the financial statements.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. 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 government 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.

34. Operating lease commitments

At the balance sheet dates, the Group has commitments for future minimum lease payments under non-cancellable operating lease in respect of land and buildings which fall due as follows:

The Group Within one year 35. Capital Commitments The Group Capital expenditure contracted but not provided for in the financial statements in respect of additions to property construction and development costs	2006 HK$’000 286 2006 HK$’000 833,365	2005 HK$’000 40

		2005 HK$’000 —

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. Related party transactions

In addition to the transactions and balances disclosed elsewhere in these financial statements, the Group entered into the following material related party transactions:

(a) During the year, the Group entered into the following material transactions with related parties:

Related party
relationship	Type of transaction		Transaction	amount
			2006	2005
		Notes	HK$’000	HK$’000
Mr. Yu Pan, a director	Interest on short-term loan	9	—	13
of the Company	from a director
Grand Cosmos, the ultimate	Underwriting commission		—	1,269
holding company	in respect of 2005 rights issue
of the Company
Companies beneficially	(a) Rental expenses for office		484	79
owned by Mr. Yu Pan	premises paid to a related
	company
	(b) Building management and		484	109
	air-conditioning fees paid to
	a related company
	(c) Free rental of principal place		Free	Free
	in Hong Kong provided to the
	Group by a related company
Employees and consultants	Granted 39,150,000 share options	(i)	2,198	—
of companies beneficially	pursuant to the 2005 Scheme
owned by Mr. Yu Pan	to a number of non-employees
Ms. So Siu Ngan, the spouse	Disposal of the entire interest in		—	200
of a former director,	a subsidiary
Mr. Mak Chi Yeung
Yaubond Limited and its	Services income for project	(ii)	4,162	—
subsidiary, which is an	development project
associate of the Group	management
Minority shareholder of	Imputed interest on loan from	9	1,752	—
Loyal Way and its	minority shareholder
subsidiaries

Notes:

(i) Pursuant to a deed of appointment entered into by the Company and its subsidiary, United Prime Limited, with an associate of the Company, Yaubond Limited, the performance of United Prime Limited which is appointed as the project manager of a property development project of Yaubond Limited, was guaranteed by the Company which was counter-indemnified by Mr. Yu Pan.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) The Company had granted 39,150,000 share options pursuant to the 2005 Scheme to a number of non-employees who are employees and consultants employed or engaged by companies beneficially owned by Mr. Yu Pan. Such personnel have rendered services to the Group during the year with no other service fee charged against the Group except for the grant of share options. The Group recognized expenses amounting to HK$2,198,000 for the year ended 31 December 2006 in relation to the grant.

Details of the transactions were set out in the section headed “Connected transactions” in the Directors’ Report.

The Group has not made any provision for bad or doubtful debts in respect of related party debtors nor has any guarantee been given or received during 2006 or 2005 regarding related party transactions.

(b) Compensation of key management personnel

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

Short-term benefits Other long-term benefits Share-based payments	2006 HK$’000 5,384 60 786 6,230	2005 HK$’000 3,091 47 —
		3,138

Total remuneration is included in staff costs in note 8 to the financial statements.

37. Post balance sheet events

(a) On 2 March 2007, the Company entered into a note purchase agreement with six institutional investors in relation to the issue and subscription of notes in the principal amount of US$200 million (the “Notes”). The Notes are due 2013, unlisted, convertible into ordinary shares in the Company and are secured with charges of shares in certain subsidiaries and an associate held by the Group and the entire shareholding in the Company indirectly held by Mr. Yu Pan, the director and controlling shareholder of the Company. The security of the Notes will be further increased to cover the Group’s equity interests in certain companies which the Company is contemplating to acquire.

The Notes bear a coupon rate of 4% per annum, payable semi-annually in arrear. A noteholder will have the right to convert the Notes into conversion shares at an initial conversion price of HK$1.35 per share of the Company (subject to a downward price reset adjustment mechanism to the extent of HK$1.00 per share). Unless previously redeemed, converted or purchased and cancelled, the Company will redeem each Note at 201.33% of its principal amount on the maturity date which is expected to be on around 10 May 2013.

The issue of the Notes is subject to fulfillment of certain conditions, inter alia, the approval of the independent shareholders at the special general meeting which is to be held on 26 April 2007. The net proceeds after deducting the relevant expenses from the issue of the Notes will amount to approximately US$192.5 million (or approximately HK$1,503.8 million).

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) On 2 March 2007, the Group entered into two separate agreements with (a) Poly (Hong Kong) Investments Limited which is a substantial shareholder of a subsidiary of the Company, and an independent third party, and (b) Wise Gain Investment Limited, a company whollyowned by Mr. Yu Pan. Both agreements are for the acquisition of the entire equity interest in and shareholders’ loans of Yue Tian Development Limited and its wholly-owned subsidiary in the PRC (the “Yue Tian Group”). The total consideration of the two agreements is amounted to approximately HK$886,553,000. The only activity currently conducted by the Yue Tian Group is the development of a property, comprising a hotel and office tower which situates at the Tianhe District, Guangzhou (the “Westin Project”). The completion of the acquisitions is subject to the fulfillment of certain conditions, inter alia, the approval of the independent shareholders at the special general meeting which is to be held on 26 April 2007.
(c) Pursuant to the new PRC Corporate Income Tax Law passed by the Tenth National People’s Congress on 16 March 2007, the new Corporate Income Tax rates for almost all enterprises established in the PRC shall be subject to a unified rate of 25% and will be effective from 1 January 2008. The impact of such change of Corporate Income Tax rate on the Group’s financial statements will depend on detailed pronouncements that are to be issued. The Group will evaluate the impact of the new PRC Corporate Income Tax Law upon issuance of detailed pronouncements.

38. Financial instruments — risk management

The Group’s principal financial assets are cash and bank balances, short-term bank deposits and trade, other receivables and deposits. Principal financial liabilities of the Group include trade and other payables loan from minority shareholder and deferred tax liabilities. 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 and warrants which are listed on the Stock Exchange. 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 fixed interest — bearing payable to a vendor of property interest for outstanding cost of acquisition. 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 payable have been disclosed in note 25 to these financial statements.

(b) Foreign currency risk

The Group’s principal activities are property development conducted in the PRC, which is engaged in property development activities. The Group also has 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 exposed to credit risk are receivable and deposits, cash and cash equivalents that consist of short-term bank deposits. Cash and deposits are placed with licensed banks having high credit ratings and in short terms whist receivable and deposits are closely monitored internally by the management. The management foresees minimal credit risks.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

(d) Liquidity risk

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

(e) Fair value

All significant financial instruments are carried at amounts not materially different from their fair values as at 31 December 2006.

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. Approval of financial statements

The financial statements were approved and authorised for issue by the Board of Directors on 18 April 2007.

— I-55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP FOR EACH OF THE THREE FINANCIAL YEARS ENDED 31 DECEMBER 2006

For the financial year ended 31 December 2004

During the financial year ended 31 December 2004, the Group recorded an audited consolidated net loss attributable to shareholders of approximately HK$47.5 million and net asset of approximately HK$8.0 million (at restated value). The loss mainly comprised of loss on disposal of trading securities of approximately HK$13.7 million, loss on and provision for investment in securities of approximately HK$16.0 million, write-off of bad debts and provision for doubtful debts of approximately HK$12.2 million and amortization and impairment of goodwill of approximately HK$5.6 million. The Group reviewed its existing investment portfolio and disposed of those with low earning potential. In 2004, the Group’s revenue was mainly generated from the general trading and provision of agency services. Due to the very keen competition and the drastic changes in the information technology industries, the project in the on-line game was also closed down.

Liquidity and financial resources

Capital structure and liquidity

As at 31 December 2004, at restated values where applicable, the Group had shareholders fund of approximately HK$8.0 million comprising issued capital of approximately HK$68.5 million and deficit of approximately HK$60.4 million. The current assets and current liabilities of the Group were approximately HK$7.1 million and approximately HK$5.8 million respectively such that the current ratio was approximately 1.2:1. The Group’s gearing ratio, being total liabilities over total assets, was 41.9%.

Borrowings and pledge of assets

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

Foreign currency management

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

Contingent liabilities

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

— I-56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Employees

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

For the financial year ended 31 December 2005

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

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

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

Liquidity and financial resources

Capital structure and liquidity

As a result of the placing and rights issue of shares for cash during the year which has brought about a net proceed of approximately HK$165 million, the Group’s liquidity position was strengthened with a bank balance of approximately HK$83.7 million at the balance sheet date. The current assets and current liabilities of the Group were

— I-57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

approximately HK$84.2 million and approximately HK$1.8 million respectively such that the current ratio was improved from 1.2:1 as at the end of 2004 to 45.8:1. This was accompanied with a decrease in the Group’s gearing ratio (the ratio of total liabilities over total assets) from 41.9% to 23.1%. The Group’s liabilities mainly consist of a convertible note in a principal amount of HK$60 million that was fully converted into shares on 20 February 2006. The conversion leads the Group virtually with a minimal liability position.

Borrowings and pledge of assets

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

Foreign currency management

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

Contingent liabilities

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

Employees

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

— I-58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the financial year ended 31 December 2006

During the year, the Group has recorded after-tax profit for the year of HK$2.9 million and profit attributable to shareholders of HK$4.6 million. Comparing with the loss for 2005 of HK$4.8 million, the improvement was explained by the Group’s change of business focus to property development project management that drove both the turnover and bottom line for the year. Such new business brought in revenue of HK$23.4 million to the Group for the year. To cope with the expansion in business activities, the Group also commanded increased resources in human and the others, administrative expenses were almost tripled of that of last year as a result. Nonetheless, the Group successfully turns around from loss into a profit position that paves the way for bigger earning potential in the coming years.

The Board has a clear strategy in property development business in view of its recent acquisition plans. The Company has recently announced that it is contemplating several acquisition plans, which comprises a five-star hotel, namely The Westin, Guangzhou, and the annexed grade-A office tower in the Tianhe District of Guangzhou, a commercial complex at a residential building which is adjacent to The Westin, Guangzhou, and the remaining 49% interest in Zhoutouzui Project in which the Group is currently holding 51%. All these acquisitions will enable the Group to progress itself as a property developer in Guangzhou in premier grade property market.

Liquidity and Financial Resources

Capital structure and liquidity

To fund the acquisition of the 51% equity interest in Zhoutouzui Project, the Company has raised in August 2006 net proceeds of HK$234.5 million in cash by way of an open offer of 267,324,486 shares at a price of HK$0.90 per offer share to the Company’s shareholders. The offer also entitled the shareholders taking up the offer shares 10 warrants for every 13 offer shares taken up. Holder of one warrant, expiring in August 2008, is entitled to subscribe for one share in the Company at an exercise price of HK$1.10. Assuming full exercise of the outstanding warrants, there will be further proceeds from new equity issue of HK$225 million brought into the Company. The new issue of shares and warrants has strengthened, both existing and potential, the equity base of the Company.

The acquisition of Zhoutouzui Project has taken up cash resources of the Group which, on the other hand, is presented on the Group’s balance sheet under non-current assets as properties held under development. The consequential effect of this investing activity is a decrease in current assets. The current assets, consisting mainly of cash and receivables, amounted to HK$53.3 million as compared with the current liabilities, consisting of tax payable and expenses accruals, of HK$5.5 million, such that the current ratio decreased from 45.8:1 as at 31 December 2005 to 9.6:1 as at 31 December 2006.

— I-59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group had non-current liabilities totaling HK$408.6 million which consisted mainly of the loan from minority shareholder of the Zhoutouzui Project of HK$244.9 million, balance consideration of HK$63.6 million due to the vendor of the 51% equity interest in Zhoutouzui Project, and deferred tax liabilities of HK$100.1 million resulting from the recognition of surplus on the fair valuation of the prepaid lease payments of an acquired subsidiary. The major assets of the Group are properties held under development in Zhoutouzui Project acquired during the year and investment in the 49% equity stake in Tianhe North Project. The acquisition of Zhoutouzui Project constituted goodwill of HK$49.7 million. All these non-current assets summed up to a total value of HK$905.5 million on the balance sheet date. The gearing ratios at the balance sheet dates of 2006 and 2005, based on total asset to total liabilities, are respectively 232% compared with 433%. The improvement is contributed by the increase in equity of the Company led by the open offer of shares in the year.

Borrowings and pledge of assets

As at 31 December 2006, the Group had pledged its 49% shares in Yaubond, an associated company of the Group engaged in the property development business in Guangzhou, to secure for the warranties given by the Group for appointing a subsidiary of the Group as the property project manager by Yaubond. The Group had no bank borrowing as at 31 December 2006.

Foreign currency management

The Group’s property development activities are conducted in the PRC. The Group also has contracts with suppliers for goods and services that are denominated in Renminbi (the “RMB”). The Group does not hedge its foreign currency risks as the rate of exchange between Hong Kong dollar and RMB 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.

Contingent liabilities

The Group had no contingent liabilities as at 31 December 2006.

Material acquisition during the year

On 11 July 2006, the Company announced that Smartford Limited, an indirect whollyowned subsidiary of the Company, entered into an acquisition agreement with Mr. Luo Dong Liang, an independent third party, pursuant to which Smartford conditionally agreed to purchase, and Mr. Luo conditionally agreed to sell, the 51% shareholding in and shareholders’ loan due by Loyal Way (China) Group Limited. Except for the condition that the land use right certificate over the use of the land is not yet issued

— I-60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

which the directors expect to materialise later this year, all other conditions set out in the agreement have been fulfilled and the acquisition was completed in October 2006. The balance consideration of HK$63.6 million is payable in cash with a maturity of two years, commencing from the date of obtaining the land use right certificate, and is charged at an annual interest of 8% per annum.

Employees

The Group continues to recruit and take in staff with capable caliber to work in pace with the growth of the Group. As at 31 December 2006, other than the executive directors of the Company, the Group employed a total of 59 employees in Hong Kong and the PRC. The Group’s staff costs amounted to approximately HK$10.4 million for the year of which HK$0.5 million were capitalised as properties held for development. Employees are remunerated according to qualifications and experience, job nature and performance. Remuneration packages are aligned with the job markets in the territories.

Segmental information of the Group

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

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

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

In the year 2004, the Group started the provision of financial service, being agency services performed in the solicitation of a client’s sales of securities to an interested investor, and general trading of unalloyed aluminium. Both of these businesses became additional income streams of the Group, but were operating at a loss. At the same time, the Group also held substantial investment in listed and unlisted securities, which the investment holding business continued to suffer from impairment loss on investments and trading loss in investment securities. All these businesses were terminated in 2005.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

4. MATERIAL ADVERSE CHANGE

Save for the increase in loss of the Group as a result of the acquisition of the Westin Project and the issue of the Notes as illustrated in the proforma financial information set out in the paragraph headed “6. Unaudited pro forma financial information of the Group as enlarged by the acquisitions of the interest in the Red Empire Group (including the Yue Tian Group) and Allright” in Appendix III to this circular, the Directors confirm that there are no material adverse changes in the financial or trading position of the Group since 31 December 2006, the date to which the latest audited consolidated financial statements of the Group were made up.

5. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Apart from being a project manager in construction contracts for contractors in some projects in the PRC, the Group, leveraging on the management’s expertise in the industry, has also commenced its activities in the property development in Guangzhou, the PRC since 2006 and is able to participate in other development projects, acting both as a project developer and manager.

As at the Latest Practicable Date, the Group has been participating in three property development projects, namely the Tianhe Project in which the Group has a 49% interest, the Westin Project in which the Group has entire interest, and the Zhoutouzui Project in which the Group has entire interest. Based on the current plan, the Tianhe Project will comprise a hotel, serviced apartments, parking spaces and related construction is scheduled for completion in about 2010, taking into account of the latest development of the project; the Westin Project will principally comprise a 40-storey hotel tower and a 36-storey office complex (including shopping arcades) which is due to be completed and will become fully operational in the second half of 2007 which will generate stable income from hotel and office rental to the Group; and the Zhoutouzui Project will principally comprise luxury high rise condominium towers, residential apartments, serviced-residential apartments, a hotel, community center and other ancillary facilities

— I-62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

and the project is expected to be completed and ready for occupation in 2010, taking into account of the latest development of the project. With the prospect of these projects, the Directors are confident that the Group’s property development projects would bring in attractive return from both rental and sale of the properties and broaden the income stream of the Group. Besides, as set out in the Company’s circular dated 4 April 2007, the Group is considering to acquire the GZ Port’s entitlement of the Zhoutouzui Project as and when appropriate.

On 21 June 2007, a subsidiary of the Group entered into an agreement to acquire the remaining 51% interest in the project company holding the Tianhe Project at a consideration of approximately HK$203 million. Upon completion of the transaction which is contemplated to take place on around 15 July 2007, the Group will consolidate the entire interest in the project.

Besides, the management will continue to select unique investment opportunities in property interests, mainly in the Guangzhou city, that are of growth potential in capital value and rental yield. 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.

— I-63 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

1. ACCOUNTANTS’ REPORT OF THE LONG WORLD GROUP

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

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30 June 2007

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

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Long World Trading Limited (“Long World”) and its subsidiaries (hereinafter collectively referred to as the “Long World Group”) for each of the three years ended 31 December 2004, 2005 and 2006 (the “Relevant Periods”) for inclusion in the circular of Skyfame Realty (Holdings) Limited (the “Company”) dated 30 June 2007 (the “Circular”) issued in connection with, inter alia, the proposed acquisition of 100% shareholding in Long World.

Long World was incorporated in the British Virgin Islands (the “BVI”) with limited liability on 13 April 2006 under the International Business Companies Act of the BVI. Pursuant to a group reorganisation as detailed in note 1 of section B below (the “Reorganisation”), which was completed on 21 June 2006, Long World became the holding company of the companies now comprising the Long World Group.

As at the date of this report, Long World has direct and indirect interests in the following subsidiaries.

— II-1 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

	Place and date of
	incorporation/	Authorised/
	establishment	registered	Attributable equity
Name of	and kind	and issued	interest held by		Principal
subsidiaries	of legal entity	paid-up capital	Long World		activity
			Direct	Indirect
Trenco Holdings	Hong Kong,	Authorised and issued	100%	—	Investment
Limited	28 November	paid-up capital of			holding
(“Trenco”)	1997,	Hong Kong dollars
	incorporated	(“HK$”) 10,000 of
		10,000 ordinary
		shares of HK$1 each
廣州市創譽房地產	The People’s	Registered and paid-up	—	100%	Property
開發有限公司	Republic of	capital of United			development
(Guangzhou	China (the	States dollars (“US$”)			and
Chuangyu Real Estate	“PRC”),	6,000,000			investment
Development	3 November
Company Limited)	1998, wholly
(“Chuangyu”)	foreign-owned
	enterprise

No audited financial statements have been prepared for Long World since its date of incorporation as there are no statutory requirements for it to prepare audited financial statements. Long World has not been involved in any significant business transactions since incorporation other than the Reorganisation. We have examined all transactions of Long World from its date of incorporation to 31 December 2006 and carried out such procedures as we considered necessary for the purpose of this report.

We acted as auditors of Trenco for each of the two years ended 31 December 2004 and 2005, for which audited financial statements were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). No audited financial statements of Trenco have been prepared in respect of any period subsequent to 31 December 2005.

The statutory financial statements of Chuangyu for each of the three years ended 31 December 2004, 2005 and 2006, which were prepared in accordance with the relevant PRC accounting rules and regulations, were audited by 廣州沛豐會計師事務所有限公司 (Guangzhou Pei Feng Certified Public Accountants Co., Ltd), certified public accountants registered in the PRC.

— II-2 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

For the purpose of this report, the directors of Long World have prepared the consolidated financial statements of the Long World Group for the Relevant Periods and the financial statements of Long World from its date of incorporation to 31 December 2006, where this is a shorter period, in accordance with HKFRSs (the “HKFRS Financial Statements”). We have undertaken an independent audit of the HKFRS Financial Statements in accordance with Hong Kong Standards on Auditing issued by the HKICPA and have carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and Reporting Accountant” issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Periods set out in Sections A to C below have been prepared based on the HKFRS Financial Statements, after making such adjustments as are appropriate, on the basis as set out in note 2(b) of Section B below.

The preparation of the HKFRS Financial Statements is the responsibility of the directors of Long World, who approve their issue. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereto gives, for the purpose of this report, a true and fair view of the state of affairs of the Long World Group as at 31 December 2004, 2005 and 2006, and of the consolidated results and cash flows of the Long World Group for each of the Relevant Periods.

— II-3 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

A. FINANCIAL INFORMATION

1. Consolidated income statements of the Long World Group

Notes Turnover 4 Cost of sales Gross profit Other revenue 5 Selling and marketing costs General and administrative expenses Increase in fair value of investment properties 15 Profit from operations 6 Finance costs 7 Profit before income tax expense Income tax expense 11 Profit for the year attributable to equity holder of Long World	Year 2004 HK$’000 37,126 (25,254) 11,872 2,736 (490) (3,499) 27,066 37,685 (7,778) 29,907 (10,037) 19,870	ended 31 December 2005 2006 HK$’000 HK$’000 16,521 27,356 (6,130) (18,191) 10,391 9,165 6,251 1,690 (48) (128) (5,270) (26,457) 36,615 95,634 47,939 79,904 (6,956) (5,867) 40,983 74,037 (13,133) (32,032) 27,850 42,005

— II-4 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

2. Consolidated balance sheets of the Long World Group

Notes
Non-current assets
Office equipment
14
Investment properties
15
Prepaid lease payments
— non-current portion
16
Loan receivable
— non-current portion
17
Current assets
Properties held for sale
18
Prepaid lease payments
— current portion
16
Trade and other receivables
17
Financial asset at fair value
through profit or loss
19
Cash and cash equivalents
20
Current liabilities
Bank borrowings
— current portion
21
Trade and other payables
22
Income tax payable
Net current liabilities
Total assets less current
liabilities

As at 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
152
99
75
325,783
368,663
475,248
3,682
2,870
165
14,707
14,990
7,963
344,324
386,622
483,451
------------
------------
------------
14,533
11,530
676
58
46
3
83,809
103,664
11,457
—
—
630
27,645
8,363
3,219
126,045
123,603
15,985
------------
------------
------------
23,676
62,105
17,991
125,703
132,047
36,144
1,712
2,212
1,669
151,091
196,364
55,804
------------
------------
------------
(25,046)
(72,761)
(39,819)
319,278
313,861
443,632
------------
------------
------------

— II-5 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Notes Non-current liabilities Bank borrowings — non-current portion 21 Deferred tax liabilities 23 NET ASSETS Capital and reserves Share capital 24 Reserves 25 TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDER OF LONG WORLD	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 86,707 35,885 82,327 68,317 81,713 115,700 155,024 117,598 198,027 ------------ ------------ ------------ 164,254 196,263 245,605 10 10 — 164,244 196,253 245,605 164,254 196,263 245,605	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 86,707 35,885 82,327 68,317 81,713 115,700 155,024 117,598 198,027 ------------ ------------ ------------ 164,254 196,263 245,605 10 10 — 164,244 196,253 245,605 164,254 196,263 245,605
		198,027 ------------
		245,605

		— 245,605
		245,605

— II-6 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

3. Consolidated statements of changes in equity of the Long World Group

Notes At 1 January 2004 Profit for the year 25 Transfer to statutory reserves 25 At 31 December 2004 Exchange differences on translation of financial statements of foreign subsidiary 25 Profit for the year 25 Transfer to statutory reserves 25 At 31 December 2005 Issue of share by Long World upon incorporation 24 Elimination of share capital of Trenco upon its acquisition by Long World 24 Exchange differences on translation of financial statements of foreign subsidiary 25 Profit for the year 25 At 31 December 2006	Share capital HK$’000 10 — — 10 — — — 10 — (10) — — —	Foreign exchange reserve HK$’000 169 — — 169 4,159 — — 4,328 — — 7,347 — 11,675	Statutory reserves HK$’000 5,563 — 196 5,759 — — 349 6,108 — — — — 6,108	Retained earnings HK$’000 138,642 19,870 (196) 158,316 — 27,850 (349) 185,817 — — — 42,005 227,822	Total HK$’000 144,384 19,870 — 164,254 4,159 27,850 — 196,263 — (10) 7,347 42,005 245,605

— II-7 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

4. Consolidated cash flow statements of the Long World Group

Notes Cash flows from operating activities Net cash generated from/ (used in) operations 26(a) Income tax paid Net cash from/(used in) operating activities Cash flows from investing activities Purchase of office equipment Acquisition of financial asset at fair value through profit or loss Interest received Net cash from/(used in) investing activities Cash flows from financing activities Interest paid Proceeds from new bank borrowings Repayment of bank borrowings Net cash used in financing activities Net decrease 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 20	Year 2004 HK$’000 52,026 (7,245) 44,781 ------------ (37) — 2,187 2,150 ------------ (7,778) 47,170 (96,686) (57,294) ------------ (10,363) — 38,008 27,645	ended 31 December 2005 2006 HK$’000 HK$’000 (4,414) 1,518 (593) (1,081) (5,007) 437 ------------ ------------ (8) — — (495) 4,550 164 4,542 (331) ------------ ------------ (6,956) (5,867) 9,434 62,745 (24,047) (62,627) (21,569) (5,749) ------------ ------------ (22,034) (5,643) 2,752 499 27,645 8,363 8,363 3,219

— II-8 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

B. NOTES TO THE FINANCIAL INFORMATION

1. Group reorganisation

Long World was incorporated in the BVI with limited liability on 13 April 2006 under the International Business Companies Act of the BVI. Save for the group reorganisation (the “Reorganisation”) as detailed below, Long World has not carried on any business since its incorporation. The registered office and principal place of business of Long World are located at Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, BVI and 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong, respectively.

Long World is an investment holding company and the principal activities of its subsidiaries are investment holding and property development and investment.

Mr. Yu Pan established 廣州市天譽房地產開發有限公司 (Guangzhou Tianyu Real Estate Development Company Limited) (“GZ Tianyu”) in the PRC and Trenco in Hong Kong, being engaged in property development and investment in the PRC. As part of the Reorganisation, Mr. Yu Pan incorporated and acted as the sole director of Long World on 13 April 2006.

Prior to the completion of the Reorganisation on 30 April 2006 and 21 June 2006, GZ Tianyu and Trenco held the equity interest in Chuangyu as to 75% and 25% respectively. On 30 April 2006, Trenco acquired from GZ Tianyu the 75% equity interest in Chuangyu at a consideration of US$4.5 million, resulting in its holding of the entire equity interest in Chuangyu. On 21 June 2006, Long World acquired the entire equity interest in Trenco at a consideration of HK$10,000. Upon completion of the aforesaid Reorganisation, Long World became the holding company of these companies now comprising the Long World Group.

The Financial Information is presented in Hong Kong dollars which is same as the functional currency of Long World, while the functional currency of its subsidiary in the PRC is Renminbi (“RMB”).

2. Principal accounting policies

(a) Statement of compliance

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

(b) Basis of preparation

The Long World Group resulting from the Reorganisation is regarded as a continuing entity. Accordingly, the Financial Information has been prepared using the principles of merger accounting in accordance with Hong Kong Accounting Guideline 5 “Merger Accounting for Common Control Combination”.

— II-9 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

The consolidated income statements, consolidated statements of changes in equity and consolidated cash flow statements of the Long World Group include the results and cash flows of the companies now comprising the Long World Group for the Relevant Periods as if the current group structure had been in existence throughout the Relevant Periods. The consolidated balance sheets of the Long World Group as at 31 December 2004, 2005 and 2006 have been prepared to present the state of affairs of the companies now comprising the Long World Group as if the current group structure had been in existence at those dates.

All significant intra-group transactions and balances have been eliminated on consolidation.

The Financial Information has been prepared under the historical cost basis except for the investment properties and financial asset at fair value through profit or loss, which are measured at fair value, as explained in the accounting policies set out below.

The Financial Information has been prepared on a going concern basis notwithstanding that the Long World Group had net current liabilities as at 31 December 2004, 2005 and 2006 as its controlling shareholder Mr. Yu Pan had undertaken to provide such financial support to the Long World Group to enable it to continue as a going concern and to enable it to meet its liabilities as and when they fall due.

The preparation of Financial Information in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Long World Group’s accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the Financial Information are disclosed in note 3 to the Financial Information.

The HKICPA has issued the following new standards, amendment and interpretations that are not yet effective. The directors of Long World have considered the potential impact of these new and revised HKFRSs but do not expect that the application of these new and revised HKFRSs will have a significant impact on how the results of operations and the financial position of the Long World Group are prepared and presented.

		Effective for
		accounting
		periods beginning
		on or after
HKAS 1 (Amendment)	Capital Disclosures	1 January 2007
HKFRS 7	Financial Instruments:	1 January 2007
	Disclosures
HKFRS 8	Operating Segments	1 January 2009
HK(IFRIC) — Interpretation 7	Applying the Restatement	1 March 2006
	Approach under HKAS 29
	Financial Reporting in
	Hyperinflationary
	Economies
HK(IFRIC) — Interpretation 8	Scope of HKFRS 2	1 May 2006

— II-10 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Effective for accounting periods beginning on or after HK(IFRIC) — Interpretation 9 Reassessment of Embedded 1 June 2006 Derivatives HK(IFRIC) — Interpretation 10 Interim Financial Reporting 1 November 2006 and Impairment HK(IFRIC) — Interpretation 11 HKFRS 2 — Group and 1 March 2007 Treasury Share Transactions HK(IFRIC) — Interpretation 12 Services Concession 1 January 2008 Arrangements

(c) Merger accounting for business combinations under common control

The Financial Information incorporates the financial statement items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are combined using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

The comparative amounts in the Financial Information are presented as if the entities or businesses had been combined at the previous balance sheet dates or when they first came under common control, whichever is shorter.

All significant intra-group transactions and balances have been eliminated on consolidation.

(d) Subsidiaries

A subsidiary is an entity over which Long World is able to exercise control. Control is achieved where Long World has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

— II-11 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

(e) Segment reporting

A segment is a distinguishable component of the Long World 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 Long World Group’s internal financial reporting system, the Long World Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of this report. 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 consolidation 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 years to acquire segment assets (both tangible and intangible) that are expected to be used for more than one year.

(f) Foreign currency

Transactions entered into by any of the group entities in a currency other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 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.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the income statement in the period in which they arise, except for exchange differences arising on a monetary item that forms part of Long World’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences is also recognised directly in equity.

— II-12 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

On consolidation, the results of overseas operations are translated into the presentation currency of the Long World Group (i.e. Hong Kong dollars) at the average exchange rates for the period/year, unless exchange rates fluctuate significantly during the Relevant Periods, in which case, the rate approximating to those ruling when the transactions took place. All assets and liabilities of overseas 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 Long World’s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve.

Goodwill and fair value adjustments on identifiable assets acquired arising on acquisition of foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the foreign exchange reserve.

(g)

Office equipment

Office equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Office equipment is depreciated so as to write off their costs net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives and residual value are reviewed, and adjusted if appropriate, at each balance sheet date. The useful lives of office equipment are 5 years.

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of office equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in the income statement on disposal.

(h) Investment properties

Investment properties are properties held for long-term rental yields or for capital appreciation and not occupied by the Long World Group. Investment properties are carried at fair value. Changes in fair value are recognised in the income statement.

(i)

Properties held for sale

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

— II-13 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

(j) Impairment — other assets

At each balance sheet date, the Long World Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

office equipment; and
prepaid lease payments

If the recoverable amount (i.e. the greater of the net selling price and value-in-use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

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

(k) 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.

(l) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

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

— II-14 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

(m) Revenue recognition

Revenue from sale of properties is recognised when the risks and rewards of ownership of the properties are transferred to the purchasers, which is when the construction of relevant properties has been completed and the properties have been delivered to the purchasers and collectibility of related receivables is reasonably assured. Deposits and instalments received on properties sold prior to the date of revenue recognition are included as trade and other payables under current liabilities in the balance sheet.

Rental income from property leasing under operating lease is recognised on a straightline basis over the lease terms.

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

(n) Financial instruments

(i) Financial assets

The Long World Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. The Long World Group’s accounting policy for each category is as follows:

Financial assets at fair value through profit or loss: include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Gains or losses on investments held for trading are recognised in the income statement.

An impairment loss is recognised in the income statement when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

— II-15 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

(ii) Financial liabilities

The Long World Group classifies its financial liabilities into the following category and the Long World Group’s accounting policy for this category is as follows:

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 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 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.
(iii) Derecognition

The Long World 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.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(o) Provision and contingent liabilities

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

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

(p) Employee benefits

(i) Defined contribution pension plan

Contributions to defined contribution pension plan are recognised as an expense in the income statement when the services are rendered by the employees.

— II-16 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

The employees of the subsidiary in the PRC, Chuangyu, are required to participate in a central pension scheme operated by the local municipal government. Chuangyu is required to contribute a certain percentage of its payroll costs to the central pension scheme. The contributions payable are charged to the income statement when they become payable in accordance with the rules of the central pension scheme.

(ii) Termination benefits

Termination benefits are recognised when, and only when, the Long World Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(q) Leases

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Long World 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.

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

(r)

Borrowing costs

Borrowing costs are expensed in the income statement in the period/year 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.

— II-17 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

3. Critical accounting estimates

The critical accounting judgements in applying the Long World Group’s accounting policies are described below:

Estimate of fair value of investment properties

Investment properties are stated at fair value based on the valuation performed by independent professional valuers after taking into consideration the net rental income.

In determining the fair value, the valuers based on a method of valuation which involves certain estimates including current market rents for similar properties in the same location and condition, appropriate discount rates and expected future market rents. In relying on the valuation reports, the management has exercised their judgement and are satisfied that the method of valuation is reflective of the current market condition.

Write-down of properties held for sale

The Long World Group writes down properties held for sale to net realisable value based on assessment of the realisability of properties held for sale which takes into account net sales value based on prevailing market conditions. If there is a decrease in net sales value, the net realisable value will decrease which may result in writing down properties held for sale to net realisable value. Write-downs are recorded where events or changes in circumstances indicate that the balances may not be realised. The identification of write-downs requires the use of judgement and estimates. Where the expectation is different from the original estimate, the carrying value of properties held for sale is adjusted in the period in which such estimate is changed.

Impairment of other assets

If a triggering event occurs indicating that the carrying amount of an asset may not be recoverable, an assessment of the carrying amount of that asset will be performed. Triggering events include significant adverse changes in the market value of an asset, changes in the business or regulatory environment, or certain legal events. The interpretation of such events requires judgement from management with respect to whether such an event has occurred.

Upon the occurrence of triggering events, the carrying amounts of non-current assets are reviewed to assess whether their recoverable amounts have declined below their carrying amounts. The recoverable amount is the present value of estimated net future cash flows which the Long World Group expects to generate from the future use of the asset, plus the asset’s residual value on disposal. Where the recoverable amount of non-current assets is less than its carrying value, an impairment loss is recognised to write the assets down to its recoverable amount.

The impairment assessment is performed based on the discounted cash flow analysis. This analysis relies on factors such as forecasts of future performance and long-term growth rates and the selection of discount rates. If these forecasts and assumptions prove to be incorrect or circumstances change, write down of the carrying value of the non-current assets may be required.

— II-18 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Income taxes and deferred taxes

The Long World Group is subject to taxation in the PRC and Hong Kong. Significant judgement is required in determining the amount of the provision for taxation and the timing of the related payments. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the period in which such determination are made.

Land appreciation taxes

PRC land appreciation tax is levied at a rate of 30% on the appreciation of land value, being the proceeds of sale of properties less deductible expenditures including amortisation of land use rights, borrowing costs and all property development expenditures.

A subsidiary of the Long World Group engaged in property development business in the PRC is subject to land appreciation taxes, which have been included in the cost of sales. However, the implementation of these taxes varies amongst various PRC cities and the Long World Group has not finalised its land appreciation tax returns with various tax authorities. Accordingly, significant judgement is required in determining the amount of land appreciation and its related taxes. The ultimate tax determination is uncertain during the ordinary course of business. The Long World Group recognises these liabilities based on management’s best estimates. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the cost of sales and provision for land appreciation taxes in the period in which such determination is made.

— II-19 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

4. Turnover and segment information

The amounts of each significant category of revenue recognised in turnover during the Relevant Periods are as follows:

Revenue from sale of properties Property rental income under operating lease	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 28,843 4,843 11,920 8,283 11,678 15,436 37,126 16,521 27,356	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 28,843 4,843 11,920 8,283 11,678 15,436 37,126 16,521 27,356
		27,356

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 Long World 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 Long World 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:

(a) Property development segment refers to the development and sale of properties; and

(b) Property investment segment refers to the leasing of properties.

As over 90% of the Long World Group’s revenue, results, assets and liabilities were derived from the PRC, no segment information has been disclosed in respect of the Long World Group’s geographical segments.

— II-20 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Business segments

Property development HK$’000 Results for the year ended 31 December 2004 Segment turnover 28,843 Segment results 3,998 Unallocated net operating expenses Increase in fair value of investment properties Profit from operations Finance costs Profit before income tax expense Income tax expense Profit for the year Financial position as at 31 December 2004 Assets Segment assets 27,689 Other unallocated assets TOTAL ASSETS Liabilities Segment liabilities 59,278 Other unallocated liabilities TOTAL LIABILITIES Other segment information for the year ended 31 December 2004 Capital expenditure — Depreciation — Amortisation 61	Property investment Unallocated HK$’000 HK$’000 8,283 7,874 27,066 343,480 659 — 37 — 119 — —	Total HK$’000 37,126 11,872 (1,253) 27,066 37,685 (7,778) 29,907 (10,037) 19,870 371,169 99,200 470,369 59,937 246,178 306,115 37 119 61

— II-21 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Property development HK$’000 Results for the year ended 31 December 2005 Segment turnover 4,843 Segment results 461 Unallocated net operating income Increase in fair value of investment properties Profit from operations Finance costs Profit before income tax expense Income tax expense Profit for the year Financial position as at 31 December 2005 Assets Segment assets 33,722 Other unallocated assets TOTAL ASSETS Liabilities Segment liabilities 43,516 Other unallocated liabilities TOTAL LIABILITIES Other segment information for the year ended 31 December 2005 Capital expenditure — Depreciation — Amortisation 48	Property investment Unallocated HK$’000 HK$’000 11,678 9,930 36,615 393,531 2,929 — 8 — 62 — —	Total HK$’000 16,521 10,391 933 36,615 47,939 (6,956) 40,983 (13,133) 27,850 427,253 82,972 510,225 46,445 267,517 313,962 8 62 48

— II-22 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Property development HK$’000 Results for the year ended 31 December 2006 Segment turnover 11,920 Segment results (2,678) Unallocated net operating expenses Increase in fair value of investment properties Profit from operations Finance costs Profit before income tax expense Income tax expense Profit for the year Financial position as at 31 December 2006 Assets Segment assets 3,793 Other unallocated assets TOTAL ASSETS Liabilities Segment liabilities 22,966 Other unallocated liabilities TOTAL LIABILITIES Other segment information for the year ended 31 December 2006 Depreciation — Amortisation 3	Property investment Unallocated HK$’000 HK$’000 15,436 11,843 95,634 491,794 3,168 — 27 — —	Total HK$’000 27,356 9,165 (24,895) 95,634 79,904 (5,867) 74,037 (32,032) 42,005 495,587 3,849 499,436 26,134 227,697 253,831 27 3

— II-23 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

5. Other revenue

Interest income on loan receivable wholly repayable within five years Bank interest income Increase in fair value of financial asset at fair value through profit or loss Others	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,646 5,148 1,354 632 117 100 — — 132 458 986 104 2,736 6,251 1,690	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,646 5,148 1,354 632 117 100 — — 132 458 986 104 2,736 6,251 1,690
		1,690

6. Profit from operations

Profit from operations is stated after charging:

	Year	ended 31 December	ended 31 December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Auditors’ remuneration	10	10	40
Amortisation of prepaid lease payments	61	48	3
Prepaid lease payments recognised as cost
of sales	4,892	839	2,776
Cost of properties sold	19,458	3,371	10,109
Depreciation of office equipment	119	62	27
Land appreciation taxes (included in cost
of sales)	195	41	58
Impairment losses on trade and other receivables	—	—	188
Minimum lease payments under operating lease
in respect of subleasing of properties
(included in cost of sales)	—	1,194	2,816
Waiver of amount due from director	—	—	22,136

7. Finance costs

Interest expense on bank borrowings wholly repayable: — within five years — over five years	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 7,778 6,956 4,971 — — 896 7,778 6,956 5,867	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 7,778 6,956 4,971 — — 896 7,778 6,956 5,867
		5,867

— II-24 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

8. Staff costs

Staff costs (including director’s emoluments) comprise: Basic salaries and other benefits Contributions to defined contribution pension plans	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 278 570 1,054 24 101 401 302 671 1,455	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 278 570 1,054 24 101 401 302 671 1,455
		1,455

9. Director’s emoluments

The aggregate amounts of the director’s emoluments are as follows:

Year ended 31 December 2004 Mr. Yu Pan 2005 Mr. Yu Pan 2006 Mr. Yu Pan	Fees HK$’000 — — —	Salaries Contributions and other to defined benefits contribution (note) pension plans HK$’000 HK$’000 278 24 209 21 9 25	Total HK$’000 302

			230

			34

Note:

Salaries and other benefits included basic salaries, housing and other allowances.

— II-25 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

10. Five highest paid individuals

For the Relevant Periods, the five highest paid individuals included one director, details of whose emoluments are set out in note 9 above. The emoluments paid or payable to the remaining four individuals for the Relevant Periods are as follows:

	Year	ended 31 December	ended 31 December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Basic salaries and other benefits	—	48	283

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

Nil to HK$1,000,000 11. Income tax expense	No. of employees Year ended 31 December 2004 2005 2006 — 4 4	No. of employees Year ended 31 December 2004 2005 2006 — 4 4

Provision for current tax outside Hong Kong for the year Deferred tax_(note 23)_ Income tax expense	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,105 1,050 473 8,932 12,083 31,559 10,037 13,133 32,032	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,105 1,050 473 8,932 12,083 31,559 10,037 13,133 32,032
		32,032

No provision for Hong Kong profits tax has been made as the Long World Group has no assessable profits for Hong Kong profits tax purposes for the Relevant Periods.

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

— II-26 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

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

Profit before income tax expense Tax at applicable income tax rate of 33% Effect on different tax rate of group entities operating in other jurisdictions Tax effect of expenses not deductible for tax purposes Tax effect of income not chargeable for tax purposes Tax effect of tax losses not recognised Others Income tax expense	Year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 29,907 40,983 74,037 9,869 13,524 24,432 38 23 3,440 95 1,319 16,239 — (1,746) (11,400) 76 13 11 (41) — (690) 10,037 13,133 32,032

12. Dividends

No dividend has been paid or declared by Long World and its subsidiaries during the Relevant Periods.

13. Earnings per share

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

— II-27 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

14. Office equipment

Cost
At 1 January 2004
Additions
Disposals
At 31 December 2004
Additions
Foreign currency translation
At 31 December 2005
Foreign currency translation
At 31 December 2006
Accumulated depreciation
At 1 January 2004
Charge for the year
Eliminated on disposals
At 31 December 2004
Charge for the year
Foreign currency translation
At 31 December 2005
Charge for the year
Foreign currency translation
At 31 December 2006
Net book value
At 31 December 2004
At 31 December 2005
At 31 December 2006

HK$’000
609
37
(306)
340
8
6
354
11
365
---------------
375
119
(306)
188
62
5
255
27
8
290
---------------
152
99
75

— II-28 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

15. Investment properties

At 1 January 2004 Increase in fair value At 31 December 2004 Increase in fair value Foreign currency translation At 31 December 2005 Increase in fair value Foreign currency translation At 31 December 2006	HK$’000 298,717 27,066
	325,783 36,615 6,265
	368,663 95,634 10,951
	475,248

The investment properties were revalued on an open market value basis by Asset Appraisal Limited as at 31 December 2004 and 2005, and by DTZ Debenham Tie Leung Limited as at 31 December 2006. Asset Appraisal Limited and DTZ Debenham Tie Leung Limited are independent professional valuers.

Certain investment properties with the carrying amounts of HK$267,001,000, HK$368,663,000 and HK$475,248,000 are pledged to secure bank borrowings of the Long World Group and banking facilities extended to related companies, as disclosed in notes 21 and 27 to the Financial Information respectively, as at 31 December 2004, 2005 and 2006, respectively.

Gross rental income from leasing the investment properties amounted to HK$8,283,000, HK$11,678,000 and HK$15,436,000 for the years ended 31 December 2004, 2005 and 2006 respectively.

The investment properties were held under medium-term leases outside Hong Kong during the Relevant Periods.

16. Prepaid lease payments

At beginning of year Amortisation charged to income statement Recognised as cost of sales Foreign currency translation At end of year	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 8,693 3,740 2,916 (61) (48) (3 (4,892) (839) (2,776 — 63 31 3,740 2,916 168	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 8,693 3,740 2,916 (61) (48) (3 (4,892) (839) (2,776 — 63 31 3,740 2,916 168
		168

— II-29 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

The prepaid lease payments are analysed for reporting purposes as follows:

Non-current assets Current assets	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 3,682 2,870 165 58 46 3 3,740 2,916 168	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 3,682 2,870 165 58 46 3 3,740 2,916 168
		168

The prepaid lease payments were paid to acquire long-term land use rights in the PRC for the purpose of property development over a period of 70 years.

17. Trade and other receivables

The following includes an ageing analysis of trade receivables at the balance sheet dates:

Aged 0-30 days Aged 31-180 days Aged over 180 days Total trade receivables Loan receivable Deposits and prepayments Other receivables — Related parties_(note 27)_ — Third parties Total trade and other receivables _Less:_portion of loan receivable due over one year Trade and other receivables due within one year	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19 5 426 — — — 9,398 8,622 961 9,417 8,627 1,387 17,697 23,233 16,450 8,270 9,018 621 24,983 53,039 — 38,149 24,737 962 98,516 118,654 19,420 (14,707) (14,990) (7,963 83,809 103,664 11,457	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19 5 426 — — — 9,398 8,622 961 9,417 8,627 1,387 17,697 23,233 16,450 8,270 9,018 621 24,983 53,039 — 38,149 24,737 962 98,516 118,654 19,420 (14,707) (14,990) (7,963 83,809 103,664 11,457
		1,387 16,450 621 — 962
		19,420 (7,963
		11,457

Trade receivables mainly comprise receivables for sale of properties and rental. Sales terms vary and are determined in accordance with the corresponding sale and purchase agreements. Monthly rentals are usually payable at the beginning of each month by tenants.

Trade receivables, deposits and prepayments and other receivables are expected to be recovered within one year. Their fair values approximate their respective carrying amounts at the balance sheet dates due to their short maturities.

The loan receivable is unsecured, charges interest at a rate of 6.58% per annum and is fully repayable by 2008. The fair value of the loan at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the then prevailing market interest rate.

— II-30 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Interest income on the loan receivable is calculated using the effective interest method by applying the effective interest rate of 6.58% per annum to the carrying amount. The fair values of the loan at the balance sheet dates approximate to its respective carrying amounts.

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

Included in trade and other receivables are the following significant amounts denominated in currency other than the functional currency of Long World:

				As at 31 December	As at 31 December	As at 31 December
			2004		2005	2006
			’000		’000	’000
	RMB		103,114	123,396		19,614

18.	Properties held for sale
				As at 31 December
			2004		2005	2006
		HK$’000		HK$’000		HK$’000
	Completed properties held for sale		14,533	11,530		676

	All completed properties held for sale are located in		the PRC.
19.	Financial asset at fair value through profit or	loss
				As at 31 December
			2004		2005	2006
		HK$’000		HK$’000		HK$’000
	Equity securities listed outside Hong Kong		—		—	630

	Market value		—		—	630

20.	Cash and cash equivalents
	An analysis of the balances of cash and cash equivalents is as follows:
				As at 31 December
			2004		2005	2006
		HK$’000		HK$’000		HK$’000
	Cash and bank balances		27,645		8,363	3,219

— II-31 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

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

		31 December
	2004	2005	2006
	’000	’000	’000
RMB	29,004	6,904	2,921
US$	1	129	—

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.

21. Bank borrowings

An analysis of the balances of bank borrowings is as follows:

Effective interest rate per Maturity date annum Fixed-rate borrowings Secured RMB bank loan of Fully repaid in 2006 RMB90,000,000 4.8% Secured RMB bank loan of Fully repaid in 2006 RMB20,000,000 5.3% Secured RMB bank loan of Fully repayable by 2013 RMB64,000,000 6.5% Floating-rate borrowings Secured RMB bank loan of Fully repayable by 2010 RMB70,000,000 5.8% to 7.0% Total bank borrowings	2004 HK$’000 59,434 — — 50,949 110,383	As at 31 December 2005 2006 HK$’000 HK$’000 44,231 — 9,615 — — 63,366 44,144 36,952 97,990 100,318	As at 31 December 2005 2006 HK$’000 HK$’000 44,231 — 9,615 — — 63,366 44,144 36,952 97,990 100,318
			100,318

At the balance sheet dates, the bank borrowings were repayable as follows:

Within one year Within two to five years Over five years _Less:_amount due within one year Non-current liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 23,676 62,105 17,991 78,912 35,885 64,258 7,795 — 18,069 110,383 97,990 100,318 (23,676) (62,105) (17,991 86,707 35,885 82,327	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 23,676 62,105 17,991 78,912 35,885 64,258 7,795 — 18,069 110,383 97,990 100,318 (23,676) (62,105) (17,991 86,707 35,885 82,327
		100,318 (17,991
		82,327

— II-32 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

The bank borrowings are secured by investment properties in the PRC as set forth in note 15 to the Financial Information. At the balance sheet dates, the bank borrowings are all denominated in currency other than the functional currency of Long World as follows:

		31 December
	2004	2005	2006
	’000	’000	’000
RMB	117,006	101,910	101,321

22. Trade and other payables

The following includes an ageing analysis of trade payables at the balance sheet dates:

Trade payables — aged over 180 days Accruals Other payables — Related parties_(note 27)_ — Third parties Total trade and other payables	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 17,565 6,815 4,379 223 1,508 1,395 52,142 63,432 — 55,773 60,292 30,370 125,703 132,047 36,144	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 17,565 6,815 4,379 223 1,508 1,395 52,142 63,432 — 55,773 60,292 30,370 125,703 132,047 36,144
		36,144

Trade and other payables are expected to be settled within one year. Their fair values approximate their respective carrying amounts at the balance sheet dates due to their short maturities.

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

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

		31 December
	2004	2005	2006
	‘000	‘000	‘000
RMB	79,498	83,295	36,481
US$	4,500	4,500	—

— II-33 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

23. Deferred tax liabilities

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

At 1 January 2004 Charged to income statement_(note 11) At 31 December 2004 Charged to income statement(note 11) Foreign currency translation At 31 December 2005 Charged to income statement(note 11)_ Foreign currency translation At 31 December 2006 24. Share capital Authorised: Ordinary shares of US$1 each at incorporation and at 31 December 2006 Issued and fully paid: Ordinary share of US$1 at 12 May 2006 and at 31 December 2006	Number of shares 50,000 1	Amount US$ 50,000 1	Revaluation of investment properties HK$’000 59,385 8,932	Revaluation of investment properties HK$’000 59,385 8,932
				68,317 12,083 1,313
				81,713 31,559 2,428
				115,700

				Equivalent to HK$’000 390

				—

Long World was incorporated in the BVI on 13 April 2006 with an authorised share capital of US$50,000. On 12 May 2006, 1 ordinary share of US$1 was issued for cash at par to the subscriber to provide initial capital to Long World.

As disclosed in note 2(b) to the Financial Information, the Financial Information has been prepared under the merger accounting method that financial statements of companies comprising the Long World Group during the Relevant Periods were combined even before the incorporation of Long World. Accordingly, for the purpose of this report, the share capital of the Long World Group as at 31 December 2004 and 2005 represented the share capital of Trenco with the amount of HK$10,000.

— II-34 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

25. Reserves

At 1 January 2004 Profit for the year Transfer to statutory reserves At 31 December 2004 Exchange differences on translation of financial statements of foreign subsidiary Profit for the year Transfer to statutory reserves At 31 December 2005 Exchange differences on translation of financial statements of foreign subsidiary Profit for the year At 31 December 2006	Foreign exchange reserve HK$’000 169 — — 169 4,159 — — 4,328 7,347 — 11,675	Statutory reserves HK$’000 5,563 — 196 5,759 — — 349 6,108 — — 6,108	Retained earnings HK$’000 138,642 19,870 (196) 158,316 — 27,850 (349) 185,817 — 42,005 227,822	Total HK$’000 144,374 19,870 —
				164,244 4,159 27,850 —
				196,253 7,347 42,005
				245,605

(a) Nature and purposes of reserves

i) Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of a subsidiary the functional currency of which is different from the presentation currency of the Long World Group. The reserve is dealt with in accordance with the accounting policy set out in note 2(f) to the Financial Information.

ii) Statutory reserves

In accordance with relevant rules and regulations concerning foreign investment enterprise established in the PRC and the Articles of Association, Chuangyu, a subsidiary of Long World, was required to make appropriations from net profit to the reserve fund, staff and workers’ bonus and welfare fund and enterprise expansion fund, after offsetting accumulated losses from prior years, and before profit distributions are made to investors. The percentage of profits to be appropriated to the above three funds are solely determined by the board of directors of Chuangyu, except that being a wholly foreign-owned enterprise, transfer of 10% of the net profit of Chuangyu for each year to the reserve fund is mandatory until the accumulated total of the fund reaches 50% of its registered capital. During the Relevant Periods, the Long World Group has not made any appropriations to the staff and workers’ bonus and welfare fund and enterprise expansion fund.

(b) Distributable reserves

At 31 December 2006, the distributable reserves available for distribution to equity holder of Long World are HK$Nil.

— II-35 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

26. Notes to the consolidated cash flow statements

(a) Reconciliation of profit before income tax expense to net cash generated from/(used in) operations:

	Year	ended 31 December	ended 31 December
	2004	2005		2006
	HK$’000	HK$’000	HK$’000
Profit before income tax expense	29,907	40,983	74,037
Adjustments for:
Interest income	(2,278)	(5,265)	(1,454)
Finance costs	7,778	6,956		5,867
Amortisation of prepaid lease payments	61	48		3
Prepaid lease payments recognised as
cost of sales	4,892	839		2,776
Depreciation of office equipment	119	62		27
Impairment losses on trade and other
receivables	—	—		188
Increase in fair value of investment
properties	(27,066)	(36,615)	(95,634)
Increase in fair value of financial asset
at fair value through profit or loss	—	—		(132)
Waiver of amount due from director	—	—	22,136
Operating profit before working
capital changes	13,413	7,008		7,814
Changes in working capital:
(Increase)/decrease in loan receivable	(17,607)	(4,518)		8,763
Decrease in properties held for sale	18,646	3,470	11,008
Decrease/(increase) in trade and other
receivables	161,768	(13,421)	94,948
(Decrease)/increase in trade and other
payables	(124,194)	3,047	(121,015)
Net cash generated from/(used in)
operations	52,026	(4,414)		1,518

(b) Major non-cash transaction

During the year ended 31 December 2006, the outstanding balance of an amount due from director, which amounted to HK$22,136,000, was waived settlement by the Long World Group.

— II-36 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

27. Related party balances and transactions

Due from related companies (note): 廣州市豐嘉企業發展有限公司 (Guangzhou Feng Jia Enterprise Development Company Limited) 廣州市天譽物業管理有限公司 (Guangzhou Tianyu Property Management Company Limited) 廣州市城建天譽房地產開發有限公司 (Guangzhou Cheng Jian Tianyu Real Estate Development Co. Limited) 廣州市越秀山體育俱樂部有限公司 (Guangzhou Yuexiu Mountain Club Co. Ltd) Balances included in trade and other receivables (note 17) Maximum balance during the year: Guangzhou Feng Jia Enterprise Development Company Limited Guangzhou Tianyu Property Management Company Limited Guangzhou Cheng Jian Tianyu Real Estate Development Co. Limited Guangzhou Yuexiu Mountain Club Co. Ltd Due to related companies (note): Guangzhou Cheng Jian Tianyu Real Estate Development Co. Limited 廣州市芳樺貿易有限公司 (Guangzhou Fang Hua Trading Company Limited) 廣州市天譽房地產開發有限公司 (Guangzhou Tianyu Real Estate Development Company Limited) 廣州市越樺貿易有限公司 (Guangzhou Yue Hua Trading Company Limited) Due to director: Mr. Yu Pan Balances included in trade and other payables (note 22)	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 6,659 31,706 — 1,211 578 — — 3,314 — 17,113 17,441 — 24,983 53,039 — 6,659 53,857 73,863 1,472 1,211 595 — 7,623 3,314 17,256 17,441 17,960 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 12,407 — — 270 3,343 — 24,158 34,822 — — 9,615 — 36,835 47,780 — 15,307 15,652 — 52,142 63,432 —	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 6,659 31,706 — 1,211 578 — — 3,314 — 17,113 17,441 — 24,983 53,039 — 6,659 53,857 73,863 1,472 1,211 595 — 7,623 3,314 17,256 17,441 17,960 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 12,407 — — 270 3,343 — 24,158 34,822 — — 9,615 — 36,835 47,780 — 15,307 15,652 — 52,142 63,432 —
		— —
		—

— II-37 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Note:

The amounts represent balances with companies of which Mr. Yu Pan, the controlling shareholder of Long World, is one of the directors and beneficial owners. The amounts are unsecured, interest-free and repayable on demand.

The significant transactions with related parties during the Relevant Periods are as follows:

	Nature of	Transaction amounts	Transaction amounts	for the
Name of party and relationship	transactions	year	ended 31 December
		2004	2005	2006
		HK$’000	HK$’000	HK$’000
Guangzhou Tianyu Property Management	(a) Properties leased	Free of	Free of	Free of
Company Limited, related company with		charge	charge	charge
common director, Mr. Yu Pan
	(b) Building management	Free of	Free of	Free of
	fee expenses on	charge	charge	charge
	vacant properties
廣州譽浚諮詢服務有限公司(Guangzhou Yu	Properties leased	—	79	483
Jun Consulting Service Company Limited),
related company with common director,
Mr. Yu Pan
鄭健偉先生(Mr. Zheng Jian Wei), director	Sale of properties	—	—	910
of the subsidiary, Chuangyu
歐陽嘉女士(Ms. Au Yeung Ka), spouse of	Sale of properties	—	—	877
the director of Long World, Mr. Yu Pan
Guangzhou Yuexiu Mountain Club Co. Ltd,	Entertainment expenses	207	407	220
related company with common director,
Mr. Yu Pan
Mr. Yu Pan, director of Long World	Waiver of amount	—	—	22,136
	receivable
Guangzhou Tianyu Real Estate Development	Guarantee given to	28,302	28,846	29,703
Company Limited, related company with	bank in respect of
common director, Mr. Yu Pan	credit facilities
Guangzhou Feng Jia Enterprise	(a) Staff cost expenses	Free of	Free of	Free of
Development Company Limited,		charge	charge	charge
related company with common director,
Mr. Yu Pan	(b) Guarantee given to	—	13,683	14,089
	bank in respect of
	credit facilities
	(c) Interest income	—	2,123	—
Guangzhou Cheng Jian Tianyu Real Estate	Office rental expense	Free of	Free of	Free of
Development Co. Limited, related company with	under operating lease	charge	charge	charge
common director, Mr. Yu Pan
Guangzhou Yue Hua Trading Company	Guarantee given to	—	17,308	17,822
Limited, related company with common	bank in respect of
shareholder, Mr. Yu Pan	credit facilities

— II-38 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

28. Operating lease commitments

Lessee

At the balance sheet dates, the Long World Group had commitments for future minimum lease payments under non-cancellable operating lease in respect of subleasing of properties which fall due as follows:

Within one year Within two to five years Over five years	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — 3,031 3,089 — 12,122 12,358 — 3,031 — — 18,184 15,447	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — 3,031 3,089 — 12,122 12,358 — 3,031 — — 18,184 15,447
		15,447

Lessor

At the balance sheet dates, the Long World Group had commitments for future minimum rental receivable under non-cancellable operating lease in respect of investment properties which fall due as follows:

Within one year Within two to five years Over five years	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 9,498 14,042 16,960 32,969 36,928 39,048 24,693 17,806 7,261 67,160 68,776 63,269	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 9,498 14,042 16,960 32,969 36,928 39,048 24,693 17,806 7,261 67,160 68,776 63,269
		63,269

29. Contingent liabilities

At 31 December 2004, 2005 and 2006, the Long World Group has given guarantees to certain banks in respect of credit facilities granted to certain related companies as disclosed in note 27 to the Financial Information. The aggregate amount of guarantees was approximately HK$28,302,000, HK$59,837,000 and HK$31,911,000 respectively.

30. Events after balance sheet date

(a) Pursuant to the new PRC Corporate Income Tax Law passed by the Tenth National People’s Congress on 16 March 2007, the new Corporate Income Tax rates for almost all enterprises established in the PRC shall be subject to a unified rate of 25%, which is 33% during the Relevant Periods, and will be effective from 1 January 2008. The impact of such change of Corporate Income Tax rate on the Long World Group’s financial statements will depend on detailed pronouncements that are to be issued. The Long World Group will evaluate the impact of the new PRC Corporate Income Tax Law upon issuance of detailed pronouncements.

— II-39 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

(b) The guarantees given in favour of Guangzhou Feng Jia Enterprise Development Company Limited and Guangzhou Yue Hua Trading Company Limited in respect of banking facilities that are secured by investment properties of the Long World Group, as disclosed in note 27 to the Financial Information, have been fully released in March 2007.

31. Financial instruments

The Long World Group’s principal financial assets are cash and bank balances and trade and other receivables. Financial liabilities of the Long World Group include bank borrowings and trade and other payables. The Long World Group does not hold or issue any financial instruments for trading purposes, except the equity securities listed outside Hong Kong held by the Long World Group as at 31 December 2006.

(a) Foreign currency risk

The Long World Group’s businesses are principally conducted in the PRC through the subsidiary Chuangyu, the functional currency of which is RMB. RMB is not freely convertible into foreign currencies. All foreign exchange transactions involving RMB must take place through the People’s Bank of China or other institutions authorised to buy and sell foreign exchange. The exchange rates adopted for the foreign exchange transactions are the rates of exchange quoted by the People’s Bank of China that are determined largely by supply and demand.

The Long World Group does not hedge its foreign currency risks as the rate of exchange between Hong Kong dollar and RMB is controlled within a narrow range. However, any permanent changes in foreign exchange rates in RMB may have an impact on the Long World Group’s results.

(b) Interest rate risk

The Long World Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Long World Group’s exposure to interest rate risk relates primarily to the fixed interest-bearing loan receivable and the variable interest-bearing bank borrowings. The Long World Group has not entered into any fair value interest rate or cash flow interest rate hedging contracts or any other derivative financial instruments for hedging purposes. However, the management closely monitors its exposure to future cash flow as a result of changes in market interest rates, and will consider hedging such changes should the need arises.

(c) Credit risk

The Long World Group has no significant concentration on credit risk. Financial instruments that are exposed to credit risk are trade and other receivables and cash and cash equivalents that consist of short-term bank deposits. Cash and deposits are substantially placed with banks in the PRC in short term while trade and other receivables are closely monitored internally by the management. The management foresees minimal credit risks.

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

— II-40 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

(d) Liquidity risk

The Long World 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 and obtains financial support from Mr. Yu Pan, the sole shareholder of Long World, to meet its liquidity requirements in both the short and long terms.

(e) Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 December 2004, 2005 and 2006.

The carrying values of cash and bank balances, trade and other receivables and trade and other payables approximate their respective fair values because of their short maturities. The carrying amounts of bank borrowings approximate their fair values because the effective interest rates of the debts are approximate to the prevailing market rates at the balance sheet dates for similar borrowings available to the Long World Group.

32. Balance sheet of Long World

Save for the issue of share and the Reorganisation as disclosed in notes 24 and 1 to the Financial Information respectively, Long World has not been involved in any significant business transactions since incorporation. Therefore it is not meaningful to present the balance sheet of Long World for the purpose of this report.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Long World Group in respect of any period subsequent to 31 December 2006.

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants

Li Yin Fan

Practising Certificate Number P03113

— II-41 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE LONG WORLD GROUP FOR THE THREE YEARS ENDED 31 DECEMBER, 2004, 2005 AND 2006

Long World is an investment holding company incorporated on 13 April 2006 with the only purpose of holding the entire interest in Trenco. Trenco’s sole asset is the equity interest in the PRC Company which holds the interest in the development of the Tianyu Garden Phase 2. Other than the development of the Tianyu Garden Phase 2, each of Long World, Trenco and the PRC Company does not have any other business.

Immediately before Long World becoming the holding company of Trenco in June 2006, Trenco had been wholly-owned by Mr. YU and was interested in 100% equity interest in the PRC Company in a way that 25% interest was held by Trenco since the incorporation of the PRC Company and 75% was acquired by Trenco in April 2006 from a company controlled by Mr. YU. The presentation of the consolidated financial statements of the Long World Group is based on the assumption that the existing shareholding structure had been in existence since 1 January 2004, and accordingly, the PRC Company had been the wholly-owned subsidiary of Long World since then.

The current principal activity of the Long World Group is the leasing of properties in the Tianyu Project located at a prime location at Tianyu Garden Phase 2, Nos. 136-146 Linhe Zhong Road, Tianhe District, Guangzhou City, the PRC.

The development of Tianyu Garden Phase 2 is a deluxe residential and commercial property development and originally comprised a total gross area of 125,000 square metres of which total gross area for commercial complex, residential units, and basement car park spaces and amenity facilities was approximately 28,000 square metres, 73,000 square metres and 24,000 square metres respectively. The development project obtained its occupation permit on 13 September 2001. Sale activities commenced in the year 2000 and were at their peaks in 2001 and 2002. Prior to April 2007, all residential units and car park spaces were sold and the remaining properties, consisting of a total gross floor area of approximately 21,161 square metres in the commercial complex, are held by the PRC Company for rental income.

For the financial year ended 31 December 2004

The Long World Group had an audited consolidated net asset of approximately HK$164 million as at 31 December 2004 and an audited net profit of approximately HK$20 million for the year. Turnover comprised sale of properties of approximately HK$29 million and rental income of approximately HK$8 million. During the year, property sales contributed a gross profit of approximately HK$4 million and leasing income of approximately HK$8 million. Due to a revaluation of the investment properties at open market value, there arose a fair value gain of approximately HK$27 million that was recognised as income during the year.

— II-42 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Operating expenses were mainly interest expenses charged for bank borrowings of approximately HK$8 million, selling, marketing and administrative expenses totaling approximately HK$4 million incurred for operations of sale and leasing of properties which represented mainly staff costs, legal and professional fees and property sale related expenses.

Liquidity and financial resources

The major assets of the Long World Group are the investment properties valued at their open market value of approximately HK$326 million and properties held for resale recognised at cost of approximately HK$15 million. Other assets were prepaid lease payments of approximately HK$4 million, loan receivables of approximately HK$18 million, sale receivable of approximately HK$9 million, prepaid costs for supplies of approximately HK$9 million, interest-free loans of approximately HK$36 million to third parties, amounts due from related companies controlled by Mr. YU of approximately HK$25 million and bank balances of approximately HK$28 million.

Capital structure and liquidity

Liabilities of the Long World Group were mainly bank borrowings of approximately HK$110 million that charged interest at lending rates prevailing in the market, interestfree advances from Mr. YU and related companies controlled by him of approximately HK$52 million, payable to contractors and suppliers, reserve for maintenance costs, refund to customers, deposits received for tenancies and renovation contracts totaling approximately HK$52 million and provisions for income, business and land appreciation taxes of approximately HK$23 million. Other than the bank loans which were of longer maturity profile, another non-current liability was deferred taxation of approximately HK$68 million provided for potential tax expense to be incurred on the accumulated gains of approximately HK$206 million arising from revaluation of investment properties that have been recognised as gains in the years of recognition.

The current ratio of the Long World Group as at 31 December 2004 was 0.83 to 1. Gearing ratio (total liabilities to total assets) at the balance sheet date was 65%. The ratio would drop in pace with the decreasing bank loans as a result of the loan repayments.

Borrowings and pledge of assets

Bank borrowings were secured by the ownership titles of certain investment properties held by the Long World Group in favour of the lending banks.

— II-43 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Foreign currency management

The PRC Company’s operations were property leasing and sales conducted in the PRC whereas its holding companies, Trenco and Long World were overseas companies that were committed to yield from the investments to their shareholders in Hong Kong dollars. As such, the Long World Group had exposures in foreign currency fluctuations in Renminbi against Hong Kong Dollars. The Long World Group did not hedge its foreign currency risks on the grounds that the rates of exchange between HK$ and RMB were controlled within a narrow range and the expected exposure was therefore not substantial.

Contingent liabilities

Other than guarantees given to one related company in favour of certain bank to the extent of approximately HK$28,302,000, the Long World Group had no contingent liabilities as at 31 December 2004.

Material acquisitions and disposals of subsidiaries and affiliated companies

There were no significant acquisitions and disposals of investments by the Long World Group during the year under review.

Future plans for material investments or capital assets

As at 31 December 2004, there were no future plans for material investments or capital assets.

Employees

During the year, the Long World Group employed only one director who was remunerated by the PRC Company at costs of approximately HK$0.3 million. Staff resources were provided free of charge by companies controlled by Mr. YU. Employees were remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

For the financial year ended 31 December 2005

The Long World Group had an audited consolidated net asset of approximately HK$196 million as at 31 December 2005 and an audited net profit of approximately HK$28 million for the year. Rental income grew during the year by 41% to approximately HK$12 million whilst sales of properties slowed down to approximately HK$5 million as a result of the decrease in number of unsold units.

— II-44 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Other income consisted of interests of approximately HK$5 million recovered from loans receivable. Fair value gain on the revaluation of investment properties of approximately HK$37 million was recognised for the year.

Operating expenses were mainly interest expenses of approximately HK$7 million charged for bank borrowings, selling, marketing and administrative expenses totaling approximately HK$5 million incurred for operations in sale and leasing of properties that represented mainly staff costs, legal and professional fees, property sale and leasing related expenses, such as property agency commission and real estate tax, and repair and maintenance expenses. Increase in maintenance expenses during the year explained the rise in operating expenses.

Liquidity and financial resources

The major assets of the Long World Group were the investment properties valued at their open market value of HK$369 million and properties held for resale recognised at cost of approximately HK$11 million. Other assets were prepaid lease payments of approximately HK$3 million, loan receivables of approximately HK$23 million, sale receivable of approximately HK$9 million, prepaid costs for supplies and sundry receivables of approximately HK$13 million, other receivable from a third party of approximately HK$20 million, amounts due from related companies controlled by Mr. YU of approximately HK$53 million and bank balances of approximately HK$8 million.

Capital structure and liquidity

Liabilities of the Long World Group included bank borrowings of approximately HK$98 million, temporary loans from Mr. YU and related companies controlled by him of approximately HK$63 million, short-term interest-free loan advanced from a third party of approximately HK$19 million, payable to contractors and suppliers, refunds to customers, reserve for maintenance costs, deposits received for tenancies and renovation contracts totaling approximately HK$31 million and provisions for income, business and land appreciation taxes amounting to approximately HK$21 million. Deferred taxation increased to approximately HK$82 million as a result of the increase in the accumulated gains up to approximately HK$243 million arising from revaluation of investment properties.

The current ratio of the Long World Group as at 31 December 2005 was 0.63 to 1. Gearing ratio, calculated on total liabilities to total assets, was 62% at the balance sheet date which showed improvement as a result of the decreased borrowing and enhanced property value.

Borrowings and pledge of assets

The bank borrowings were secured by ownership titles of all investment properties held by the Long World Group in favour of the lending banks.

— II-45 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Foreign currency management

The PRC Company’s operations were property leasing and sales conducted in the PRC whereas its holding companies, Trenco and Long World were overseas companies that were committed to yields from investments to their shareholders in Hong Kong dollars. As a result, the Long World Group had exposures in foreign currency fluctuations arising from Renminbi against Hong Kong Dollars. The Long World Group did not hedge its foreign currency risks as the rates of exchange between HK$ and RMB were controlled within a narrow range and the expected exposure was therefore not substantial.

Contingent liabilities

Other than guarantees given to three related companies in favour of certain banks to the extent of approximately HK$59,837,000, the Long World Group had no contingent liabilities as at 31 December 2005.

Material acquisitions and disposals of subsidiaries and affiliated companies

There were no significant acquisitions and disposals of investments by the Long World Group during the year under review.

Future plans for material investments or capital assets

As at 31 December 2005, there were no future plans for material investments or capital assets.

Employees

During the year, the Long World Group increased its headcounts to an approximate average of 7 for its day-to-day operations in the PRC. Staff costs amounted to approximately HK$0.7 million. Employees were remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

For the financial year ended 31 December 2006

The Long World Group had an audited consolidated net asset of approximately HK$246 million as at 31 December 2006 and an audited net profit of approximately HK$42 million for the year. Rental income grew during the year by 32% to approximately HK$15 million whilst sales of properties slowed down to approximately HK$12 million in line with the sale velocity.

— II-46 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Fair value gain recognised on the revaluation of investment properties amounted to approximately HK$96 million for the year.

Operating expenses were mainly finance costs of approximately HK$6 million charged for bank borrowings, selling, marketing and administrative expenses totaling approximately HK$5 million were incurred for normal operation in the sale and leasing of properties that comprises staff costs, legal and professional fees and leasing related expenses (such as property agency commission and real estate tax). Increase in staff costs during the year was explained by the expanded staffing for the Long World Group’s leasing activities. Non-recurring expenses totaling approximately HK$24 million represent mainly the write-off of amounts due from director, Mr. YU of approximately HK$22 million.

Liquidity and financial resources

The major assets of the Long World Group were the investment properties valued at their open market value of approximately HK$475 million and properties held for resale recognised at cost of approximately HK$1 million. Other assets were loan receivables of approximately HK$16 million, sale receivable of approximately HK$1 million, prepaid costs for supplies and sundry receivables of approximately HK$2 million, and bank balances of approximately HK$3 million.

Capital structure and liquidity

Liabilities of the Long World Group included bank borrowings of approximately HK$100 million, payable to contractors and suppliers of approximately HK$4 million, maintenance cost reserve of approximately HK$7 million, deposits received for tenancies and renovation contracts totaling approximately HK$5 million and provisions for income, business and land appreciation taxes amounting to approximately HK$21 million. Deferred taxation increased to approximately HK$116 million as a result of the increase in the accumulated gains up to approximately HK$339 million arising from revaluation of investment properties since completion that had an incremental effect on profits tax in the future.

The current ratio of the Long World Group as at 31 December 2006 was 0.29 to 1. The liquidity position was adversely affected by the increased short-term liabilities that were used to refinance the repayments of loans due to Mr. YU and the decrease in current assets caused by the write-offs of debts due from Mr. YU. Nonetheless, the gearing ratio, calculated on total liabilities to total assets, was improved to a level of 51% at the balance sheet date as a result of the increased asset backing caused by the enhanced property value.

Borrowings and pledge of assets

The bank borrowings were secured by the ownership titles of all investment properties held by the Long World Group in favour of the lending banks.

— II-47 —

FINANCIAL INFORMATION OF THE LONG WORLD GROUP

APPENDIX II

Foreign currency management

The PRC Company’s operations were property leasing and sales conducted in the PRC whereas its holding companies, Trenco and Long World were overseas companies that were committed to yields from investments to their shareholders in Hong Kong dollars. As a result, the Long World Group had exposures in foreign currency fluctuations arising from Renminbi against Hong Kong Dollars. The Long World Group did not hedge its foreign currency risks as the rates of exchange between HK$ and RMB were controlled within a narrow range and the expected exposure was therefore not substantial.

Contingent liabilities

Other than guarantees given to two related companies in favour of certain banks to the extent of approximately HK$31,911,000, the Long World Group had no contingent liabilities as at 31 December 2006.

Material acquisitions and disposals of subsidiaries and affiliated companies

Save for the reorganisation as set out in note 1 of “Notes to the financial information” of the Long World Group in Appendix II to this circular, there were no significant acquisitions and disposals of investments by the Long World Group during the year under review.

Future plans for material investments or capital assets

As at 31 December 2006, there were no future plans for material investments or capital assets.

Employees

During the year, the Long World Group employed an average of 22 staff for its day-today operations in the PRC. The increased manpower led to an increase in staff costs to approximately HK$1.5 million. Employees were remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

Segmental information of the Long World Group

At present, the principal business of the Long World Group is the leasing of properties developed by the PRC Company in the Tianyu Project.

In the past three years, the Long World Group had been engaged in the sale and rental of properties of Tianyu Garden Phase 2. These two business segments had differences in revenue mix as follows:

In 2004, revenue generated from property sales was 78% to total revenue. In later years, such proportion dropped in line with the decreasing number of unsold units whilst the leasing operations were on the other hand gradually improving. Rental income grew throughout the years and in 2006 started to outweigh the property sales and contributed 56% of total revenue to the Long World Group when occupancy and unit rental rates improved.

— II-48 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

I. ACQUISITIONS OF THE RED EMPIRE GROUP (INCLUDING THE YUE TIAN GROUP) AND ALLRIGHT COMPLETED ON 4 MAY 2007

Background

On 2 March 2007, Great Elegant Investment Limited (“Great Elegant”), a whollyowned subsidiary of the Company, (i) entered into acquisition agreement with Poly and SMC Property Investment Limited (a wholly-owned subsidiary of Shell Electric Mfg. (Holdings) Company Limited whose shares are listed on the Stock Exchange) for the acquisition of 100% shareholding in and shareholder’s loan due by Red Empire and Allright respectively for a total consideration of HK$452,147,600 and HK$177,301,667 financed by the net proceeds from the issue of the Notes by the Company; and (ii) entered into acquisition agreement with Wise Gain Investment Limited (“Wise Gain”) (which entire issued share capital is held by Mr. YU) for the acquisition of 29% shareholding in and shareholder’s loan due by Yue Tian for a total consideration of HK$257,103,733 settled by way of the issue of convertible preference shares by the Company. Red Empire and Allright have no major assets or operating businesses other than their respective 51% and 20% interest in the issued share capital of Yue Tian (which indirectly holds the entire interest in the Westin Project). The aforesaid acquisitions were completed on 4 May 2007. There were no variation to the aggregate remuneration payable to and benefits in kind receivable by the directors of Great Elegant as a result of such acquisitions.

Financial information

Set out below are (i) audited financial information of the Red Empire Group and the Yue Tian Group for each of the three years ended 31 December 2006 together with the relevant notes to the accounts as extracted from the accountants’ report of the Red Empire Group and the accountants’ report of the Yue Tian Group as set out in Appendix II to the Company’s circular dated 4 April 2007; (ii) the management discussion and analysis of the Red Empire Group (including the Yue Tian Group) as extracted from Appendix II to the Company’s circular dated 4 April 2007; (iii) audited financial information of Allright for the period from 23 November 2004 (being date of incorporation) to 31 December 2005 and the year ended 31 December 2006 together with the relevant notes to the accounts as extracted from the accountants’ report of Allright as set out in Appendix III to the Company’s circular dated 4 April 2007; (iv) the management discussion and analysis of Allright as extracted from Appendix III to the Company’s circular dated 4 April 2007; and (v) the pro forma financial information of the Group as enlarged by the acquisitions of the interest in the Westin Project extracted from Appendix IV to the Company’s circular dated 4 April 2007. Capitalised terms used in this section shall have the same meanings as defined in the Company’s circular dated 4 April 2007.

— III-1 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

1. Financial information of the Red Empire Group

A. Financial information

1. Consolidated income statements of the Red Empire Group

Notes Turnover 3 Other revenue 5 General and administrative expenses Loss from operations 6 Finance costs 7 Loss before income tax expense Income tax expense 11 Loss for the year Attributable to: — Equity holders of Red Empire — Minority interests	For the year ended 31 2004 2005 HK$’000 HK$’000 — — 163 121 (2,764) (2,959) (2,601) (2,838) — (8,068) (2,601) (10,906) — — (2,601) (10,906) (1,146) (3,582) (1,455) (7,324) (2,601) (10,906)	December 2006 HK$’000 — 407 (10,219) (9,812) (1,989) (11,801) — (11,801) (479) (11,322) (11,801)

— III-2 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

2. Consolidated balance sheets of the Red Empire Group

Notes Non-current assets Prepaid lease payments — non-current portion 15 Plant and equipment 16 Properties held for development 17 Goodwill 19 Current assets Prepaid lease payments — current portion 15 Amount due from intermediate holding company 20 Amount due from minority shareholder 20 Amounts due from related companies 21 Prepayments and other receivables Cash and cash equivalents 22 Current liabilities Amount due to intermediate holding company 20 Amount due to immediate holding company 20 Amounts due to minority shareholders 20 Amount due to fellow subsidiary 20 Amounts due to related companies 21 Amount due to related party 21 Other payables and accruals Net current liabilities Total assets less current liabilities Non-current liabilities Loans from minority shareholders 23 Deferred tax liabilities 24 Bank borrowings — due after one year 25 NET ASSETS Capital and reserves attributable to equity holders of Red Empire Share capital 26 (Deficits)/reserves 27 TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF RED EMPIRE Minority interests TOTAL EQUITY	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,558 327,873 336,925 1,494 1,656 1,372 54,961 319,473 801,322 6,739 12,172 12,172 82,752 661,174 1,151,791 -------------- -------------- -------------- 515 9,643 10,210 — 10,000 — — 2,756 — 64,168 — — 68,958 125,289 50,093 387 88,959 5,953 134,028 236,647 66,256 -------------- -------------- -------------- — 19,048 — 104,375 317,780 312,145 60,660 12,963 — — — 5 25,194 11,729 75,690 20,377 98 — 4,808 48,240 74,864 215,414 409,858 462,704 -------------- -------------- -------------- (81,386) (173,211) (396,448) 1,366 487,963 755,343 -------------- -------------- -------------- — 119,791 133,239 — 14,331 15,131 — 152,939 366,300 — 287,061 514,670 -------------- -------------- -------------- 1,366 200,902 240,673 — — — (1,061) 18,244 40,276 (1,061) 18,244 40,276 2,427 182,658 200,397 1,366 200,902 240,673	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,558 327,873 336,925 1,494 1,656 1,372 54,961 319,473 801,322 6,739 12,172 12,172 82,752 661,174 1,151,791 -------------- -------------- -------------- 515 9,643 10,210 — 10,000 — — 2,756 — 64,168 — — 68,958 125,289 50,093 387 88,959 5,953 134,028 236,647 66,256 -------------- -------------- -------------- — 19,048 — 104,375 317,780 312,145 60,660 12,963 — — — 5 25,194 11,729 75,690 20,377 98 — 4,808 48,240 74,864 215,414 409,858 462,704 -------------- -------------- -------------- (81,386) (173,211) (396,448) 1,366 487,963 755,343 -------------- -------------- -------------- — 119,791 133,239 — 14,331 15,131 — 152,939 366,300 — 287,061 514,670 -------------- -------------- -------------- 1,366 200,902 240,673 — — — (1,061) 18,244 40,276 (1,061) 18,244 40,276 2,427 182,658 200,397 1,366 200,902 240,673
		1,151,791 -------------- 10,210 — — — 50,093 5,953
		66,256 -------------- — 312,145 — 5 75,690 — 74,864
		462,704 --------------
		(396,448)
		755,343 -------------- 133,239 15,131 366,300
		514,670 --------------
		240,673

		— 40,276
		40,276 200,397
		240,673

— III-3 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Balance sheets of Red Empire

Notes
Non-current asset
Interests in subsidiaries
18
Current asset
Amounts due from subsidiaries
18
Current liabilities
Amount due to intermediate
holding company
20
Amount due to immediate
holding company
20
Net current liabilities
NET (LIABILITIES)/ASSETS
Capital and reserves
Share capital
26
(Deficits)/reserves
27
TOTAL EQUITY

As at 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
9,000
297,377
325,285
--------------
--------------
--------------
95,365
34,068
410
--------------
--------------
--------------
—
19,048
—
104,375
317,780
312,145
104,375
336,828
312,145
--------------
--------------
--------------
(9,010)
(302,760)
(311,735)
(10)
(5,383)
13,550
—
—
—
(10)
(5,383)
13,550
(10)
(5,383)
13,550

— III-4 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

4. Consolidated statements of changes in equity of the Red Empire Group

Note At 1 January 2004 Exchange differences on translation of financial statements of foreign subsidiary Loss for the year At 31 December 2004 Revaluation of prepaid lease payment Exchange differences on translation of financial statements of foreign subsidiary Contributions from minority shareholders 23 Loss for the year At 31 December 2005 Exchange differences on translation of financial statements of foreign subsidiary Contributions from minority shareholders 23 Loss for the year At 31 December 2006		Attributable to equity holders of Red Empire Foreign exchange Revaluation Accumulated reserve reserve losses HK$’000 HK$’000 HK$’000 — — (5) 90 — — — — (1,146) 90 — (1,151) — 20,764 — 2,123 — — — — — — — (3,582) 2,213 20,764 (4,733) 22,511 — — — — — — — (479) 24,724 20,764 (5,212)	Minority interests HK$’000 3,737 145 (1,455) 2,427 23,093 2,040 162,422 (7,324) 182,658 21,627 7,434 (11,322) 200,397	Total HK$’000 3,732 235 (2,601) 1,366 43,857 4,163 162,422 (10,906) 200,902 44,138 7,434 (11,801) 240,673
	Share capital HK$’000 — — — — — — — — — — — — —	Foreign exchange reserve HK$’000 — 90 — 90 — 2,123 — — 2,213 22,511 — — 24,724

— III-5 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

5. Consolidated cash flow statements of the Red Empire Group

For the
2004
HK$’000
Cash flows from operating activities
Loss before income tax expense
(2,601)
Adjustments for:
Depreciation of plant and equipment
392
Write-off of hotel pre-operating expenses
—
Finance costs
—
Finance income
(163)
Operating loss before working capital changes
(2,372)
Changes in working capital:
(Increase)/decrease in amount due from
intermediate holding company
—
(Increase)/decrease in amount due from
minority shareholder
—
(Increase)/decrease in amounts due
from related companies
(60,887)
(Increase)/decrease in prepayments and other receivables
(31,995)
Increase/(decrease) in amount due to intermediate
holding company
—
Increase/(decrease) in amount due to immediate
holding company
65,370
Increase/(decrease) in amounts due to
minority shareholders
60,660
Increase in amount due to fellow subsidiary
—
Increase/(decrease) in amounts due to
related companies
4,610
Increase/(decrease) in amount due to related party
20,377
Increase in other payables and accruals
4,612
Net cash from operating activities
60,375
--------------
Cash flows from investing activities
Acquisition of plant and equipment
(1,867)
Disposal of partial interest in subsidiary
—
Additions to prepaid lease payments
(20,588)
Additions to properties held for development
(51,247)
Interest received
163
Net cash used in investing activities
(73,539)
--------------
Cash flows from financing activities
Loans from minority shareholders
—
Proceeds from new bank loans
—
Interest paid on bank and other borrowings
—
Net cash from financing activities
—
--------------
Net (decrease)/increase in cash and cash equivalents
(13,164)
Effect of foreign exchange rate changes
235
Cash and cash equivalents at beginning of year
13,316
Cash and cash equivalents at end of year(note 22)
387

year ended 31 December
2005
2006
HK$’000
HK$’000
(10,906)
(11,801)
438
512
—
5,239
8,068
1,989
(121)
(407)
(2,521)
(4,468)
(10,000)
10,000
(2,756)
2,756
64,168
—
(56,331)
76,945
19,048
(19,048)
213,405
(5,635)
(47,697)
(12,963)
—
5
(13,465)
63,307
(20,279)
(103)
43,432
23,933
187,004
134,729
--------------
--------------
(600)
(151)
9,327
—
(283,658)
(1,003)
(254,869)
(446,682)
121
407
(529,679)
(447,429)
--------------
--------------
278,724
13,744
152,939
213,361
(4,579)
(1,989)
427,084
225,116
--------------
--------------
84,409
(87,584)
4,163
4,578
387
88,959
88,959
5,953

— III-6 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

B. Notes to the financial information

1. General

Red Empire was incorporated in the BVI with limited liability on 28 October 2003 under the International Business Companies Act of the BVI. Red Empire has not carried on any business since the date of its incorporation save for the acquisition and holding of the 51% equity interest in Yue Tian. The immediate and intermediate holding companies are CMIC Property (China) Limited, a company incorporated in Hong Kong, and Poly (Hong Kong) Investments Limited, a company incorporated in Hong Kong and the shares of which are listed on The Stock Exchange of Hong Kong Limited, respectively. As at the date of this report, the directors of Red Empire considered the ultimate holding company of Red Empire to be China Poly Group Corporation, a state-owned enterprise established in the PRC. The registered office of Red Empire is located at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, BVI, and the principal place of business of Red Empire is located at Room 2503, Admiralty Centre, Tower I, 18 Harcourt Road, Hong Kong.

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

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

2. Principal accounting policies

(a) Statement of compliance

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

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

HKAS 1 Amendment Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK(IFRIC) — Interpretation 10 Interim Financial Reporting and Impairment[2]

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

2 Effective for annual periods beginning on or after 1 November 2007

(b) Basis of preparation

The Financial Information comprises the financial statements of Red Empire and its subsidiaries.

The Financial Information has been prepared on a going concern basis notwithstanding that the Red Empire Group had net current liabilities as at 31 December 2004, 2005 and 2006 as its holding company had agreed not to demand for the repayment of the amount due by the Red Empire Group until the Red Empire Group has the financial

— III-7 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

ability to do so; and had undertaken to provide such financial support to the Red Empire Group to enable it to continue as a going concern and to enable it to meet its liabilities as and when they fall due.

The Financial Information has been prepared under the historical cost convention except that the prepaid lease payments and the properties held for development are stated at their fair values.

(c) Basis of consolidation

Where Red Empire has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The Financial Information presents the results of the Red Empire 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 results of subsidiaries acquired or disposed of during the Relevant Periods are included in the consolidated income statement from the effective dates of acquisition or up to the effective dates of disposal, as appropriate.

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

For business combination that involves more than one exchange transaction through successive share purchases, the cost of the transaction and fair value information at the date of each exchange transaction are treated separately to determine the amount of any goodwill associated with that transaction. Any adjustments to those fair values relating to previously held interests is accounted for as an increase in revaluation reserve.

(d) Subsidiaries

A subsidiary is an entity over which Red Empire is able to exercise control. Control is achieved where Red Empire has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

(e) Impairment of non-financial assets

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).

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.

— III-8 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(f) Foreign currencies

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 Red Empire 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 Red Empire Group or the overseas operation concerned.

(g) Plant and equipment

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

(h) Properties held for development

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

(i) Properties held for sale

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

(j) Cash and cash equivalents

— III-9 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(k) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

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

(l) Revenue recognition

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

(m) Financial instruments

(i) Financial assets

The Red Empire Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. Other than financial assets in a qualifying hedging relationship, the Red Empire 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.

— III-10 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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

Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Red Empire 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 Red Empire Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. Other than financial liabilities in a qualifying hedging relationship, the Red Empire 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, amounts due to immediate holding company and loans from shareholders 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.

(iii) Derecognition

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

— III-11 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(n) Provision and contingent liabilities

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

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

(o) Employee benefits

(i) Defined contribution retirement plan

Contributions to defined contribution retirement plans are recognised as an expense in the income statement when the services are rendered by the employees.

The employees of the PRC subsidiary, Cheng Jian Tianyu, are required to participate in a central pension scheme operated by the local municipal government. Cheng Jian Tianyu is required to contribute a certain percentage of its payroll costs to the central pension scheme. The contributions payable are charged to the income statement when they become payable in accordance with the rules of the central pension scheme.

(ii) Employee entitlements

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

(p) Leases

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

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Red Empire 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.

— III-12 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

(q) Borrowing costs

Borrowing costs are expensed in profit and loss 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.

(r)

Goodwill

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

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 consolidated income statements.

For the purpose of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired.

For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount to each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

3. Turnover

The Red Empire Group did not generate any turnover during the Relevant Periods.

— III-13 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

4. Segment information

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

5. Other revenue

	For the year ended 31	For the year ended 31	December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Bank interest income	163	121	407

6. Loss from operations

Loss from operations is stated after charging/(crediting):

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Auditors’ remuneration	238	12	320
Depreciation of plant and equipment	392	438	512
Write-off of hotel pre-operating expenses	—	—	5,239
Minimum lease payments under operating lease
in respect of land and buildings	495	594	1,069
Exchange loss/(gain), net	71	(207)	(356)

In addition to the above, the following expenditures have been capitalised as properties held for development as disclosed in note 17 to the Financial Information during the Relevant Periods:

	For the year ended 31	For the year ended 31	December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Amortisation of prepaid lease payments	515	9,643	10,210
Minimum lease payments under operating lease
in respect of land and buildings	646	535	565

— III-14 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

7. Finance costs

Interest on bank borrowings wholly repayable
over five years
Interest on other borrowings wholly repayable
within five years
Imputed interest on loans from minority
shareholders wholly repayable over five years
(note 23)
Others
Less:_expenses capitalised as properties held
for development(note 17)
Finance costs charged to consolidated income
statement
8.
Staff costs
Staff costs (including directors’
emoluments) comprise:
Basic salaries and other benefits
Contributions to defined contribution
pension plans
_Less:_expenses capitalised as properties held
for development(note 17)_
Staff costs charged to consolidated income
statement
9.
Directors’ emoluments

For the year ended 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
—
—
18,825
—
4,579
1,869
—
3,489
7,138
—
—
120
—
8,068
27,952
—
—
(25,963)
—
8,068
1,989
For the year ended 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
1,206
1,174
3,425
177
205
379
1,383
1,379
3,804
(1,262)
(1,246)
(3,734)
121
133
70

No directors’ emoluments were incurred for the Relevant Periods.

— III-15 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

10. Five highest paid individuals

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

Basic salaries and other benefits Contributions to defined contribution pension plans	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 469 332 914 20 24 38 489 356 952	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 469 332 914 20 24 38 489 356 952
		952

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

	No. of employees
	For the year ended 31 December
	2004 2005	2006
Nil to HK$1,000,000	5 5	5

11. Income tax expense

No provision for Hong Kong profits tax or overseas income tax has been made as the Red Empire Group has no assessable profits during the Relevant Periods.

Hong Kong profits tax is calculated at 17.5% on the estimated assessable profits for the Relevant Periods.

The Red Empire Group’s subsidiary in the PRC is subject to an applicable enterprise income tax at the rate of 33% on the estimated assessable profits for the Relevant Periods.

The income tax expense for the Relevant Periods can be reconciled to the loss per the consolidated income statements as follows:

Loss before income tax expense Tax calculated at the Hong Kong profits tax rate of 17.5% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 (2,601) (10,906) (11,801 (455) (1,909) (2,065 484 2,860 2,136 (29) (951) (71 — — —	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 (2,601) (10,906) (11,801 (455) (1,909) (2,065 484 2,860 2,136 (29) (951) (71 — — —

		(2,065 2,136 (71
		—

— III-16 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

No provision for deferred taxation has been recognised in the consolidated financial statements as the amount involved is insignificant.

12. Profit/loss attributable to equity holders of Red Empire

The loss attributable to equity holders of Red Empire is dealt with in the financial statements of Red Empire to the extent of HK$4,000 and HK$5,373,000 respectively, for each of the two years ended 31 December 2004 and 2005; and the profit attributable to equity holders of Red Empire is to the extent of HK$18,933,000 for the year ended 31 December 2006.

13. Dividends

No dividend has been paid or declared by Red Empire during the Relevant Periods.

14. Earnings per share

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

15. Prepaid lease payments

The prepaid lease payments are analysed for reporting purposes as follows:

Red Empire Group Non-current assets Current assets	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,558 327,873 336,925 515 9,643 10,210 20,073 337,516 347,135	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,558 327,873 336,925 515 9,643 10,210 20,073 337,516 347,135
		347,135

The prepaid lease payments were paid to acquire medium-term land use rights in the PRC for the purpose of property development over a period of 40 years. As at 31 December 2005 and 2006, the land use rights were pledged to a bank to secure the bank borrowings as disclosed in note 25 to the Financial Information.

— III-17 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

16. Plant and equipment

Leasehold improvements HK$’000 Red Empire Group Cost At 1 January 2004 — Additions 510 At 31 December 2004 510 Additions — At 31 December 2005 510 Additions — Foreign currency translation — At 31 December 2006 510 ---------------- Accumulated depreciation At 1 January 2004 — Charge for the year 102 At 31 December 2004 102 Charge for the year 102 At 31 December 2005 204 Charge for the year 102 At 31 December 2006 306 ---------------- Net book value At 31 December 2006 204 At 31 December 2005 306 At 31 December 2004 408	Furniture and fixtures HK$’000 — 86 86 9 95 — — 95 ---------------- — 17 17 17 34 20 54 ---------------- 41 61 69	Office equipment HK$’000 — 31 31 124 155 151 7 313 ---------------- — 6 6 16 22 49 71 ---------------- 242 133 25	Motor vehicles HK$’000 94 1,240 1,334 467 1,801 — 70 1,871 ---------------- 75 267 342 303 645 341 986 ---------------- 885 1,156 992	Total HK$’000 94 1,867
				1,961 600
				2,561 151 77
				2,789 ---------------- 75 392
				467 438
				905 512
				1,417 ----------------
				1,372

				1,656

				1,494

17. Properties held for development

Red Empire Group Construction cost Others	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 52,124 310,573 759,234 2,837 8,900 42,088 54,961 319,473 801,322	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 52,124 310,573 759,234 2,837 8,900 42,088 54,961 319,473 801,322
		801,322

As at 31 December 2005 and 2006, the properties held for development were pledged to a bank to secure bank borrowings as disclosed in note 25 to the Financial Information.

— III-18 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

18. Interests in subsidiaries

Unlisted investment, at cost Less:_Impairment Loan to subsidiary — Yue Tian(note a) Investment in subsidiaries Amounts due from subsidiaries (note b)_ — Poly Tianyu — Yue Tian	As at 31 December 2004 2005 2006 HK’000 HK$’000 HK$’000 9,000 18,727 18,727 — (9,000) (9,000) 9,000 9,727 9,727 — 287,650 315,558 9,000 297,377 325,285 ------------ ------------ ------------ 95,365 97 — — 33,971 410 95,365 34,068 410 ------------ ------------ ------------ 104,365 331,445 325,695

Notes:

a. Loan to subsidiary is unsecured, interest-free and repayable by 2020. The fair value of the loan at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the prevailing market rates.
b. Amount due from Yue Tian is unsecured, interest-free and repayable on demand.

Investment in subsidiaries represents Red Empire’s direct and indirect interest in the following entities:

	Place and date of	Registered/
	incorporation/	authorised	Attributable equity
	establishment and	and issued	interest held		Principal
Name of subsidiaries	kind of legal entity	paid-up capital	by Red Empire		activity
			Directly	Indirectly
Yue Tian	Hong Kong,	Authorised capital of	51%	—	Investment
	2 March 1993,	HK$100,000 of 100,000			holding
	Incorporated	ordinary shares of HK$1
		each and issued paid-up
		capital of HK$72,000
Poly Tianyu	Hong Kong,	Authorised capital of	51%	—	Investment
	21 November 2003,	HK$10,000 of 10,000			holding
	Incorporated	ordinary shares of
		HK$1 each and issued
		paid-up capital
		of HK$100

— III-19 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

	Place and date of	Registered/
	incorporation/	authorised	Attributable equity
	establishment and	and issued	interest held		Principal
Name of subsidiaries	kind of legal entity	paid-up capital	by Red Empire		activity
			Directly	Indirectly
Cheng Jian Tianyu	The PRC	Registered capital of	—	51%	Property
	26 September 2002,	US$45,000,000		(Note)	development
	Sino-foreign	and paid-up capital of
	cooperative	US$27,500,000
	enterprise

Note: Pursuant to the sino-foreign cooperative agreement entered into by the parties on 3 January 2005, Yue Tian has fully paid RMB90 million on 8 June 2006 to GCC as cash compensation and since then (i) GCC is no longer entitled to any profit or loss generated by Cheng Jian Tianyu; and (ii) Yue Tian will be entitled to 100% of the total gross floor area of the project upon completion of the proposed development and the entire profit or loss to be generated by Cheng Jian Tianyu.

As at 31 December 2005 and 2006, investment in, loan to and amount due from Yue Tian with carrying amount of approximately HK$331,348,000 and HK$325,695,000 were pledged to a bank to secure bank borrowings as disclosed in note 25 to the Financial Information.

Except for Cheng Jian Tianyu, which operates in the PRC, all subsidiaries of Red Empire operate in Hong Kong.

None of the subsidiaries had any debt securities outstanding as at 31 December 2004, 2005 and 2006 or at any time during the Relevant Periods.

19. Goodwill

Goodwill
Red Empire Group At 1 January 2004 and 31 December 2004 Acquisition of additional interest in a subsidiary_(note 31)_ At 31 December 2005 and 2006	HK$’000 6,739 5,433
	12,172

Impairment test for goodwill

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

20. Amounts due from/(to) intermediate holding company/immediate holding company/ minority shareholders/fellow subsidiary

The amounts are unsecured, interest-free, have no fixed repayment date and are expected to be repayable within 12 months.

— III-20 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

21. Amounts due from/(to) related companies/related party

Red Empire Group Due from related companies: Guangzhou City Construction & Development Company Limited （廣州市城市建設開發有限公司） Guangzhou Feng Jia Enterprise Development Co., Ltd （廣州市豐嘉企業發展有限公司） Maximum during the year Guangzhou City Construction & Development Company Limited （廣州市城市建設開發有限公司） Guangzhou Feng Jia Enterprise Development Co., Ltd （廣州市豐嘉企業發展有限公司） Due to related companies: Guangzhou Chuangyu Real Estate Development Company Limited （廣州市創譽房地產開發有限公司） Guangzhou Tianyu Real Estate Development Company Limited （廣州市天譽房地產開發有限公司） Guangzhou Feng Jia Enterprise Development Co., Ltd （廣州市豐嘉企業發展有限公司） Due to related party: Mr. Yu Pan*	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 141 — — 64,027 — — 64,168 — — 141 141 — 64,027 64,027 — 18,737 3,251 — 6,457 2,215 — — 6,263 75,690 25,194 11,729 75,690 20,377 98 —	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 141 — — 64,027 — — 64,168 — — 141 141 — 64,027 64,027 — 18,737 3,251 — 6,457 2,215 — — 6,263 75,690 25,194 11,729 75,690 20,377 98 —
		—

		— —

		— — 75,690
		75,690

		—

The amounts represent balances with companies in which Mr. Yu Pan, a director of Yue Tian and Poly Tianyu, has beneficiary interests. These amounts are interestfree, unsecured and repayable on demand.

** Mr. Yu Pan is a director of Yue Tian.

22. Cash and cash equivalents

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

	As at 31 December	As at 31 December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Red Empire Group
Cash and bank balances	387	88,959	5,953

— III-21 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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

	As at	December
	2004	2005	2006
	’000	’000	’000
RMB	197	89,149	5,312
USD	1	—	4

Renminbi 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.

23. Loans from minority shareholders

The loans from minority shareholders are unsecured, interest-free, have no fixed repayment date and are expected to be repayable by 2020.

The fair value of the loans at initial recognition has been determined based on the present value of the estimated future cash flows discount using the prevailing market rates. The residual amount is included in shareholders’ equity (note 27) .

The loans from minority shareholders recognised in the consolidated balance sheets is calculated as follows:

Balance at 1 January 2004 and 2005 Loans from minority shareholders Contributions from minority shareholders Imputed interest expense_(note 7) Carrying amount at 31 December 2005 Additional loans from minority shareholders Contributions from minority shareholders Imputed interest expense(note 7)_ Carrying amount at 31 December 2006	HK$’000 — 278,724 (162,422 3,489
	119,791 13,744 (7,434 7,138
	133,239

Interest expense on loans from minority shareholders is calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amount.

The fair values of the loans as at 31 December 2005 and 2006 approximate to their respective carrying amounts.

— III-22 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

24. Deferred tax liabilities

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

	Revaluation of
	prepaid
	lease payments
	HK$’000
Red Empire Group
At 1 January 2004 and 1 January 2005	—
Acquisition of additional interest in a subsidiary_(note 31)_	14,331
At 31 December 2005	14,331
Translation adjustment	800
At 31 December 2006	15,131

25. Bank borrowings

At the balance sheet dates, the bank borrowings were repayable as follows:

Red Empire Group Within two to five years Over five years Non-current liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — 152,939 238,017 — — 128,283 — 152,939 366,300	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — 152,939 238,017 — — 128,283 — 152,939 366,300
		366,300

The bank borrowings are secured by the Red Empire Group’s land use rights and properties held for development in the PRC and Red Empire’s interest in Yue Tian as set forth in notes 15, 17 and 18, respectively, to the Financial Information, carry interest at HIBOR plus 1.8% per annum and are fully repayable in 2013.

26. Share capital

2004 US$’000 HK$’000 Authorised: 50,000 ordinary shares of US$1.00 each 50 390 Issued and fully paid: 1 ordinary share of US$1.00 each — —	As at 31 December 2005 US$’000 HK$’000 50 390 — —	2006 US$’000 HK$’000 50 390 — —	2006 US$’000 HK$’000 50 390 — —

			—

— III-23 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

27. (Deficits)/reserves

Red Empire Group
At 1 January 2004
Exchange differences on translation
of financial statements of foreign
subsidiary
Loss for the year
At 31 December 2004
Revaluation of prepaid lease payments
Exchange differences on translation
of financial statements of foreign
subsidiary
Loss for the year
At 31 December 2005
Exchange differences on translation
of financial statements of foreign
subsidiary
Loss for the year
At 31 December 2006
Red Empire
At 1 January 2004
Loss for the year
At 31 December 2004
Loss for the year
At 31 December 2005
Profit for the year
At 31 December 2006

Foreign
exchange
Revaluation
Accumulated
reserve
reserve
losses
Total
HK$’000
HK$’000
HK$’000
HK$’000
—
—
(5)
(5)
90
—
—
90
—
—
(1,146)
(1,146)
90
—
(1,151)
(1,061)
—
20,764
—
20,764
2,123
—
—
2,123
—
—
(3,582)
(3,582)
2,213
20,764
(4,733)
18,244
22,511
—
—
22,511
—
—
(479)
(479)
24,724
20,764
(5,212)
40,276
(Accumulated losses)/
retained profit
HK$’000
(6)
(4)
(10)
(5,373)
(5,383)
18,933
13,550

(a) Foreign exchange reserve

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

— III-24 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(b) Revaluation reserve

The amount represents revaluation surplus of the net assets acquired arising from acquisition of further 12.75% equity interest in Yue Tian by Red Empire.

28. Operating lease commitments

At the balance sheet dates, the Red Empire Group has commitments for future minimum lease payments under non-cancellable operating lease in respect of land and buildings which fall due as follows:

Red Empire Group Within one year 29. Capital commitments Red Empire Group Capital expenditure in respect of property development costs contracted for but not provided for in the Financial Information 30. Related party transactions	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 681 79 108 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 861,555 769,246 385,009	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 681 79 108 As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 861,555 769,246 385,009

The significant transactions with related parties during the Relevant Periods are as follows:

		For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
Name of parties and relationship	Nature of transactions	2004	2005	2006
		HK$’000	HK$’000	HK$’000
Geldy Limited, fellow subsidiary	Rental expense	495	594	1,069
Poly (Hong Kong) Investments Limited,	Guarantee given to a bank in respect	—	204,000	204,000
intermediate holding company	of credit facilities extended
	to the Yue Tian Group
Mr. Yu Pan, director and shareholders	Guarantee given to a bank in respect	—	116,000	116,000
of Yue Tian, Poly Tianyu and Wise Gain	of credit facilities extended
Investment Limited	to the Yue Tian Group
Shell Electric Mfg. (Holdings) Company	Guarantee given to a bank in respect	—	80,000	80,000
Limited, shareholder of Allright,	of credit facilities extended
shareholder of Yue Tian	to the Yue Tian Group

— III-25 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

31. Acquisition of additional interest in a subsidiary

In 2005, Red Empire acquired further 12.75% of the issued share capital of Yue Tian from Poly Tianyu, a partially owned subsidiary of Red Empire for a consideration of approximately HK$9,727,000. The net assets acquired and the goodwill arisen in the transaction are as follows:

Carrying value HK$’000 Non-current assets 76,013 Current assets 139,047 Current liabilities (211,129) Non-current liabilities — 3,931 Net assets acquired (12.75% thereon) Cash consideration paid Goodwill_(note 19)_	Fair value adjustment HK$’000 44,073 — — (14,331) 29,742	Fair value HK$’000 120,086 139,047 (211,129) (14,331) 33,673 4,294 9,727 5,433

32. Financial instruments

The Red Empire Group’s principal financial assets are cash and bank balances and receivables from related parties. Financial liabilities of the Red Empire Group include loans from minority shareholders, bank borrowings and other amounts due to related parties. The Red Empire Group does not hold or issue any financial instruments for trading purposes at the balance sheet dates.

(a) Foreign currency risk

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

(b) Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 December 2004, 2005 and 2006.

The carrying values of cash and bank balances and other current related party balances approximate their respective fair values because of their short maturities. The carrying amounts of their loans from minority shareholders and bank borrowings approximate their respective fair values because the effective interest rates of the debts are approximate to the prevailing market rates at the balance sheet dates for similar borrowings available to the Red Empire Group.

— III-26 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

33. Post balance sheet events

On 5 March 2007, Red Empire, Allright and Wise Gain Investment Limited (collectively referred to as the “Lenders”) entered into a loan agreement with Yue Tian, pursuant to which the Lenders agreed to advance a loan up to HK$560,000,000 to Yue Tian in proportion to their shareholding in Yue Tian. The loan bears interest at a rate of 15% per annum and a default rate of 20% per annum for an overdue amount, is unsecured and repayable within a term not exceeding two months. By mid-March 2007, the aforesaid loans from the Lenders were fully repaid.

In March 2007, Cheng Jian Tianyu secured a term loan up to RMB800,000,000 from the Agricultural Bank of China.

Except for the above, there is no material post balance sheet event subsequent to 31 December 2006.

C. Subsequent financial statements

No audited financial statements have been prepared by the Red Empire Group in respect of any period subsequent to 31 December 2006.

— III-27 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

2. Financial information of the Yue Tian Group

A. Financial information

1. Consolidated income statements of the Yue Tian Group

Notes Turnover 3 Other revenue 5 General and administrative expenses Loss from operations 6 Imputed interest on loans from shareholders 21 Loss before income tax expense Income tax expense 10 Loss for the year attributable to equity holders of Yue Tian	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — — — 36 120 407 (2,392) (2,901) (9,578) (2,356) (2,781) (9,171) — (7,045) — (2,356) (9,826) (9,171) — — — (2,356) (9,826) (9,171)

— III-28 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

2. Consolidated balance sheets of the Yue Tian Group

Notes
Non-current assets
Prepaid lease payments
— non-current portion
14
Plant and equipment
15
Properties held for development
16
Current assets
Prepaid lease payments
— current portion
14
Amounts due from shareholders
18
Amount due from fellow subsidiary
18
Amounts due from related
companies
19
Prepayments and other receivables
Cash and cash equivalents
20
Current liabilities
Amount due to immediate
holding company
18
Amounts due to fellow subsidiaries
18
Amounts due to related companies
19
Amount due to related party
19
Other payables and accruals
Net current (liabilities)/assets
Total assets less current liabilities
Non-current liabilities
Loans from shareholders
21
Bank borrowings
— due after one year
22
NET ASSETS
Capital and reserves
Share capital
23
Reserves
24
TOTAL EQUITY ATTRIBUTABLE
TO EQUITY HOLDERS
OF YUE TIAN

As at 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
19,558
288,519
294,856
1,494
1,656
1,372
54,961
317,436
806,324
76,013
607,611
1,102,552
------------
------------
------------
515
7,606
8,935
5,136
—
—
—
428
—
64,168
—
—
68,958
125,289
50,096
270
87,392
5,812
139,047
220,715
64,843
------------
------------
------------
160,949
47,437
356
—
—
15
25,194
11,729
75,690
20,377
98
—
4,609
47,991
74,769
211,129
107,255
150,830
------------
------------
------------
(72,082)
113,460
(85,987)
3,931
721,071
1,016,565
------------
------------
------------
—
241,890
271,957
—
152,939
366,300
—
394,829
638,257
------------
------------
------------
3,931
326,242
378,308
72
72
72
3,859
326,170
378,236
3,931
326,242
378,308

— III-29 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Balance sheets of Yue Tian

Notes Non-current assets Plant and equipment 15 Investment in subsidiary 17 Current assets Amounts due from shareholders 18 Amount due from subsidiary 17 Prepayments and other receivables Cash and cash equivalents 20 Current liabilities Amount due to immediate holding company 18 Amounts due to fellow subsidiaries 18 Other payables and accruals Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Loans from shareholders 21 NET ASSETS Capital and reserves Share capital 23 Reserves 24 TOTAL EQUITY	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 493 791 580 30,759 180,396 214,204 31,252 181,187 214,784 ------------ ------------ ------------ 5,136 — — 128,281 379,836 409,957 202 203 22 83 3,288 520 133,702 383,327 410,499 ------------ ------------ ------------ 160,949 66 116 — 9 255 118 75 153 161,067 150 524 ------------ ------------ ------------ (27,365) 383,177 409,975 3,887 564,364 624,759 ------------ ------------ ------------ — 241,890 271,957 ------------ ------------ ------------ 3,887 322,474 352,802 72 72 72 3,815 322,402 352,730 3,887 322,474 352,802	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 493 791 580 30,759 180,396 214,204 31,252 181,187 214,784 ------------ ------------ ------------ 5,136 — — 128,281 379,836 409,957 202 203 22 83 3,288 520 133,702 383,327 410,499 ------------ ------------ ------------ 160,949 66 116 — 9 255 118 75 153 161,067 150 524 ------------ ------------ ------------ (27,365) 383,177 409,975 3,887 564,364 624,759 ------------ ------------ ------------ — 241,890 271,957 ------------ ------------ ------------ 3,887 322,474 352,802 72 72 72 3,815 322,402 352,730 3,887 322,474 352,802
		214,784 ------------ — 409,957 22 520
		410,499 ------------ 116 255 153
		524 ------------
		409,975
		624,759 ------------ 271,957 ------------
		352,802

		72 352,730
		352,802

— III-30 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

4. Consolidated statements of changes in equity of the Yue Tian Group

Share capital HK$’000 72 — —	Capital reserve HK$’000 12,455 — —	Foreign exchange reserve HK$’000 6 235 —
72 — — —	12,455 — 327,974 —	241 4,163 — —
72 — — —	340,429 — 18,723 —	4,404 42,514 — —
72	359,152	46,918

— III-31 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

5. Consolidated cash flow statements of the Yue Tian Group

Cash flows from operating activities
Loss before income tax expense
Adjustments for:
Depreciation of plant and equipment
Write off of hotel pre-operating expenses
Imputed interest on loans from
shareholders
Interest income
Operating loss before working
capital changes
Changes in working capital:
(Increase)/decrease in amounts due
from shareholders
(Increase)/decrease in amount due from
fellow subsidiary
(Increase)/decrease in amounts due
from related companies
(Increase)/decrease in prepayments
and other receivables
Increase/(decrease) in amounts due
to shareholders
Increase in amounts due to fellow
subsidiaries
Increase/(decrease) in amounts due
to related companies
Increase/(decrease) in amount due
to related party
Increase in other payables and accruals
Net cash generated from/(used in)
operating activities
Cash flows from investing activities
Acquisition of plant and equipment
Additions to properties held for
development
Additions to prepaid lease payments
Interest received
Net cash used in investing activities
Cash flows from financing activities
Loans from shareholders
Proceeds from new bank loans
Net cash from financing activities
Net (decrease)/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 (note 20)

For the year ended 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
(2,356)
(9,826)
(9,171)
392
438
512
—
—
5,239
—
7,045
—
(36)
(120)
(407)
(2,000)
(2,463)
(3,827)
(5,082)
5,136
—
—
(428)
428
(60,887)
64,168
—
(61,995)
(56,331)
76,966
160,949
(113,568)
(49,727)
—
—
15
4,610
(13,465)
63,307
20,377
(20,279)
(103)
4,413
43,382
24,101
60,385
(93,848)
111,160
------------
------------
------------
(1,867)
(600)
(151)
(51,247)
(254,869)
(446,681)
(20,588)
(283,658)
(1,004)
36
120
407
(73,666)
(539,007)
(447,429)
------------
------------
------------
—
562,819
34,144
—
152,939
213,361
—
715,758
247,505
------------
------------
------------
(13,281)
82,903
(88,764)
235
4,219
7,184
13,316
270
87,392
270
87,392
5,812

— III-32 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

B. Notes to the financial information

1. General

Yue Tian was incorporated in Hong Kong with limited liability on 2 March 1993 under the Hong Kong Companies Ordinance. Yue Tian has not carried on any business since the date of its incorporation save for the establishment and holding of the entire equity interest in Cheng Jian Tianyu. The immediate and intermediate holding companies of Yue Tian are Red Empire Limited, a company incorporated in the British Virgin Islands, and Poly (Hong Kong) Investments Limited, a company incorporated in Hong Kong and the shares of which are listed on The Stock Exchange of Hong Kong Limited, respectively. As at the date of this report, the directors of Yue Tian considered the ultimate holding company of Yue Tian to be China Poly Group Corporation, a state-owned enterprise established in the PRC. The registered office and principal place of business of Yue Tian is located at Room 2503, Admiralty Centre, Tower 1, 18 Harcourt Road, Hong Kong.

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

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

2. Principal accounting policies

(a) Statement of compliance

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

HKAS 1 Amendment Capital Disclosures[ 1] HKFRS 7 Financial instruments: Disclosures[ 1] HK(IFRIC) — Interpretation 10 Interim Financial Reporting and Impairment[ 2]

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

2 Effective for annual periods beginning on or after 1 November 2007

(b) Basis of preparation

The Financial Information comprises the financial statements of Yue Tian and its subsidiary.

The Financial Information has been prepared on a going concern basis notwithstanding that the Yue Tian Group had net current liabilities as at 31 December 2004, 2005 and 2006 as its holding company has undertaken to provide such financial support to the Yue Tian Group to enable it to continue as a going concern and to enable it to meet its liabilities as and when they fall due.

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

— III-33 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(c) Basis of consolidation

Where Yue Tian has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The Financial Information presents the results of the Yue Tian 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.

Yue Tian’s interests in subsidiary are stated at cost less impairment loss, if any.

(d) Subsidiaries

A subsidiary is an entity over which Yue Tian is able to exercise control. Control is achieved where Yue Tian has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

(e) Impairment of non-financial assets

(f) Foreign currencies

— III-34 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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 Yue Tian 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 Yue Tian Group or the overseas operation concerned.

(g)

Plant and equipment

(h)

Properties held for development

(i) Properties held for sale

(j) Cash and cash equivalents

(k) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

— III-35 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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.

(l) Revenue recognition

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

(m) Financial instruments

(i) Financial assets

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

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

— III-36 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Yue Tian 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 Yue Tian Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. Other than financial liabilities in a qualifying hedging relationship, the Yue Tian Group’s accounting policy for each category is as follows:

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 and loans from shareholders 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.

(iii) Derecognition

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

(n) Provision and contingent liabilities

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

— III-37 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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.

(o) Employee benefits

(i) Defined contribution retirement plan

Contributions to defined contribution retirement plans are recognised as an expense in the income statement when the services are rendered by the employees.

(ii) Employee entitlements

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

(p) Leases

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

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Yue Tian 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.

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

— III-38 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(q) Borrowing costs

3. Turnover

The Yue Tian Group did not generate any turnover during the Relevant Periods.

4. Segment information

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

5. Other revenue

Bank interest income 6. Loss from operations	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 36 120 407	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 36 120 407

Loss from operations is stated after charging:

	For the year ended 31	For the year ended 31	December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Auditors’ remuneration	38	12	320
Depreciation of plant and equipment	392	438	512
Write-off of hotel pre-operating expenses	—	—	5,239
Minimum lease payments under
operating lease in respect of land
and buildings	495	594	1,069

— III-39 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

In addition to the above, the following expenditures have been capitalised as properties held for development as disclosed in note 16 to the Financial Information during the Relevant Periods:

Amortisation of prepaid lease payments Interest on bank borrowings wholly repayable over five years Imputed interest on loans from shareholders wholly repayable over five years_(note 21)_ Minimum lease payments under operating lease in respect of land and buildings 7. Staff costs	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 515 7,606 9,855 — — 18,825 — — 14,646 646 535 565	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 515 7,606 9,855 — — 18,825 — — 14,646 646 535 565

Staff costs (including directors’ emoluments) comprise: Basic salaries and other benefits Contributions to defined contribution pension plans Less:_expenses capitalised as properties held for development(note 16)_ Staff costs charged to consolidated income statement	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,206 1,174 3,425 177 205 379 1,383 1,379 3,804 (1,262) (1,246) (3,734) 121 133 70	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,206 1,174 3,425 177 205 379 1,383 1,379 3,804 (1,262) (1,246) (3,734) 121 133 70
		3,804 (3,734)
		70

8. Directors’ emoluments

No directors’ emoluments were incurred for the Relevant Periods.

— III-40 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

9. Five highest paid individuals

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

Basic salaries and other benefits Contributions to defined contribution pension plans	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 469 332 914 20 24 38 489 356 952	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 469 332 914 20 24 38 489 356 952
		952

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

		No. of employees
	For the	year ended 31 December
	2004	2005	2006
Nil to HK$1,000,000	5	5	5

10. Income tax expense

No provision for Hong Kong profits tax or overseas income tax has been made as the Yue Tian Group has no assessable profits during the Relevant Periods.

Hong Kong profits tax is calculated at 17.5% on the estimated assessable profits for the Relevant Periods.

The Yue Tian Group’s subsidiary in the PRC is subject to an applicable enterprise income tax at the rate of 33% on the estimated assessable profits for the Relevant Periods.

The income tax expense for the Relevant Periods can be reconciled to the loss per the consolidated income statements are follows:

Loss before income tax expenses Tax calculated at the Hong Kong profits tax rate of 17.5% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 (2,356) (9,826) (9,171 (412) (1,720) (1,605 418 1,741 1,676 (6) (21) (71 — — —	For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 (2,356) (9,826) (9,171 (412) (1,720) (1,605 418 1,741 1,676 (6) (21) (71 — — —

		(1,605 1,676 (71
		—

No provision for deferred taxation has been recognised in the consolidated financial statements as the amount involved is insignificant.

— III-41 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

11. Loss attributable to equity holders of Yue Tian

The loss attributable to equity holders of Yue Tian is dealt with in the financial statements of Yue Tian to the extent of HK$2,142,000 and HK$9,387,000 respectively, for the two years ended 31 December 2004 and 2005; and the profit attributable to equity holders of Yue Tian for the year ended 31 December 2006 is to the extent of HK$11,605,000.

12. Dividends

No dividend has been paid or declared by Yue Tian during the Relevant Periods.

13. Earnings per share

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

14. Prepaid lease payments

The prepaid lease payments are analysed for reporting purposes as follows:

Yue Tian Group Non-current assets Current assets	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,558 288,519 294,856 515 7,606 8,935 20,073 296,125 303,791	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 19,558 288,519 294,856 515 7,606 8,935 20,073 296,125 303,791
		303,791

— III-42 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

15. Plant and equipment

Leasehold improvements HK$’000 Yue Tian Group Cost At 1 January 2004 — Additions 510 At 31 December 2004 510 Additions — At 31 December 2005 510 Additions — Foreign currency translation — At 31 December 2006 510 --------------- Accumulated depreciation At 1 January 2004 — Charge for the year 102 At 31 December 2004 102 Charge for the year 102 At 31 December 2005 204 Charge for the year 102 At 31 December 2006 306 --------------- Net book value At 31 December 2006 204 At 31 December 2005 306 At 31 December 2004 408	Furniture and fixtures HK$’000 — 86 86 9 95 — — 95 --------------- — 17 17 17 34 20 54 --------------- 41 61 69	Office equipment HK$’000 — 31 31 124 155 151 7 313 --------------- — 6 6 16 22 49 71 --------------- 242 133 25	Motor vehicles HK$’000 94 1,240 1,334 467 1,801 — 70 1,871 --------------- 75 267 342 303 645 341 986 --------------- 885 1,156 992	Total HK$’000 94 1,867
				1,961 600
				2,561 151 77
				2,789 --------------- 75 392
				467 438
				905 512
				1,417 ---------------
				1,372

				1,656

				1,494

— III-43 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Leasehold improvements HK$’000 Yue Tian Cost At 1 January 2004 — Additions 510 At 31 December 2004 510 Additions — At 31 December 2005 510 Additions — At 31 December 2006 510 --------------- Accumulated depreciation At 1 January 2004 — Charge for the year 102 At 31 December 2004 102 Charge for the year 102 At 31 December 2005 204 Charge for the year 102 At 31 December 2006 306 --------------- Net book value At 31 December 2006 204 At 31 December 2005 306 At 31 December 2004 408	Furniture and fixtures HK$’000 — 86 86 9 95 — 95 --------------- — 17 17 17 34 20 54 --------------- 41 61 69	Office equipment HK$’000 — 20 20 — 20 8 28 --------------- — 4 4 5 9 4 13 --------------- 15 11 16	Motor vehicles HK$’000 94 — 94 467 561 — 561 --------------- 75 19 94 54 148 93 241 --------------- 320 413 —	Total HK$’000 94 616
				710 476
				1,186 8
				1,194 --------------- 75 142
				217 178
				395 219
				614 ---------------
				580

				791

				493

16. Properties held for development

Yue Tian Group Construction costs Others	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 52,124 308,536 756,728 2,837 8,900 49,596 54,961 317,436 806,324	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 52,124 308,536 756,728 2,837 8,900 49,596 54,961 317,436 806,324
		806,324

As at 31 December 2005 and 2006, the properties held for development were pledged to a bank to secure bank borrowings as disclosed in note 22 to the Financial Information.

— III-44 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

17. Interest in subsidiary

Yue Tian Unlisted investment, at cost Amount due from subsidiary-current	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 30,759 180,396 214,204 128,281 379,836 409,957 159,040 560,232 624,161	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 30,759 180,396 214,204 128,281 379,836 409,957 159,040 560,232 624,161
		624,161

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

Investment in subsidiary represents Yue Tian’s direct interest in the following entity:

	Place and date		Attributable	Principal
	of establishment		equity interest	activity and
Name of	kind of	Registered and	directly held	place of
subsidiary	legal entity	paid-up capital	by Yue Tian	operation
Cheng Jian Tianyu	PRC, 26 September	Registered capital	100%	Property
城建天譽	2002, Sino-foreign	of US$45,000,000	(Note)	development
	cooperation	and paid-up capital
	enterprise	of US$27,500,000

Note: Pursuant to the sino-foreign cooperative agreement entered into by the parties on 3 January 2005, Yue Tian has fully paid RMB90 million on 8 June 2006 to GCC as cash compensation and since then (i) GCC is no longer be entitled to any profit or loss generated by Cheng Jian Tianyu; and (ii) Yue Tian will be entitled to 100% of the total gross floor area of the project upon completion of the proposed development and the entire profit or loss to be generated by Cheng Jian Tianyu.

Cheng Jian Tianyu did not have any debt securities outstanding as at 31 December 2004, 2005 and 2006 or at any time during the Relevant Periods.

18. Amounts due from/(to) shareholders immediate holding company/fellow subsidiaries

The amounts due from/(to) shareholders/immediate holding company/fellow subsidiaries are unsecured, interest-free and repayable on demand.

— III-45 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

19. Amounts due from/(to) related companies/related party

Yue Tian Group Due from related companies: Guangzhou City Construction & Development Co., Limited （廣州市城市建設開發有限公司） Guangzhou Feng Jia Enterprise Development Company Limited （廣州市豐嘉企業發展有限公司） Maximum during the year Guangzhou City Construction & Development Co., Limited （廣州市城市建設開發有限公司） Guangzhou Feng Jia Enterprise Development Company Limited （廣州市豐嘉企業發展有限公司） Due to related companies: Guangzhou Chuangyu Real Estate Development Company Limited （廣州市創譽房地產開發有限公司） Guangzhou Tianyu Real Estate Development Company Limited （廣州市天譽房地產開發有限公司） Guangzhou Feng Jia Enterprise Development Company Limited （廣州市豐嘉企業發展有限公司） Due to related party: Mr. Yu Pan*	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 141 — — 64,027 — — 64,168 — — 141 141 — 64,027 64,027 — 18,737 3,251 — 6,457 2,215 — — 6,263 75,690 25,194 11,729 75,690 20,377 98 —	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 141 — — 64,027 — — 64,168 — — 141 141 — 64,027 64,027 — 18,737 3,251 — 6,457 2,215 — — 6,263 75,690 25,194 11,729 75,690 20,377 98 —
		—

		— —

		— — 75,690
		75,690

		—

The amounts represent balances with companies in which Mr. Yu Pan, a director of Yue Tian, has beneficiary interests. These amounts are unsecured, interest-free and repayable on demand.

** Mr. Yu Pan is a director of Yue Tian.

— III-46 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

20. Cash and cash equivalents

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

	As at 31 December	As at 31 December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Yue Tian Group
Cash and bank balances	270	87,392	5,812

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

	As at	December
	2004	2005	2006
	’000	’000	’000
RMB	197	89,149	5,312
USD	1	—	4

Renminbi 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.

	As at 31 December	As at 31 December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Yue Tian
Cash and bank balances	83	3,288	520

— III-47 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

21. Loans from shareholders

The loans from shareholders are unsecured, interest-free, have no fixed repayment date and are expected to be repayable by 2020.

The fair value of the loans at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the prevailing market rates. The residual amount is included in shareholders’ equity (note 24) .

The loans from shareholders recognised in the balance sheets is calculated as follows:

Balance at 1 January 2004 and 2005 Additional loans from shareholders Contributions from shareholders_(note 24) Imputed interest expense Carrying amount at 31 December 2005 Additional loans from shareholders Contributions from shareholders(note 24)_ Imputed interest expense Carrying amount at 31 December 2006	HK$’000 — 562,819 (327,974 7,045
	241,890 34,144 (18,723 14,646
	271,957

Imputed interest expense on loans from shareholders is calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amount.

The fair values of the loans as at 31 December 2005 and 2006 approximate to their respective carrying amount. The fair value is calculated using cash flows discounted at the prevailing market interest rates.

22. Bank borrowings

At the balance sheet dates, the bank borrowings were repayable as follows:

Yue Tian Group Within two to five years Over five years Non-current liabilities	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — 152,939 238,017 — — 128,283 — 152,939 366,300	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — 152,939 238,017 — — 128,283 — 152,939 366,300
		366,300

The bank borrowings are secured by the Yue Tian Group’s land use rights and properties held for development in the PRC as set forth in notes 14 and 16 to the Financial Information, carry interest at HIBOR plus 1.8% per annum and are fully repayable in 2013.

— III-48 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

23. Share capital

Authorised: 100,000 ordinary shares of HK$1 each Issued and fully paid: 72,000 ordinary shares of HK$1 each	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 100 100 100 72 72 72	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 100 100 100 72 72 72

		72

24. Reserves

Note Yue Tian Group At 1 January 2004 Exchange differences on translation of financial statements of foreign subsidiary Loss for the year At 31 December 2004 Exchange differences on translation of financial statements of foreign subsidiary Contributions from shareholders 21 Loss for the year At 31 December 2005 Exchange differences on translation of financial statements of foreign subsidiary Contributions from shareholders 21 Loss for the year At 31 December 2006	Capital reserve HK$’000 12,455 — — 12,455 — 327,974 — 340,429 — 18,723 — 359,152	Foreign exchange Accumulated reserve losses HK$’000 HK$’000 6 (6,481) 235 — — (2,356) 241 (8,837) 4,163 — — — — (9,826) 4,404 (18,663) 42,514 — — — — (9,171) 46,918 (27,834)	Total HK$’000 5,980 235 (2,356)
			3,859 4,163 327,974 (9,826)
			326,170 42,514 18,723 (9,171)
			378,236

— III-49 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Note Yue Tian At 1 January 2004 Loss for the year At 31 December 2004 Contributions from shareholders 21 Loss for the year At 31 December 2005 Contributions from shareholders 21 Profit for the year At 31 December 2006	Capital Accumulated reserve losses HK$’000 HK$’000 12,455 (6,498) — (2,142) 12,455 (8,640) 327,974 — — (9,387) 340,429 (18,027) 18,723 — — 11,605 359,152 (6,422)	Total HK$’000 5,957 (2,142)
		3,815 327,974 (9,387)
		322,402 18,723 11,605
		352,730

25. Operating lease commitments

At the balance sheet dates, the Yue Tian Group and Yue Tian have commitments for future minimum lease payments under non-cancellable operating lease in respect of land and buildings which fall due as follows:

Yue Tian Group Within one year Yue Tian Within one year 26. Capital commitments Yue Tian Group Capital expenditure in respect of property development costs contracted but not provided for in the Financial Information Yue Tian Capital expenditure in respect of property development costs contracted but not provided for in the Financial Information	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 681 79 108 495 — — For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 861,555 769,246 385,009 3,890 3,487 3,204	As at 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 681 79 108 495 — — For the year ended 31 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 861,555 769,246 385,009 3,890 3,487 3,204

		3,204

— III-50 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

27. Related party transactions

The significant transactions with related parties during the Relevant Periods are as follows:

		Transaction	amounts for the year	amounts for the year
Name of party	Nature of	ended 31 December
and relationship	transactions	2004	2005	2006
		HK$’000	HK$’000	HK$’000
Geldy Limited,
fellow subsidiary	Rental expense	495	594	1,069
Poly (Hong Kong)	Guarantee given to	—	204,000	204,000
Investments Limited,	a bank in respect
intermediate holding	of credit facilities
company	extended to the
	Yue Tian Group
Mr. YU Pan, director and	Guarantee given to	—	116,000	116,000
shareholder of Wise Gain	a bank in respect
Investment Limited	of credit facilities
and Yue Tian	extended to the
	Yue Tian Group
Shell Electric Mfg.	Guarantee given to	—	80,000	80,000
(Holdings) Co Ltd.,	a bank in respect
shareholder of Allright	of credit facilities
Investments Limited,	extended to the
shareholder of Yue Tian	Yue Tian Group

28. Financial instruments

The Yue Tian Group’s principal financial assets are cash and bank balances and receivables from related parties. Financial liabilities of the Yue Tian Group include loans from shareholders, bank borrowings and other amounts due to related parties. The Yue Tian Group does not hold or issue financial instruments for trading purposes at the balance sheet dates.

(a) Foreign currency risk

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

(b) Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 December 2004, 2005 and 2006.

The carrying values of cash and bank balances and other current related party balances approximate the respective fair values because of their short maturities. The carrying amounts of the loans from shareholders and bank borrowings approximate the respective fair values because the effective interest rates of the debts are approximate to the prevailing market rates at the balance sheet dates for similar borrowings available to the Yue Tian Group.

— III-51 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

29. Post Balance Sheet Events

On 5 March 2007, Yue Tian entered into a loan agreement with Allright, Red Empire and Wise Gain Investment Limited (collectively referred to as the “Lenders”). Pursuant to the loan agreement, the Lenders agreed to advance a loan up to HK$560,000,000 to Yue Tian in proportion to their respective shareholding in Yue Tian. The loan bears interest at a rate of 15% per annum and a default interest rate of 20% per annum or any overdue amount, is unsecured and repayable within a term not exceeding two months. By mid-March 2007, the aforesaid loans from the Lenders were fully repaid.

In March 2007, Cheng Jian Tianyu secured a term loan up to RMB800,000,000 from the Agricultural Bank of China.

Except for the above, there is no material post balance sheet event subsequent to 31 December 2006.

C. Subsequent financial statements

No audited financial statements have been prepared by the Yue Tian Group in respect of any period subsequent to 31 December 2006.

— III-52 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Management discussion and analysis of the Red Empire Group (including the Yue Tian Group) for each of the three years ended 31 December 2006

Red Empire Group

Red Empire is the holding company holding the interests in Poly Tianyu and Yue Tian. Yue Tian established a sino-foreign co-operative joint venture in the PRC to engage in the property development of the Westin Project. Since Red Empire and Poly Tianyu are merely investment holding companies, the discussion and analysis in this section concentrates on Yue Tian and the PRC Company namely, 廣州市城建天譽房地產開發有限公司(Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited).

Red Empire

Red Empire was incorporated in the British Virgin Islands on 28 October 2003 with its sole objective to hold an equity interest in Yue Tian. In early 2005, a shareholders’ agreement was executed pursuant to which a joint venture was formed in investing in Yue Tian. Since then, Red Empire had become the direct shareholder of 51% interest in Yue Tian, the remaining 29% and 20% were respectively held by Wise Gain and Shell. Prior to that, the equity interest in Yue Tian was held as to 25% by Wise Gain and 75% by Poly Tianyu, a Hong Kong incorporated company in which 51% equity interest was held by Red Empire, 29% equity interest was held by another subsidiary of Poly Hong Kong, 10% equity interest was held by a fellow subsidiary of Poly Hong Kong and 10% equity interest was held by Wise Gain. Red Empire subscribed its 51% equity interest in Poly Tianyu on 31 December 2003 at an investment cost of approximately HK$9 million.

Save as the loss caused by the impairment of goodwill arising from the acquisition of interest in Poly Tianyu of HK$9 million that was reduced by imputed interest of HK$4 million income on shareholder’s loan made to Yue Tian in 2005, and the interest income on shareholder’s loan granted to Poly Tianyu received by Red Empire of HK$9.5 million and imputed interest income on shareholder’s loan to Yue Tian of HK$11.2 million in 2006 that were dealt with in the accounts of Red Empire, Red Empire incurred corporate expenses of insignificant amounts during the three years ended 31 December 2004, 2005 and 2006. Its operation as an investment holding company was financed by shareholder’s advances made by its parent company and fellow subsidiaries of Poly Hong Kong.

Poly Tianyu

Poly Tianyu was incorporated in Hong Kong on 21 November 2003 and is a 51% owned subsidiary of Red Empire. Poly Tianyu originally held 75% direct interest in Yue Tian. In early 2005, all shares of Yue Tian held by Poly Tianyu were transferred to Wise Gain, Red Empire and Shell at a total consideration of HK$19.0 million. As at the Latest Practicable Date, Poly Tianyu is a dormant company without material asset.

— III-53 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

Being an investment holding company, Poly Tianyu incurred minimal corporate expenses during the three years ended 31 December 2004, 2005 and 2006. Its operation was financed by shareholder’s advances made by its parent company.

Yue Tian and the PRC Company (“Yue Tian Group”)

Yue Tian is an investment holding company incorporated in Hong Kong on 2 March 1993 and has not, since its incorporation, carried on any business other than the establishment and investment in its only subsidiary, the PRC Company which is the only operating subsidiary of the Red Empire Group during the three years.

The PRC Company is a sino-foreign cooperative joint venture enterprise established by Yue Tian and 廣州市城市建設開發集團有限公司 (Guangzhou City Construction & Development Holdings Limited) (“GCC”) on 26 September 2002 in the PRC with a registered capital of US$45 million (of which US$27.5 million has been fully paid up) and has a term of operation of 16 years. According to the terms of the sino-foreign cooperative joint venture agreement entered into by Yue Tian and GCC, Yue Tian has paid RMB90 million to GCC as compensation and GCC is no longer entitled to the future profits generated by the PRC Company. The entire results of the PRC Company are therefore consolidated into the accounts of Yue Tian.

The PRC Company is engaged in the property development of the Westin Project.

The Westin Project is a commercial development project principally comprising the development and construction on the land located at the west of Linhe Dong Road at Tianhe District, Guangzhou, the PRC a 40-storety hotel tower and a 36-storey office complex (including a shopping arcade).

For the financial year ended 31 December 2004

Yue Tian Group had an audited consolidated net assets value of approximately HK$3.9 million as at 31 December 2004 that was represented by the audited net loss before and after taxation of HK$2.4 million for the year, which was contributed by mainly operating expenses in the rendering of general administrative and supporting services of approximately HK$2.4 million. Yue Tian Group also received minor interest income from bank deposits.

— III-54 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

Liquidity and financial resources

Capital structure and liquidity

In 2004, Yue Tian’s principal activity was the seeking of financial resources from equity investors for the PRC Company to carry out preliminary project development activities. Interest-free shareholders’ loans with a total face value of HK$160.9 million as at 31 December 2004 were received from shareholders and related parties to meet all the development costs and the operating expenses incurred for the development of the Westin Project. Preliminary construction works were commenced in 2004. The total costs incurred in the properties held under development, including prepaid lease payments for the land use rights, development costs and other related expenses, amounted to HK$75.0 million as at 31 December 2004, all of which have been capitalised.

Yue Tian relied the continuing financial support of the shareholders, Poly Hong Kong and Wise Gain. Yue Tian Group’s major asset was the development project which was a non-current asset. Yue Tian Group’s current assets of HK$139.0 million were mainly amounts due from related companies and prepayments and other receivables. Its current liabilities of HK$211.1 million mainly comprise an amount due to Poly Tianyu of HK$160.9 million and amounts due to related companies and a director in a sum of HK$45.6 million. Despite that the current ratio was 0.66:1 on the balance sheet date which indicated low liquidity position, the amount due to Poly Tianyu was totally repaid by funding from non-current shareholders’ loans contributed by the existing shareholders in 2005. The gearing ratio (based on total liabilities excluding shareholders’ loans to total assets) was 23.3% as at 31 December 2004.

Borrowings and pledge of assets

Other than loans from shareholders and their affiliates, there was no bank borrowing during the year.

Foreign currency management

The PRC Company’s operation was property development activities conducted in the PRC whereas its shareholders’ loans were required to be repaid in Hong Kong dollars. As a result, Yue Tian Group had certain exposures in foreign currency fluctuations. Yue Tian Group did not hedge its foreign currency risks as the rate of exchange between HK$ and RMB was controlled within a narrow range.

— III-55 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Contingent liabilities

Yue Tian Group had no contingent liabilities as at 31 December 2004.

Employees

As at 31 December 2004, other than executive directors, Yue Tian Group employed 1 staff in Hong Kong for monitoring the investment at corporate level and 11 in the PRC for performing daily functions in the property development activities. Staff costs amounted to approximately HK$1.4 million during the year of which HK$1.3 million were capitalised as costs of properties held for development. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

For the financial year ended 31 December 2005

Yue Tian Group had an audited consolidated net assets value of approximately HK$326.2 million as at 31 December 2005 and recorded an audited net loss before and after taxation for the year of approximately HK$9.8 million. Similar to the previous year, operating expenses of Yue Tian totaling HK$2.9 million were corporate expenses and general administrative expenses and which were kept at low level. However, the increase in net loss for the year was due to an imputed interest of HK$7.0 million charged to the profit and loss account for the year as a result of the adoption of the new accounting standards on financial instruments which requires interest-free shareholders’ loans be measured at amortized cost determined using the effective interest method.

Liquidity and financial resources

Capital structure and liquidity

Yue Tian Group continued to obtain additional interest-free loans from its shareholders to finance the development of the Westin Project. Total advances from shareholders received amounted to in face value of HK$562.8 million as at 31 December 2005. The consequential effect of the adoption of the accounting standards to present shareholders’ loans at fair value impacts the balance sheet of Yue Tian with a reduction in the carrying value of the shareholders’ loan by HK$328.0 million and a corresponding increase in net asset as at 31 December 2005.

— III-56 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Construction works were formally commenced in 2005 when capitalised costs of properties under progress totaling HK$613.6 million were expended for the project as at 31 December 2005. In December 2005, the PRC Company obtained a term loan facility from Citic Ka Wah Bank to finance the construction of the development. The loans were HIBOR-based, secured and with a tenor of 8 years. As at 31 December 2005, a total amount of HK$152.9 million had been drawn down.

Instead of relying solely on the financing of shareholders, the capital structure of Yue Tian in 2005 was better balanced due to the external borrowing from Citic Ka Wah Bank in the year. The gearing ratio (based on total liabilities excluding shareholders’ loans to total assets) was 25.7% as at 31 December 2005. The ratio increased further in 2006 as bank financing increased.

Other than shareholders’ loans, there were temporary advances from shareholders and related companies in 2005 that were regarded as current liabilities. Comparing the current liabilities to current assets, the current ratio was 2.1:1 as at 31 December 2005.

Borrowings and pledge of assets

The land use rights and properties held for development were pledged to the bank to secure the bank loans. All other loans from shareholders and related companies were interest-free with no fixed term of repayment.

Foreign currency management

The PRC Company’s operation was property development activities conducted in the PRC whereas the shareholders’ loans and bank loans due to Citic Ka Wah Bank were denominated in Hong Kong dollars. As a result, Yue Tian had certain exposures in foreign currency fluctuations. Yue Tian did not hedge its foreign currency risks as the rate of exchange between HK$ and RMB was controlled within a narrow range.

Contingent liabilities

Yue Tian Group had no contingent liabilities as at 31 December 2005.

— III-57 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Employees

As at 31 December 2005, other than the directors, Yue Tian Group employed 39 staff in the PRC and 1 in Hong Kong for monitoring the investment and performing the daily functions in the property development activities. Staff costs amounted to approximately HK$1.4 million during the year of which HK$1.3 were capitalised as costs of properties held for development. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

For the financial year ended 31 December 2006

Yue Tian Group had an audited consolidated net assets value of approximately HK$378.3 million as at 31 December 2006 and recorded an audited net loss before and after taxation for the year of approximately HK$9.1 million. Yue Tian Group did not generate any operating revenue as the Westin Project was still in progress of construction. Operating expenses were mainly corporate and general administrative expenses incurred for monitoring the investment at corporate level and carrying out daily supervisory and administrative functions in project development. As the construction approached to completion, operating activities increased and hence operating expenses of Yue Tian Group including pre-operating expenses of HK$5.2 million incurred in preparation for hotel opening, during the year surged to HK$9.6 million. In addition, imputed interest of HK$14.6 million on shareholders’ loans was recognised and capitalised into the properties held for development.

Liquidity and financial resources

Capital structure and liquidity

Shareholders’ loans at a total face value of HK$597.0 million were contributed into Yue Tian Group as at 31 December 2006. The consequential effect of the adoption of the accounting standards on interest-free shareholders’ loans presented at fair value had reduced the shareholders’ loan to HK$272.0 million as at 31 December 2006. Such reduction is reflected by a corresponding increase in net asset as at 31 December 2006. The bank loan due to Citic Ka Wah Bank was amounted to HK$366.3 million as at 31 December 2006. The gearing ratio (based on total liabilities excluding shareholders’ loans to total assets) was 44.3% as at 31 December 2006, which was in pace with the increasing bank borrowing.

— III-58 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Construction works were in full force in 2006. Capitalised costs of construction in progress totaling HK$1,110.1 million were expended up to 31 December 2006. Total cost of development is estimated to be approximately HK$1,590.3 million of which the outstanding development cost of HK$480.2 million is expected to be financed by bank borrowing and proceeds raised from the Notes.

Borrowings and pledge of assets

The land use rights and properties held for development were pledged to the bank to secure the bank loans. All loans from shareholders and their affiliates were interest-free with no fixed term of repayment.

Foreign currency management

The PRC Company’s operation was property development activities conducted in the PRC whereas the shareholders’ loans and bank loans due to Citic Ka Wah Bank were denominated in Hong Kong dollars. As a result, Yue Tian Group had certain exposures in foreign currency fluctuations. Yue Tian did not hedge its foreign currency risks as the rate of exchange between HK$ and RMB was controlled within a narrow range. However, there may be some permanent changes in foreign exchange rates in RMB that may have an impact on Yue Tian.

Contingent liabilities

Yue Tian Group had no contingent liabilities as at 31 December 2006.

Employees

As at 31 December 2006, other than executive directors, a total number of 21 employees were employed (1 in Hong Kong and 20 in the PRC) for the project in the functions of construction supervision and budgeting, accounting and finance, design, marketing and administration. Staff costs amounted to approximately HK$3.8 million during the year of which HK$3.7 million were capitalised as costs of properties under development. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

Segmental information of Yue Tian Group

Yue Tian Group has only single activity throughout the years — property development in Guangzhou, PRC which is regarded as one single business and geographical segment.

— III-59 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

4. Financial information of Allright

A. Financial information

1. Income statements of Allright

23 November
2004
(Date of
incorporation)
to
31 December
2005
Notes
HK$’000
Turnover
3
—
Other revenue
5
1,391
General and administrative expenses
(26)
Profit from operation
6
1,365
Negative goodwill
18
1,869
Imputed interest on loans from
shareholders
14
(4,069)
Share of loss of associate
12
(1,965)
Loss before income tax expense
(2,800)
Income tax expense
9
—
Loss for the period/year attributable to
equity holders of Allright
(2,800)

1 January
2006
to
31 December
2006
HK$’000
—
2,965
(225)
2,740
—
(3,539)
(1,834)
(2,633)
—
(2,633)

— III-60 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

2. Balance sheets of Allright

Notes Non-current asset Interest in associate 12 Current asset Cash and cash equivalents 13 Current liabilities Amounts due to immediate holding company 15 Other payables and accruals Net current liabilities Total assets less current liabilities Non-current liability Loans from shareholders 14 NET ASSETS Capital and reserves Share capital 16 Reserves 17 TOTAL EQUITY	As at 31 December 2005 HK$’000 133,069 — 26 847 873 ---------------- (873) 132,196 ---------------- 96,322 ---------------- 35,874 — 35,874 35,874	As at 31 December 2006 HK$’000 136,399 1 25 200 225 ---------------- (224) 136,175 ---------------- 92,034 ---------------- 44,141 — 44,141 44,141

— III-61 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Statements of changes in equity of Allright

Note At 23 November 2004 (Date of incorporation) Share of associate’s post-acquisition reserve Contributions from shareholders 14 Loss for the period At 31 December 2005 Share of associate’s post-acquisition reserve Contributions from shareholders 14 Loss for the year At 31 December 2006	Share capital HK$’000 — — — — — — — — —	Capital reserve HK$’000 — — 37,841 — 37,841 — 2,398 — 40,239	Foreign exchange Accumulated reserve losses HK$’000 HK$’000 — — 833 — — — — (2,800) 833 (2,800) 8,502 — — — — (2,633) 9,335 (5,433)	Total HK$’000 — 833 37,841 (2,800) 35,874 8,502 2,398 (2,633) 44,141

Share of associate’s post-acquisition reserve represents Allright’s share of Yue Tian’s reserve movement arising from translation of financial statements of foreign subsidiary for the period/year.

— III-62 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

4. Cash flow statements of Allright

23 November
2004
(Date of
incorporation)
to
31 December
2005
HK$’000
Cash flows from operating activities
Loss before income tax expense
(2,800)
Adjustments for:
Imputed interest on the amount due
from associate
(1,391)
Imputed interest on loans from
shareholders
4,069
Negative goodwill
(1,869)
Share of loss of associate
1,965
Operating loss before working
capital changes
(26)
Changes in working capital:
Increase/(decrease) in amount due to
immediate holding company
26
Increase in other payables and accruals
—
Net cash generated from operating activities
—
-----------------
Cash flows from investing activities
Acquisition of an associate_(note 18)
(4,865)
Repayment from associate
—
Advance to associate
(125,229)
Net cash (used in)/generated from
investing activities
(130,094)
-----------------
Cash flows from financing activities
Loans from shareholders
130,094
Repayment of loans from shareholders
—
Net cash generated from/(used in)
financing activities
130,094
-----------------
Net increase in cash and cash equivalents
—
Cash and cash equivalents at
beginning of period/year
—
Cash and cash equivalents at end
of period/year (note 13)_
—

1 January
2006
to
31 December
2006
HK$’000
(2,633)
(2,937)
3,539
—
1,834
(197)
(1)
200
2
-----------------
—
5,455
—
5,455
-----------------
8,000
(13,456)
(5,456)
-----------------
1
—
1

— III-63 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

B. Notes to the financial information

1. General

Allright was incorporated in Samoa with limited liability on 23 November 2004 under the International Companies Act of Samoa. Allright has not carried on any business since the date of its incorporation save for the holding of 20% equity interest in Yue Tian. As at the date of this report, the directors of Allright considered the parent company and the ultimate holding company of Allright to be Shell Electric Manufacturing (Holdings) Company Limited, a company incorporated in Hong Kong and the shares of which are listed on The Stock Exchange of Hong Kong Limited. The registered office of Allright is located at Offshore Chambers, P.O. Box 217, Apia, Samoa; and the principal place of business of Allright is at Shell Industrial Building, 12 Lee Chung Street, Chai Wan Industrial District, Hong Kong.

Allright is an investment holding company.

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

2. Principal accounting policies

(a) Statement of compliance

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

HKAS 1 Amendment Capital Disclosures[1] HKFRS 7 Financial instruments: Disclosures[1] HK(IFRIC) — Interpretation 10 Interim Financial Reporting and Impairment[2]

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

2 Effective for annual periods beginning on or after 1 November 2007

(b) Basis of preparation

The Financial Information has been prepared under the historical cost convention except that the interest in associate are stated at its fair value.

The Financial Information has been prepared on a going concern basis notwithstanding that Allright had net liabilities as at 31 December 2004 and 2005 as its holding company has undertaken to provide such financial support to Allright to enable it to continue as a going concern and to enable it to meet its liabilities as and when they fall due.

— III-64 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(c) Associate

Where Allright 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 balance sheet at cost. Allright’s share of post-acquisition profits and losses is recognised in the income statement, except that losses in excess of the Allright’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 Allright 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.

Any premium paid for an associate above the fair value of the Allright’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.

(d) Impairment of non-financial assets

(e) Foreign currencies

(f) Cash and cash equivalents

— III-65 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(g) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

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

(h) Revenue recognition

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

(i) Financial instruments

(i) Financial assets

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

— III-66 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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

Available-for-sale: Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise the Allright’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 company classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was incurred. Other than financial liabilities in a qualifying hedging relationship, the company’s accounting policy for each category is as follows:

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

Trade payables and other short-term monetary liabilities, which are recognised at amortised cost.
Loans from shareholders are initially recognised at the amount advanced net shareholders 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.

(iii) Derecognition

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

— III-67 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(j) Provision and contingent liabilities

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

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

3. Turnover

Allright did not generate any turnover during the Relevant Periods.

4. Segment information

Allright is principally engaged in investment holding in the PRC, which is regarded as one business segment and one geographical segment.

5. Other revenue

Imputed interest from associate Exchange gain	23 November 2004 (Date of incorporation) to 31 December 2005 HK$’000 1,391 — 1,391	1 January 2006 to 31 December 2006 HK$’000 2,937 28
		2,965

6. Profit from operation

Profit from operations is stated after charging:

	23 November
	2004
	(Date of	1 January
	incorporation)	2006
	to	to
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Auditors’ remuneration	—	200

— III-68 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

7. Directors’ emoluments

No directors’ emoluments were incurred for the Relevant Periods.

8. Five highest paid individuals

During the Relevant Periods, no emoluments were payable or paid to any individuals including directors.

9. Income tax expense

No provision for Hong Kong profits tax or overseas income tax has been made as Allright has no assessable profits during the Relevant Periods.

Hong Kong profits tax is calculated at 17.5% on the estimated assessable profits for the Relevant Periods.

The income tax expense for the Relevant Periods can be reconciled to the loss per the income statements are follows:

Loss before income tax expenses Tax calculated at the Hong Kong profits tax rate of 17.5% Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Income tax expense	23 November 2004 (Date of incorporation) to 31 December 2005 HK$’000 (2,800) (490) 1,061 (571) —	1 January 2006 to 31 December 2006 HK$’000 (2,633) (461) 980 (519) —

No provision for deferred taxation has been recognised in the financial statements as the amount involved is insignificant.

10. Dividends

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

11. Earnings per share

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

— III-69 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

12. Interest in associate

Share of associate’s net assets Amount due from associate	As at 31 December 2005 2006 HK$’000 HK$’000 71,196 81,610 61,873 54,789 133,069 136,399	As at 31 December 2005 2006 HK$’000 HK$’000 71,196 81,610 61,873 54,789 133,069 136,399
		136,399

Investment in associate represents Allright’s direct interest in the following entity:

	Place and		Attributable
	date of		equity
	incorporation and	Authorised and	interest directly	Principal
Name of associate	kind of legal entity	paid-up capital	held by Allright	activity
Yue Tian	Hong Kong,	Authorised	20%	Investment
	2 March 1993,	capital of		holding
	Incorporated	HK$100,000 of
		100,000 ordinary
		shares of HK$1 each
		and paid-up
		capital of
		HK$72,000 of
		72,000 ordinary
		shares of HK$1 each

Total assets Total liabilities Net assets Fair value adjustment at acquisition Carrying amount of net assets Allright’s share of net asset of associate	As at 31 December 2005 2006 HK$’000 HK$’000 828,326 1,167,395 (502,084) (789,087 326,242 378,308 29,742 29,742 355,984 408,050 71,196 81,610	As at 31 December 2005 2006 HK$’000 HK$’000 828,326 1,167,395 (502,084) (789,087 326,242 378,308 29,742 29,742 355,984 408,050 71,196 81,610
		378,308 29,742
		408,050

		81,610

— III-70 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

23 November 2004 (Date of Incorporation) to 31 December 2005 HK$’000 Revenue — Loss for the period/year (9,826) Allright’s share of loss of associate (1,965)	1 January 2006 to 31 December 2006 HK$’000 —

	(9,171

	(1,834

The amount due from associate is unsecured, interest-free, has no fixed repayment date and is expected to be repayable in 2015. The fair value of the amount at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the prevailing market rates. The residual amount is included in investment cost in associate.

Interest expense on amount due from associate is calculated using the effective interest method by applying the effective interest rate of 4% per annum to the carrying amount.

13. Cash and cash equivalents

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

	As at 31 December
	2005	2006
	HK$’000	HK$’000
Cash and bank balance	—	1

14. Loans from shareholders

The loans from shareholders are unsecured, interest-free, have no fixed repayment date and are expected to be repayable in 2015.

— III-71 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The loans from shareholders recognised in the balance sheets is calculated as follows:

Carrying amount at 23 November 2004 (Date of incorporation) Additional loans from shareholders Contributions from shareholders_(note 17) Imputed interest expense Carrying amount at 31 December 2005 Additional loans from shareholders Repayment to shareholders Contributions from shareholders(note 17)_ Imputed interest expense Exchange difference Carrying amount at 31 December 2006	HK$’000 — 130,094 (37,841) 4,069
	96,322 8,000 (13,456) (2,398) 3,539 27
	92,034

Imputed interest expense on loans from shareholders is calculated using the effective interest method by applying the effective interest rate of 4% per annum to the carrying amount.

The fair values of the loans as at 31 December 2005 and 2006 approximate to their respective carrying amount.

15. Amount due to immediate holding company

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

16. Share capital

Authorised: 1,000,000 ordinary shares of US$1 each Issued and fully paid: 1 ordinary share of US$1 each	As at 31 December 2005 2006 US$ HK$ US$ 1,000,000 7,800,000 1,000,000 1 8 1	HK$ 780,000

		8

Pursuant to the resolution dated 3 January 2005, 1 ordinary share of the company was issued at par value of US$1 each to the creator of the company.

— III-72 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

17. Reserves

Note At 23 November 2004 (Date of incorporation) Share of associate’s post-acquisition reserve Contributions from shareholders 14 Loss for the period At 31 December 2005 Share of associate’s post-acquisition reserve Contributions from shareholders 14 Loss for the year At 31 December 2006	Capital reserve HK$’000 — — 37,841 — 37,841 — 2,398 — 40,239	Foreign exchange reserve HK$’000 — 833 — — 833 8,502 — — 9,335	Accumulated losses HK$’000 — — — (2,800) (2,800) — — (2,633) (5,433)	Total HK$’000 — 833 37,841 (2,800) 35,874 8,502 2,398 (2,633) 44,141

Share of associate’s post-acquisition reserve represents Allright’s share of Yue Tian’s reserve movement arising from translation of financial statements of foreign subsidiary for the period/year.

18. Acquisition of an associate

In early 2005, Allright acquired 20% of the issued share capital of Yue Tian for a consideration of approximately HK$4,865,000. The net assets acquired and the negative goodwill arisen in the transaction are as follows:

Carrying value HK$’000 Non-current assets 76,013 Current assets 139,047 Current liabilities (211,129) Non-current liability — 3,931 Net assets acquired (20% thereon) Total cash consideration paid (including cash consideration of HK$3,814,000 and direct costs relating to the acquisition of HK$1,051,000) Negative goodwill charged to income statement	Fair value adjustment HK$’000 44,073 — — (14,331) 29,742	Fair value HK$’000 120,086 139,047 (211,129) (14,331) 33,673 6,734 4,865 1,869

— III-73 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

19. Financial instruments

The company’s principal financial assets are cash and bank balances and balances with associate. Financial liabilities of the company include loans from shareholders, other payables and accruals and the amount due to immediate holding company. The company does not hold or issue financial instruments for trading purposes at the balance sheet dates.

(a) Foreign currency risk

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

(b) Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 December 2005 and 2006.

The carrying value of cash and bank balance approximates the respective fair values because of their short maturities. The carrying amounts of the loans from shareholders and the amount due from associate approximate the respective fair values because the effective interest rates of the debts are approximate to the prevailing market rates at the balance sheet dates for similar borrowings available to Allright.

20. Post balance sheet events

On 5 March 2007, Allright, Red Empire and Wise Gain Investment Limited (collectively referred to as the “Lenders”) entered into a loan agreement with Yue Tian. Pursuant to the loan agreement the Lenders agreed to advance a loan up to HK$560,000,000 to Yue Tian in proportion to their shareholding in Yue Tian, of which Allright agreed to advance an amount of HK$112,000,000. The advance by Allright bears interest at a rate of 15% per annum and a default rate of 20% per annum for an overdue amount, is secured and repayable within a term not exceeding two months. By mid-March 2007, the aforesaid loans from the Lenders were fully repaid.

Except for the above, there is no material post balance sheet event subsequent to 31 December 2006.

C. Subsequent financial statements

No audited financial statements have been prepared by Allright in respect of any period subsequent to 31 December 2006.

— III-74 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

5. Management discussion and analysis of Allright for the period from 23 November 2004 (date of incorporation) to 31 December 2005 and for the year ended 31 December 2006

Allright was incorporated on 23 November 2004 in Samoa as an investment holding for the sole purpose of investing in the 20% equity in Yue Tian. Allright acquired its 20% equity interest in Yue Tian from Poly Tianyu on 2 February 2005 at a consideration of approximately HK$3.8 million.

Other than the imputed interest income of HK$1.4 million and HK$3.0 million on shareholder’s loan to Yue Tian recognised, and negative goodwill of HK$1.9 million was charged to income statement in 2005, and small corporate expenses were incurred during the period from date of incorporation to 31 December 2005 and year ended 31 December 2006. Allright has accounted for its investment in Yue Tian by taking up its share of the results of Yue Tian Group during the years of investment holding. Due to the losses recorded by Yue Tian Group, the accounts of Allright after equity accounting for the Yue Tian Group’s losses show losses before and after taxation of HK$2.8 million and HK$2.6 million in the period from the date of incorporation to 31 December 2005 and year ended 31 December 2006 respectively. Further, starting from 2005, the accounts of Allright and Yue Tian Group adopted the accounting standards to present shareholders’ loans at fair value, thus resulting in a recognition of imputed interest expense on loans from shareholders of HK$4.0 million and HK$3.5 million in the income statements respectively for the period from date of incorporation to 31 December 2005 and year ended 31 December 2006. Recorded net assets were HK$35.9 million and HK$44.1 million on the respective balance sheet dates.

Liquidity and financial resources

Capital structure and liquidity

Allright had been fully relied on the interest-free loan from its shareholder to support its investment and onward lending to Yue Tian Group. It maintained minimal cash balances to meet with its operating expenses. Other than the aforesaid, it did not have any material asset other than the investment in Yue Tian or liabilities as the balance sheet dates. Hence, the gearing ratios, based on total liabilities (other than the shareholder’s loan) to total assets, were only 0.65% and 0.17% respectively as at 31 December 2005 and 31 December 2006.

Bank borrowings and pledge of assets

No bank borrowing was obtained since its incorporation.

— III-75 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Foreign currency management

Allright holds an investment having a property development activity conducted in the PRC whereas the shareholder’s loan made by Allright to Yue Tian Group was denominated in Hong Kong dollars. As a result, Allright had certain exposures in foreign currency fluctuations in RMB against HK$. Allright did not hedge its foreign currency risks as the rate of exchange between HK$ and RMB was controlled within a narrow range.

Contingent liabilities

Allright had no contingent liabilities on both the balance sheet dates as at 31 December 2005 and 2006.

Employees

Allright did not employ any staff during the period or year under review.

— III-76 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

6. Unaudited pro forma financial information of the Group as enlarged by the acquisitions of the interest in the Red Empire Group (including the Yue Tian Group) and Allright

Set out below is the pro forma financial information of the Group as enlarged by the acquisitions of the interest in the Red Empire Group (including the Yue Tian Group) and Allright and the report on such pro forma financial information prepared by BDO McCabe Lo Limited as extracted from Appendix IV to the Company’s circular dated 4 April 2007. The term “Enlarged Group” used in this parapraph refers to the Group and the Red Empire Group (including the Yue Tian Group) and Allright. Capitalised terms used in this section shall have the same meanings as defined in the Company’s circular dated 4 April 2007 and references to appendices as set out in this section are to appendices to the Company’s circular dated 4 April 2007.

A. Unaudited pro forma financial information of the Enlarged Group

The following pro forma financial information is prepared in a manner consistent with both the format and accounting policies adopted by the Group in the preparation of its published audited consolidated financial statements for the financial year ended 31 December 2005. As (i) the completion of the Note Purchase Agreement is conditional upon, among other things, completion of the 71% Acquisition and the 29% Acquisition; and the completion of the 71% Acquisition is conditional upon, among other things, Great Elegant and/or the Company having obtained sufficient financing for payment of the consideration for the 71% Acquisition, and therefore the Note Purchase Agreement and the 71% Acquisition cannot be completed on its own; and (ii) the 29% Acquisition is neither conditional upon completion of the Note Purchase Agreement nor the 71% Acquisition and therefore can be completed on its own, the pro forma financial information of the Enlarged Group is prepared to provide the possible financial effect on the Group in 2 scenarios: (1) upon issue of the Notes and completion of the 71% Acquisition and the 29% Acquisition and (2) upon completion of the 29% Acquisition alone. The pro forma financial information set out below are prepared based on (i) the unaudited published pro forma financial information (“Pro Forma Adjusted Balances”) as extracted from the Company’s circular dated 2 August 2006 (which was prepared to provide the unaudited pro forma financial information of the Enlarged Group as a result of the acquisition of 51% shareholding in and shareholders’ loan due by Loyal Way and the open offer completed subsequent to the financial year ended 31 December 2005); (ii) the consolidated financial information of Red Empire for the year ended 31 December 2006 as extracted from Appendix II; and (iii) the consolidated financial information of Allright for the year ended 31 December 2006 as extracted from Appendix III. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position at any future date or results and cashflows of the Enlarged Group for any future period.

— III-77 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(a) Unaudited pro forma consolidated income statement of the Enlarged Group

The following table is an illustrative and unaudited pro forma consolidated income statement of the Enlarged Group which has been prepared based on the Pro Forma Adjusted Balances as extracted from the Company’s circular dated 2 August 2006 as if the issue of the Notes, the completion of the 71% Acquisition and/or the 29% Acquisition (as the case may be) had taken place on 1 January 2005.

Scenario 1: Issue of the Notes and completion of the 71% Acquisition and the 29% Acquisition

Pro Forma Adjusted The Red Pro forma Balances Empire Allright Pro forma adjustments for the Group for the for the adjustment relating year ended year ended year ended relating to the 31 December 31 December 31 December to the convertible 2005 2006 2006 acquisition note issue HK$’000 HK$’000 HK$’000 HK$’000 Notes HK$’000 Notes (Note a, b) (Note c) (Note d) Continuing operations: Turnover 4,757 — — Other income 117 — 28 Interest income from associates — — 2,937 (2,937) (f) General and administrative expenses (7,940) (10,219) (225) Other operating expenses (17) — — (Loss)/profit from operations (3,083) (10,219) 2,740 Negative goodwill — — 17,921 (g) Shares of loss of an associate — — (1,834) 1,834 (e) Imputed interest on amounts due to shareholders — — (3,539) 3,539 (f) Finance costs (17,725) (1,989) — (242,104) (h) Finance income 262 407 — Loss before income tax (20,546) (11,801) (2,633) Income tax expense (33) — — Loss for the year from continuing operations (20,579) (11,801) (2,633) Discontinued operations: Loss for the year from discontinued operations (2,234) — — Loss for the year (22,813) (11,801) (2,633) Attributable to : Equity holders of the Company (9,065) (479) (2,633) 1,834 (e) (242,104) (h) (6,225) (f) 17,921 (g) Minority interests (13,748) (11,322) — 6,827 (f) (22,813) (11,801) (2,633)	Unaudited pro forma Enlarged Group HK$’000 4,757 145 — (18,384) (17)
	(13,499) 17,921 — — (261,818) 669
	(256,727) (33)
	(256,760) (2,234)
	(258,994)

	(240,751) (18,243)
	(258,994)

— III-78 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Being the published unaudited Pro Forma Adjusted Balances for the year ended 31 December 2005 extracted from the unaudited pro forma consolidated income statement set out in Appendix III to the circular of the Company dated 2 August 2006.
(b) The full version of the unaudited pro forma consolidated income statement is reproduced in Appendix I to this circular.
(c) Being the audited consolidated income statement of the Red Empire Group for the twelve months ended 31 December 2006 extracted from Appendix II to this circular.
(d) Being the audited consolidated income statement of the Allright for the twelve months ended 31 December 2006 extracted from Appendix III to this circular.
(e) Adjustment to reverse the share of 20% loss of Yue Tian for the year upon the completion of the 71% Acquisition and the 29% Acquisition.
(f) The adjustment represents the elimination of inter company balances among the Group, the Red Empire Group and Allright as if Red Empire, Allright and Yue Tian become the wholly owned subsidiaries of the Company upon completion of the 71% Acquisition and the 29% Acquisition.
(g) On 2 March 2007, the Group entered into agreements with Poly, Shell and Wise Gain to purchase the entire issued share capital of Red Empire and Allright and the 29% issued share capital of Yue Tian held by Wise Gain, and the Shareholders’ loans owned by Red Empire, Allright and Yue Tian as at 31 January 2007 at an aggregate consideration of approximately HK$886,553,000, which will be settled by cash of approximately HK$629,449,000 and 190,477,209 convertible preference shares of approximately HK$257,104,000.

The adjustment represents the negative goodwill on acquisition upon the completion of the 71% Acquisition and the 29% Acquisition, which is determined based on the consideration of approximately HK$886,553,000 and adjusting the following:

(i) Fair value of identifiable assets and liabilities of the Red Empire Group and Allright which are equal to the net assets value of approximately HK$228,501,000 and HK$44,141,000 plus the upward valuation adjustment to the properties held for development of approximately HK$353,135,000 less its associated deferred tax liabilities of approximately HK$116,535,000;
(ii) Elimination of the investment cost of HK$4,865,000 in Yue Tian held by Allright;
(iii) Face value of shareholder’s loan of approximately HK$610,192,000; and
(iv) Reversal of deemed capital contribution to loans from minority shareholders of approximately HK$210,095,000.

With reference to the above, negative goodwill of approximately HK$17,921,000 arises and is credited to the pro forma consolidated income statement.

(h) Being nominal interest expense of the US$200 million convertible notes, which bear interest at a fixed rate of 4% per annum, payable semi-annually in arrear and the principal is payable within 6 years from the Closing Date. Nominal interest expense of the US$200 million Notes is calculated using the effective interest rate of 28.252% per annum on the assumption that the Closing Date is 2 March 2007.

— III-79 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(i) In absence of information, the pro forma consolidated income statement does not take into account any effect of fair value adjustment to the conversion feature of the Notes and the Westin CPS issued in the acquisition. However, because of the uncertainty of the fair value adjustment, it is reasonably possible that the effect of the fair value adjustment could be material to the pro forma consolidated income statement had the valuation of the conversion feature of the Notes and the Westin CPS been available.

Scenario 2: Completion of the 29% Acquisition

Pro Forma
Adjusted
Balances
Pro forma
for the
adjustment
year ended
relating
31 December
to the
2005
acquisition
HK$’000
HK$’000
Note
(Note a, b)
Continuing operations:
Turnover
4,757
Other income
117
General and administrative
expenses
(7,940)
Other operating expenses
(17)
Loss from operations
(3,083)
Shares of loss of
an associate
—
(2,660)
(c)
Finance costs
(17,725)
Finance income
262
Loss before income tax
(20,546)
Income tax expense
(33)
Loss for the year from
continuing operations
(20,579)
Discontinued operations:
Loss for the year from
discontinued operations
(2,234)
Profit for the year
(22,813)
Attributable to :
Equity holders of
the Company
(9,065)
(2,660)
(c)
Minority interests
(13,748)
(22,813)

Unaudited
Pro forma
Enlarged
Group
HK$’000
4,757
117
(7,940)
(17)
(3,083)
(2,660)
(17,725)
262
(23,206)
(33)
(23,239)
(2,234)
(25,473)
(11,725)
(13,748)
(25,473)

— III-80 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Being the published unaudited Pro Forma Adjusted Balances for the year ended 31 December 2005 extracted from the unaudited pro forma consolidated income statement set out in Appendix III to the circular of the Company dated 2 August 2006.
(b) The full version of the unaudited pro forma consolidated income statement is reproduced in Appendix I to this circular.
(c) Adjustment to share the 29% loss of Yue Tian for the year upon the completion of the 29% Acquisition.
(d) In absence of information, the pro forma consolidated income statement does not take into account any effect of fair value adjustment to the conversion feature of the Westin CPS issued in the 29% Acquisition. However, because of the uncertainty of the fair value adjustment, it is reasonably possible that the effect of the fair value adjustment could be material to the pro forma consolidated income statement had the valuation of the conversion features of the Westin CPS been available.
(b) Unaudited pro forma consolidated balance sheet of the Enlarged Group

The following table is an illustrative and unaudited pro forma consolidated balance sheet of the Enlarged Group which has been prepared based on the Pro Forma Adjusted Balances as extracted from the Company’s circular dated 2 August 2006 as if the issue of the Notes, the completion of the 71% Acquisition and/or the 29% Acquisition (as the case may be) had taken place on 31 December 2005.

Scenario 1: Issue of the Notes and completion of the 71% Acquisition and the 29% Acquisition

the 29% Acquisition
Pro Forma Pro forma Adjusted The Red adjustment Pro forma Balances Empire Allright relating adjustment as at Group as at as at to the relating Pro forma 31 December 31 December 31 December Convertible to the consolidation 2005 2006 2006 Notes issue acquisition adjustments HK$’000 HK$’000 HK$’000 HK$’000 Notes HK$’000 Notes HK$’000 Notes (Note a, b) (Note c) (Note d) Non-current assets Plant and equipment 176 1,372 — Properties held for development 495,530 801,322 — Prepaid lease payments — non-current portion — 336,925 — 353,135 (i) Goodwill 135,939 12,172 — Interest in associate 165,807 — 136,399 (118,400) (h) (4,865) (i) (13,134) (g) Interests in subsidiaries — — — 886,553 (f) (610,192) (h) (276,361) (i) 797,452 1,151,791 136,399 Current assets Prepaid lease payments — current portion — 10,210 — Prepayments, trade and other receivables 403 50,093 — Cash and cash equivalents 53,990 5,953 1 1,503,800 (e) (629,449) (f) 54,393 66,256 1	Unaudited pro forma Enlarged Group HK$’000 1,548 1,296,852 690,060 148,111 165,807 —
	2,302,378
	10,210 50,496 934,295
	995,001

— III-81 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Pro Forma Pro forma Adjusted The Red adjustment Pro forma Balances Empire Allright relating adjustment as at Group as at as at to the relating Pro forma 31 December 31 December 31 December convertible to the consolidation 2005 2006 2006 notes issue acquisition adjustments HK$’000 HK$’000 HK$’000 HK$’000 Notes HK$’000 Notes HK$’000 Notes (Note a, b) (Note c) (Note d) Current liabilities Trade, other payables and accruals 4,901 74,864 200 Amount due to immediate holding company — 312,145 — (312,145) (h) Amounts due to fellow subsidiaries — 5 — Amounts due to related companies — 75,690 25 Income tax payable 66 — — 4,967 462,704 225 Net current assets (liabilities) 49,426 (396,448) (224) Total assets less current liabilities 846,878 755,343 136,175 ----------- ----------- ----------- Non-current liabilities Bank and other borrowings — due after one year — 366,300 — Convertible note 55,087 — — 761,621 (e) Financial derivative liabilities — — — 742,179 (e) 122,100 (f) Promissory note payable 64,000 — — Deferred tax liabilities 52,162 15,131 — 116,535 (i) Amount due to minority shareholders — 133,239 — (133,239) (h) Amounts due to shareholders 9,849 — 92,034 (92,034) (h) 181,098 514,670 92,034 Net assets 665,780 240,673 44,141 Capital and reserves Share capital 9,080 — — 135,004 (f) Reserves 417,754 40,276 44,141 (191,174) (h) 155,771 (i) (13,134) (g) Total equity attributable to equity holders of the Company 426,834 40,276 44,141 Minority interests 238,946 200,397 — (200,397) (i) Total equity 665,780 240,673 44,141	Unaudited pro forma Enlarged Group HK$’000 79,965 — 5 75,715 66
	155,751
	839,250
	3,141,628 ----------- 366,300 816,708 864,279 64,000 183,828 — 9,849
	2,304,964
	836,664 144,084 453,634
	597,718 238,946
	836,664

— III-82 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Being the published unaudited Pro Forma Adjusted Balances as at 31 December 2005 extracted from the unaudited pro forma consolidated balance sheet set out in Appendix III to the circular of the Company dated 2 August 2006.
(b) The full version of the unaudited pro forma consolidated balance sheet is reproduced in Appendix I to this circular.
(c) Being the audited consolidated balance sheet of the Red Empire Group as at 31 December 2006 extracted from Appendix II to this circular.
(d) Being the audited balance sheet of Allright as at 31 December 2006 extracted from Appendix III to this circular.
(e) The adjustment represents the net proceeds of approximately HK$1,503,800,000 received in the issue of US$200 million Notes. These Notes have an issuer cash settlement option, an exercise price reset term and are denominated in the United States dollars, which is different to the Company’s functional currency, Hong Kong dollars. The Notes are regarded as compound instruments consisting of a debt and a derivative instrument. On issue of the Notes, the fair value of the derivative instrument is determined to be approximately HK$761,621,000 on the assumption that the Closing Date is 2 March 2007. The remainder of the proceeds is allocated to the debt, which amounts to approximately HK$742,179,000.
(f) Being an aggregated acquisition consideration of approximately HK$886,553,000, comprising (i) approximately HK$140,002,000, HK$52,612,000 and HK$83,747,000 for the sale of the entire issued share capital of Red Empire and Allright and 29% of the issued share capital of Yue Tian held by Wise Gain and (ii) the assignment of the amount owed to CMIC Property (China) Limited, SMC Property Investment Limited and Wise Gain by Yue Tian of approximately HK$312,145,000, HK$124,690,000 and HK$173,357,000, respectively. The net consideration will be settled by:
cash of approximately HK$629,449,000, and
190,477,209 convertible preference shares of approximately HK$257,104,000.

The convertible preference shares have an exercise price reset term and are nonredeemable. The convertible preference shares are regarded as compound instruments consisting of nonredeemable preference shares and a derivative instrument. On issue of these convertible preference shares, the fair value of the derivative instrument is determined to be approximately HK$122,100,000 on the assumption that the Closing Date is 2 March 2007. The remainder of the consideration is allocated as the nonredeemable preference share capital, which amounts to approximately HK$135,004,000 and is regarded as equity.

(g) Adjustment to reverse Allright’s share of Yue Tian’s net assets using the equity method upon the completion of the 71% Acquisition and the 29% Acquisition.
(h) The adjustment represents the elimination of intercompany balances among the Group, the Red Empire Group and Allright as if Red Empire, Allright and Yue Tian become the wholly owned subsidiaries of the Company upon completion of the 71% Acquisition and the 29% Acquisition.
(i) The adjustment represents elimination of investment cost in Red Empire, Allright and Yue Tian, and the recognition of the upward fair value adjustment to the properties held under development of approximately HK$353,135,000 and its associated deferred tax liability of approximately HK$116,535,000 on consolidation.

— III-83 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Scenario 2: Completion of the 29% Acquisition

Non-current assets Plant and equipment Properties held for development Goodwill Interest in associate Current assets Prepayments, trade and other receivables Cash and cash equivalents Current liabilities Trade, other payables and accruals Income tax payable Net current assets Total assets less current liabilities Non-current liabilities Convertible note Financial derivative liabilities Promissory note payable Deferred tax liabilities Amount due to shareholders Net assets Capital and reserves Share capital Reserves Total equity attributable to equity holders of the Company Minority interests Total equity	Pro Forma Adjusted Pro forma Balances adjustments as at relating 31 December to the 29% 2005 acquisition HK$’000 HK$’000 Note (Note a, b) 176 495,530 135,939 165,807 257,104 (c) 797,452 403 53,990 54,393 4,901 66 4,967 49,426 846,878 ---------------- 55,087 — 122,100 (c) 64,000 52,162 9,849 181,098 665,780 9,080 135,004 (c) 417,754 426,834 238,946 665,780	Unaudited pro forma Enlarged Group HK$’000 176 495,530 135,939 422,911
		1,054,556
		403 53,990
		54,393
		4,901 66
		4,967
		49,426
		1,103,982 ---------------- 55,087 122,100 64,000 52,162 9,849
		303,198
		800,784

		144,084 417,754
		561,838 238,946
		800,784

— III-84 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Being the published unaudited Pro Forma Adjusted Balances as at 31 December 2005 extracted from the unaudited pro forma consolidated balance sheet set out in Appendix III to the circular of the Company dated 2 August 2006.
(b) The full version of the unaudited pro forma consolidated balance sheet is reproduced in Appendix I to this circular.
(c) Issue 190,477,209 convertible preference shares of approximately HK$257,104,000 to acquire 29% issued share capital of Yue Tian and equity account for its share of Yue Tian’s net assets value as at 31 December 2006.

The convertible preference shares have an exercise price reset term and are nonredeemable. The convertible preference shares are regarded as compound instruments consisting of nonredeemable preference shares and a derivative instrument. On issue of these convertible preference shares, the fair value of the derivative instrument is determined to be approximately HK$122,100,000 on the assumption that the Closing Date is 2 March 2007. The remainder of the consideration is as the nonredeemable preference share capital, which amounts to approximately HK$135,004,000 and is regarded as equity.

(c) Unaudited pro forma consolidated cash flow statement of the Enlarged Group

The following table is an illustrative and unaudited pro forma consolidated cash flow statement of the Enlarged Group which has been prepared based on the Pro Forma Adjusted Balances as extracted from the Company’s circular dated 2 August 2006 as if the issue of the Notes, the completion of the 71% Acquisition and/or the 29% Acquisition (as the case may be) had taken place on 1 January 2005.

— III-85 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Scenario 1: Issue of the Notes completion of the 71% Acquisition and the 29% Acquisition

Pro Forma Adjusted Balances for the year ended 31 December 2005 HK$’000 (Note a, b) Loss before income tax (5,275) Adjustment for: Imputed interest on the amount due from associate — Imputed interest on loans from shareholders — Share of loss of associate — Impairment losses on promissory note receivable and accounts receivable 4,682 Write-off of hotel pre-operating expenses — Depreciation of plant and equipment 121 Finance costs 220 Finance income (262) Fair value losses (including loss on disposal) on financial asset at fair value through profit and loss 267 Write-back of trade and other payables (137) Gain on disposal of subsidiaries (2,990) Operating loss before working capital changes (3,374) Increase in amount due from intermediate holding company — Increase in amount due from minority shareholders — Decrease in amount due to intermediate holding company — Decrease in amount due to minority shareholders — Increase in properties held for development (19,380) Decrease in amount due to immediate holding company — Increase in amounts due to related companies — Increase in amounts due to fellow subsidiaries — Decrease in amount due to related party — Decrease/(increase) in deposits, prepayments and other receivables (64,145) (Increase)/decrease in trade and other payables and accruals (7,416) Cash generated from/ (used in) operations (94,315)	The Red Empire Group for the year ended 31 December 2006 HK$’000 (Note c) (11,801) — — — — 5,239 512 1,989 (407) — — — (4,468) 10,000 2,756 (19,048) (12,963) — (5,635) 63,307 5 (103) 76,945 23,933 134,729	Allright Pro forma Pro forma Pro forma for the adjustment adjustment Interest adjustment year ended of the relating on to eliminate 31 December convertible to the convertible inter-company 2006 note issue acquisition notes cash flow HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note d) (Note e) (Note f) (Note g) (Note h) (2,633) 2,436 (2,937) 2,937 3,539 (3,539) 1,834 (1,834) — — — — — — — — (197) — (10,000) — (2,756) — 19,048 — 12,963 — (1) 5,636 — — — — 200 2	Unaudited pro forma Enlarged Group HK$’000 (17,273) — — — 4,682 5,239 633 2,209 (669) 267 (137) (2,990)
			(8,039) — — — — (19,380) — 63,307 5 (103) 12,800 16,717
			65,307

— III-86 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Pro Forma Adjusted Balances for the year ended 31 December 2005 HK$’000 (Note a, b) Investing activities Interest received 262 Acquisition of subsidiaries, net of cash acquired (442,800) Disposal of subsidiaries, net of cash disposed of 2,300 Proceeds from sale of other investments 949 Repayment from associate — Acquisition of associate (85,807) Additions to prepaid lease payments — Additions to properties held for development — Purchase of plant and equipment (183) Net cash used in investing activities (525,279) Financing activities Proceeds from issue of ordinary shares 169,294 Proceeds from issue of Open Offer shares 234,500 Proceeds from issue of convertible notes — Advances from shareholders 272,678 Expenses incurred on issue of shares (4,354) Interest paid (33) Proceeds from bank and other borrowings 4,000 Repayments of bank and other borrowings (4,000) Decrease in amount due to director (1,276) Loans from minority shareholders — Repayment to shareholders — Net cash from financing activities 670,809 Increase in cash and cash equivalents 51,215 Effect of foreign exchange rate changes (5) Cash and cash equivalents at beginning of year 347 Cash and cash equivalents at end of year 51,557	The Red Empire Group for the year ended 31 December 2006 HK$’000 (Note c) 407 — — — — — (1,003) (446,682) (151) (447,429) — — — — — (1,989) 213,361 — — 13,744 — 225,116 (87,584) 4,578 88,959 5,953	Allright Pro forma Pro forma Pro forma for the adjustment adjustment Interest adjustment year ended of the relating on to eliminate 31 December convertible to the convertible inter-company 2006 note issue acquisition notes cash flow HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note d) (Note e) (Note f) (Note g) (Note h) — — (629,449) (11,148) — — 5,455 (5,455) — — — 5,455 — — — 1,503,800 8,000 (8,000) — — (62,400) — — — — (13,744) (13,456) 13,456 (5,456) 1 — — 1	Unaudited pro forma Enlarged Group HK$’000 669 (1,083,397) 2,300 949 — (85,807) (1,003) (446,682) (334)
			(1,613,305)
			169,294 234,500 1,503,800 272,678 (4,354) (64,422) 217,361 (4,000) (1,276) — —
			2,323,581
			775,583 4,573 89,306
			869,462

— III-87 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Being the long form of the unaudited pro forma consolidated cash flow statement for the year ended 31 December 2005 set out in Appendix III to the circular of the Company dated 2 August 2006.
(b) The unaudited pro forma consolidated cash flow statement for the year ended 31 December 2005 extracted from Appendix III to the circular of the Company dated 2 August 2006 is reproduced in Appendix I to this circular.
(c) Being the audited consolidated cash flow statement of the Red Empire Group for the twelve months ended 31 December 2006 extracted from Appendix II to this circular.
(d) Being the audited consolidated cash flow statement of Allright for the twelve months ended 31 December 2006 extracted from Appendix III to this circular.
(e) Being net cash received from the issue of the Notes.
(f) Being the cash consideration of approximately HK$629,449,000 in connection with the acquisition of the entire issued share capital of Red Empire and Allright and the shareholders’ loans of approximately HK$312,165,000 approximately and HK$124,690,000 owned by Red Empire and Allright.
(g) Being the cash interest on US$200 million Notes, which bear interest at a rate of 4% per annum.
(h) Being elimination of inter-company cash flow among the Group Allright and the Yue Tian Group as if Allright and Yue Tian become the wholly owned subsidiaries of the Company upon completion of the 71% Acquisition and the 29% Acquisition.

Scenario 2: Completion of the 29% Acquisition

The completion of the 29% Acquisition will be settled by issue of 190,477,209 convertible preference shares of approximately HK$257,104,000 which are non-redeemable and do not entitle for any dividend. Accordingly the completion of the 29% Acquisition does not generate any cash inflow or outflow.

— III-88 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

B. Report on unaudited pro forma financial information of the Enlarged Group

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

4 April 2007

Dear Sirs,

We report on the statement of unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Skyfame Realty (Holdings) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out in Appendix IV to the circular dated 4 April 2007 (the “Circular”) issued by the Company in connection with (i) the proposed issue of the United States dollars (“US$”) 200 million 4 per cent secured convertible notes (“Notes”) due 2013; (ii) the proposed acquisition of 100% shareholding in and shareholder’s loans due by Red Empire Limited (“Red Empire”); (iii) the proposed acquisition of 100% shareholding in and shareholder’s loans due by Allright Investments Limited (“Allright”); and (iv) the proposed acquisition of 29% shareholding in and shareholder’s loan due by Yue Tian Development Limited (“Yue Tian”). The basis of preparation of the unaudited pro forma financial information is set out on pages IV-1 to IV-13 of the circular. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the issue of the Notes and the proposed acquisitions might have affected the financial information presented.

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FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Responsibilities

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

Basis of opinion

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

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

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

— III-90 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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

Opinion

In our opinion:

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

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants

Au Yeung Shiu Kau Peter

Practising Certificate Number P02289

— III-91 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

II. ACQUISITION OF BRIGHT ABLE, AND IN TURN, 49% EFFECTIVE INTEREST IN THE LOYAL WAY GROUP, COMPLETED ON 4 JUNE 2007

Background

On, 26 April 2007, Smartford Limited (“Smartford”), a wholly-owned subsidiary of the Company entered into the Zhoutouzui Agreement with Poly to acquire from Poly 100% shareholding in and shareholder’s loan due by Bright Able Development Limited (“Bright Able”) for a total cash consideration of HK$319,970,502, which was financed by the net proceeds from the issue of the Notes by the Company. Bright Able has no major assets or operating businesses other than its 49% shareholding interest in Loyal Way which was an indirect 51% owned subsidiary of the Company. Through its subsidiaries, Loyal Way holds the entire equity interest of the PRC project company holding the Zhoutouzui Project. The aforesaid acquisition was completed on 4 June 2007. There were no variation to the aggregate remuneration payable to and benefits in kind receivable by the directors of Smartford as a result of such acquisition.

Financial information

Set out below are (i) audited financial information of Bright Able for the period from 13 October 2005 (being date of incorporation) to 31 December 2005 and for the year ended 31 December 2006 together with the relevant notes to the accounts, as extracted from the accountants’ report of Bright Able set out in Appendix II to the Company’s circular dated 17 May 2007; (ii) audited financial information of the Loyal Way Group for the period from 6 July 2005 (being date of incorporation) to 31 December 2005 and for the year ended 31 December 2006 together with the relevant notes to the accounts as extracted from the accountants’ report of the Loyal Way Group as set out in Appendix II to the Company’s circular dated 17 May 2007; (iii) the management discussion and analysis of Bright Able and the Loyal Way Group as extracted from Appendix II to the Company’s circular dated 17 May 2007; and (iv) the pro forma financial information of the Group as enlarged by the acquisition of the interest in Bright Able as extracted from Appendix IV to the Company’s circular dated 17 May 2007. Capitalised terms used in this section shall have the same meanings as defined in the Company’s circular dated 17 May 2007.

— III-92 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

1. Financial information of Bright Able

A. Financial information

1. Income statements of Bright Able

Period from
13 October
2005 (date of
incorporation of
Bright Able) to
31 December
2005
Notes
HK$’000
Turnover
3
—
Other revenue
4
—
General and administrative expenses
(6)
(Loss)/profit from operations
(6)
Imputed interest on loan from shareholder
11
—
Share of loss of associate
10(b)
(226)
(Loss)/profit before income tax expense
(232)
Income tax expense
7
—
(Loss)/profit for the period/year attributable to
equity holder of Bright Able
(232)

Year ended
31 December
2006
HK$’000
—
8,526
(37)
8,489
(6,859)
(175)
1,455
—
1,455

— III-93 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

2. Balance sheets of Bright Able

Notes Non-current asset Interest in associate 10 Current liability Other payable Total asset less current liability Non-current liability Loan from shareholder 11 NET ASSETS Capital and reserves Share capital 12 Reserves 13 TOTAL EQUITY	As at 31 2005 HK$’000 165,057 32,314 132,743 114,298 18,445 — 18,445 18,445	December 2006 HK$’000 283,763 —
		283,763 244,977
		38,786

		— 38,786
		38,786

— III-94 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Statements of changes in equity of Bright Able

Notes At 13 October 2005 (date of incorporation of Bright Able) Issue of share 12 Contributions from shareholder 11 Share of associate’s post-acquisition reserve 13 Loss for the period 13 At 31 December 2005 Contributions from shareholder 11 Share of associate’s post-acquisition reserve 13 Profit for the year 13 At 31 December 2006	Share capital HK$’000 — — — — — — — — — —	Capital reserve HK$’000 — — 18,568 — — 18,568 11,967 — — 30,535	(Accumulated Foreign losses)/ exchange retained reserve earnings HK$’000 HK$’000 — — — — — — 109 — — (232) 109 (232) — — 6,919 — — 1,455 7,028 1,223	Total HK$’000 — — 18,568 109 (232) 18,445 11,967 6,919 1,455 38,786

Share of associate’s post-acquisition reserve represents Bright Able’s share of Loyal Way’s reserve movement arising from translation of financial statements of a foreign jointly controlled entity for the period/year.

— III-95 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

4. Cash flow statements of Bright Able

	Period from
	13 October
	2005 (date of
	incorporation of
	Bright Able) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Cash flows from operating activities
(Loss)/profit before income tax expense	(232)	1,455
Adjustments for:
Share of loss of associate	226	175
Imputed interest on loan from shareholder	—	6,859
Imputed interest on amount due from associate	—	(8,526)
Net cash used in operating activities	(6)	(37)
Cash flows from investing activities
Advance to associate	(132,860)	(135,750)
Cash flows from financing activities
Loan from shareholder	132,866	135,787
Net increase in cash and cash equivalents	—	—
Cash and cash equivalents at beginning
of period/year	—	—
Cash and cash equivalents at end
of period/year	—	—

B. Notes to the financial information

1. General

Bright Able was incorporated in the BVI with limited liability on 13 October 2005 under the International Business Companies Act of the BVI. Bright Able has not carried on any business since the date of its incorporation save for the holding of 49% equity interest in Loyal Way. As at the date of this report, the directors of Bright Able considered the ultimate holding company and the immediate holding company of Bright Able to be China Poly Group Corporation, a state-owned enterprise established in the People’s Republic of

— III-96 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

China, and CMIC Property (China) Limited, a company incorporated in the BVI, respectively. The registered office and principal place of business of Bright Able are located at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, BVI and Room 2503, Admiralty Centre, Tower 1, 18 Harcourt Road, Hong Kong, respectively.

Bright Able and its associate are investment holding companies. On 1 August 2005, CMIC Property (China) Limited on behalf of Bright Able subscribed a 49% equity interest in Loyal Way at nominal value of share capital totalling US$49. Subsequently on 3 January 2006, CMIC Property (China) Limited transferred the 49% shareholding in Loyal Way to Bright Able. The Financial Information for the Relevant Periods comprise Bright Able and its interest in associate.

The Financial Information is presented in Hong Kong dollars which is same as the functional currency of Bright Able.

2. Principal accounting policies

(a) Statement of compliance

(b) Basis of preparation

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

The HKICPA has issued the following new standards, amendment and interpretations that are not yet effective. The directors of Bright Able have considered the potential impact of these new HKFRSs but do not expect that the application of these new HKFRSs will have a significant impact on how the results of operations and the financial position of Bright Able are prepared and presented.

		Effective
		for accounting
		periods beginning
		on or after
HKAS 1 (Amendment)	Capital Disclosures	1 January 2007
HKFRS 7	Financial Instruments: Disclosures	1 January 2007
HKFRS 8	Operating Segments	1 January 2009
HK(IFRIC) — Interpretation 7	Applying the Restatement Approach under	1 March 2006
	HKAS 29 Financial Reporting
	in Hyperinflationary Economies
HK(IFRIC) — Interpretation 8	Scope of HKFRS 2	1 May 2006
HK(IFRIC) — Interpretation 9	Reassessment of Embedded Derivatives	1 June 2006
HK(IFRIC) — Interpretation 10	Interim Financial Reporting and Impairment	1 November 2006
HK(IFRIC) — Interpretation 11	HKFRS 2 — Group and Treasury Share Transactions	1 March 2007
HK(IFRIC) — Interpretation 12	Services Concession Arrangements	1 January 2008

— III-97 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(c) Associate

An associate is an entity in which Bright Able has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

The results and assets and liabilities of associates are incorporated in the Financial Information using the equity method of accounting. Under the equity method, investment in associate is carried in the balance sheet at cost as adjusted for postacquisition changes in Bright Able’s share of the net assets of the associate, less any identified impairment loss. When Bright Able’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of Bright Able’s net investment in the associate), Bright Able discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that Bright Able has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over Bright Able’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

Any excess of Bright Able’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in income statement.

Where Bright Able transacts with an associate, profits and losses are eliminated to the extent of Bright Able’s interest in the relevant associate.

(d) Impairment

At each balance sheet date, Bright Able reviews the carrying amount of the investment in associate to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased.

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

— III-98 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(e) Cash and cash equivalents

(f) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

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

(g) Revenue recognition

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

(h) Financial instruments

(i) Financial assets

Bright Able classifies its financial assets into the following category, and Bright Able’s accounting policy for this category is as follows:

— III-99 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(ii) Financial liabilities

Bright Able classifies its financial liabilities into the following category, and Bright Able’s accounting policy for this category is as follows:

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

Trade payables and other short-term monetary liabilities, which are recognised at amortised cost.
Loan from shareholder is 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 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.

(iii) Derecognition

Bright Able 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.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(i) Provision and contingent liabilities

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

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

— III-100 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

3. Turnover and segment information

Bright Able did not generate any turnover during the Relevant Periods.

Bright Able is principally engaged in investment holding in Hong Kong, which is regarded as one business segment and one geographical segment.

4. Other revenue

	Period from
	13 October
	2005 (date of
	incorporation of
	Bright Able) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Imputed interest on amount due from associate	—	8,526

5. Directors’ emoluments

No directors’ emoluments were incurred for the Relevant Periods.

6. Five highest paid individuals

No emoluments were payable or paid to any individuals including directors for the Relevant Periods.

7. Income tax expense

No provision for Hong Kong profits tax has been made as Bright Able has no assessable profits during the Relevant Periods.

— III-101 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The income tax expense for the Relevant Periods can be reconciled to the (loss)/profit per the income statements as follows:

Period from 13 October 2005 (date of incorporation of Bright Able) to 31 December 2005 HK$’000 (Loss)/profit before income tax expense (232) Tax calculated at Hong Kong profits tax rate of 17.5% (41) Tax effect of expenses not deductible for tax purpose 41 Tax effect of income not taxable for tax purpose — Income tax expense —	Year ended 31 December 2006 HK$’000 1,455

	255 1,237 (1,492
	—

No provision for deferred taxation has been recognised as the amount involved is insignificant.

8. Dividends

No dividend has been paid or declared by Bright Able during the Relevant Periods.

9. Loss per share

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

10. Interest in associate

Share of associate’s net assets_(note b) Amount due from associate(note c)_	As at 31 December 2005 2006 HK$’000 HK$’000 22,966 38,827 142,091 244,936 165,057 283,763	As at 31 December 2005 2006 HK$’000 HK$’000 22,966 38,827 142,091 244,936 165,057 283,763
		283,763

— III-102 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Investment in associate represents Bright Able’s direct interest in the following entity:

	Place and date of	Authorised and	Attributable equity
Name of	incorporation and	issued paid-up	interest directly held	Principal
associate	kind of legal entity	capital	by Bright Able	activity
Loyal Way	BVI, 6 July 2005,	Authorised capital of	49%	Investment
	incorporated	US$50,000 of 50,000		holding
		ordinary shares of US$1
		each and issued paid-up
		capital of US$100

(b) Details of share of associate’s summarised financial information are as follows:

	As at 31 December	As at 31 December
	2005	2006
	HK$’000	HK$’000
Total assets	390,641	639,533
Total liabilities	(343,771)	(560,295)
Net assets	46,870	79,238

Bright Able’s share of net assets of associate	22,966	38,827

	Period from
	13 October
	2005 (date of
	incorporation of
	Bright Able) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Revenue	—	—

Loss for the period/year	(461)	(357)

Bright Able’s share of loss of associate	(226)	(175)

(c) The amount due from associate is unsecured, interest-free, has no fixed repayment date and is expected to be repayable by 2008. The fair value of the amount at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the prevailing market rates. The residual amount is included in investment cost in associate.

Interest income on amount due from associate is calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amount.

— III-103 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The fair values of the loans as at 31 December 2005 and 2006 approximate to their respective carrying amounts. The fair value is calculated using cash flows discounted at the prevailing market interest rate.

11. Loan from shareholder

The amount is unsecured, carries interest at an effective rate of 6% per annum and repayable by 2008. The fair value of the loan from shareholder is estimated by discounting their future cash flows at the prevailing market rates. The residual amount is included in shareholders’ equity (note 13) .

The loan from shareholder recognised in the balance sheet is calculated as follows:

Carrying amount at 13 October 2005 (date of incorporation of Bright Able) Loan from shareholder Contributions from shareholder_(note 13) Carrying amount at 31 December 2005 Additional loan from shareholder Contributions from shareholder(note 13)_ Imputed interest expense Carrying amount at 31 December 2006	HK$’000 — 132,866 (18,568)
	114,298 135,787 (11,967) 6,859
	244,977

Imputed interest expense on loan from shareholder is calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amount.

The fair values of the loans as at 31 December 2005 and 2006 approximate to their respective carrying amounts.

12. Share capital

Share capital
		As	at 31	December
	2005			2006
	US$’000	HK$’000		US$’000	HK$’000
		equivalent			equivalent
Authorised:
50,000 ordinary shares of US$1 each	50		390	50		390

Issued and fully paid:
1 ordinary share of US$1	—		—	—		—

Bright Able was incorporated in the BVI on 13 October 2005 with an authorised share capital of US$50,000. At the time of incorporation, 1 ordinary share of US$1 was issued for cash at par to the subscriber to provide initial capital to Bright Able.

— III-104 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

13. Reserves

Notes At 13 October 2005 (date of incorporation of Bright Able) Contributions from shareholder 11 Share of associate’s post-acquisition reserve Loss for the period At 31 December 2005 Contributions from shareholder 11 Share of associate’s post-acquisition reserve Profit for the year At 31 December 2006	Capital reserve HK$’000 — 18,568 — — 18,568 11,967 — — 30,535	(Accumulated Foreign losses)/ exchange retained reserve earnings HK$’000 HK$’000 — — — — 109 — — (232) 109 (232) — — 6,919 — — 1,455 7,028 1,223	Total HK$’000 — 18,568 109 (232) 18,445 11,967 6,919 1,455 38,786

(a) Nature and purpose of reserves

(i) Capital reserve

The amount represents the capital contributions from shareholder.

(ii) Foreign exchange reserve

The amount represents Bright Able’s share of Loyal Way’s reserve movement arising from translation of financial statements of a foreign jointly controlled entity for the period/year.

(b) Distributable reserves

At 31 December 2005 and 2006, the distributable reserves available for distribution to equity holder of Bright Able are HK$Nil and HK$1,624,000 respectively.

14. Financial instruments

Bright Able’s principal financial asset is amount due from associate. Financial liabilities of Bright Able include loan from shareholder. Bright Able does not hold or issue any financial instruments for trading purposes at the balance sheet dates.

Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 December 2005 and 2006.

— III-105 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The carrying amounts of amount due from associate and loan from shareholder approximate their fair values because the effective interest rates of the debts are approximate to the prevailing market rates at the balance sheet dates for similar borrowings available to Bright Able.

C. Subsequent financial statements

No audited financial statements have been prepared by Bright Able in respect of any period subsequent to 31 December 2006.

— III-106 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

2. Financial information of the Loyal Way Group

A. Financial information

1. Consolidated income statements of the Loyal Way Group

Period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 Notes HK$’000 Turnover 4 — Other revenue 5 22 General and administrative expenses (483) Loss before income tax expense 6 (461) Income tax expense 10 — Loss for the period/year attributable to equity holders of Loyal Way (461)	Year ended 31 December 2006 HK$’000 — 33 (390) (357) — (357)

— III-107 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

2. Consolidated balance sheets of the Loyal Way Group

Notes
Non-current assets
Office equipment
14
Properties held for development
15
Goodwill
16
Current assets
Prepayments and other receivables
Cash and cash equivalents
19
Current liabilities
Amount due to immediate
holding company
20
Other payables and accruals
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Loans from shareholders
21
Deferred tax liabilities
22
NET ASSETS
Capital and reserves
Share capital
23
Reserves
24
TOTAL EQUITY
ATTRIBUTABLE TO
EQUITY HOLDERS
OF LOYAL WAY

As at 31 December
2005
2006
HK$’000
HK$’000
14
77
221,304
573,022
65,474
65,474
286,792
638,573
---------------
---------------
86,539
188
17,310
772
103,849
960
---------------
---------------
—
4,005
2,489
3,594
2,489
7,599
---------------
---------------
101,360
(6,639)
388,152
631,934
---------------
---------------
289,980
499,870
51,302
52,826
341,282
552,696
---------------
---------------
46,870
79,238
1
1
46,869
79,237
46,870
79,238

— III-108 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Balance sheets of Loyal Way

Notes Non-current asset Investment in subsidiaries 17 Current liability Amount due to subsidiary 17 NET LIABILITIES Capital and reserves Share capital 23 Accumulated losses 24 TOTAL DEFICIT	As at 31 December 2005 2006 HK$’000 HK$’000 2 2 (11) (17) (9) (15) 1 1 (10) (16) (9) (15)

— III-109 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

4. Consolidated statements of changes in equity of the Loyal Way Group

Notes At 6 July 2005 (date of incorporation of Loyal Way) Issue of shares 23 Contributions from shareholders 21 Exchange differences on translation of financial statements of foreign jointly controlled entity 24 Loss for the period 24 At 31 December 2005 Contributions from shareholders 21 Exchange differences on translation of financial statements of foreign jointly controlled entity 24 Loss for the year 24 At 31 December 2006	Share capital HK$’000 — 1 — — — 1 — — — 1	Capital reserve HK$’000 — — 47,107 — — 47,107 18,604 — — 65,711	Foreign exchange Accumulated reserve losses HK$’000 HK$’000 — — — — — — 223 — — (461) 223 (461) — — 14,121 — — (357) 14,344 (818)	Total HK$’000 — 1 47,107 223 (461) 46,870 18,604 14,121 (357) 79,238

— III-110 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

5. Consolidated cash flow statements of the Loyal Way Group

	Period from
	6 July
	2005 (date of
	incorporation of
	Loyal Way) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Cash flows from operating activities
Loss before income tax expense	(461)	(357)
Adjustments for:
Interest income	(22)	(33)
Operating loss before working capital changes	(483)	(390)
Changes in working capital:
Increase in prepayments and other receivables	(69,745)	—
Increase in amount due to immediate
holding company	—	4,005
(Decrease)/increase in other
payables and accruals	(6,977)	1,016
Net cash (used in)/from operating activities	(77,205)	4,631
	---------------	---------------
Cash flows from investing activities
Acquisition of subsidiary_(note 26)_	(158,800)	—
Purchase of office equipment	—	(72)
Additions to properties held for development	(19,380)	(235,321)
Interest received	22	33
Net cash used in investing activities	(178,158)	(235,360)
	---------------	---------------
Cash flows from financing activities
Proceeds from issue of ordinary shares	1	—
Loans from shareholders	337,087	211,095
Repayment of advance from ex-shareholder	(64,409)	—
Net cash from financing activities	272,679	211,095
	---------------	---------------
Net increase/(decrease) in cash and
cash equivalents	17,316	(19,634)
Effect of foreign exchange rate changes	(6)	3,096
Cash and cash equivalents at beginning
of period/year	—	17,310
Cash and cash equivalents at end
of period/year(note 19)	17,310	772

— III-111 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

B. Notes to the financial information

1. General

Loyal Way was incorporated in the BVI with limited liability on 6 July 2005 under the International Business Companies Act of the BVI. Loyal Way has not carried on any business since the date of its incorporation save for the acquisition and holding of the entire equity interest in GZ ZTZ through its two wholly-owned subsidiaries, namely Fortunate Start and Ace Billion. As at the date of this report, the directors of Loyal Way considered the ultimate holding company and the immediate holding company of Loyal Way to be Sharp Bright International Limited, a company incorporated in the BVI, and Smartford Limited, a company incorporated in the BVI, respectively. The registered office and principal place of business of Loyal Way are located at Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, BVI and 2502B, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong, respectively.

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

The Financial Information is presented in Hong Kong dollars which is same as the functional currency of Loyal Way and its subsidiaries, while the functional currency of its jointly controlled entity is Renminbi (“RMB”).

2. Principal accounting policies

(a) Statement of compliance

(b) Basis of preparation

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

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

The Financial Information has been prepared on a going concern basis notwithstanding that the Loyal Way Group had net current liabilities as at 31 December 2006 as its holding company had agreed not to demand for the repayment of the amount due by the Loyal Way Group until the Loyal Way Group has the financial ability to do so; and had undertaken to provide such financial support to the Loyal Way Group to enable it to continue as a going concern and to enable it to meet its liabilities as and when they fall due.

— III-112 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The preparation of financial statements in conformity with HKFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Loyal Way Group’s accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the Financial Information are disclosed in note 3 to the Financial Information.

The HKICPA has issued the following new standards, amendment and interpretations that are not yet effective. The directors of Loyal Way have considered the potential impact of these new HKFRSs but do not expect that the application of these new HKFRSs will have a significant impact on how the results of operations and the financial position of the Loyal Way Group are prepared and presented.

		Effective
		for accounting
		periods beginning
		on or after
HKAS 1 (Amendment)	Capital Disclosures	1 January 2007
HKFRS 7	Financial Instruments: Disclosures	1 January 2007
HKFRS 8	Operating Segments	1 January 2009
HK(IFRIC) — Interpretation 7	Applying the Restatement Approach under	1 March 2006
	HKAS 29 Financial Reporting in
	Hyperinflationary Economies
HK(IFRIC) — Interpretation 8	Scope of HKFRS 2	1 May 2006
HK(IFRIC) — Interpretation 9	Reassessment of Embedded Derivatives	1 June 2006
HK(IFRIC) — Interpretation 10	Interim Financial Reporting and Impairment	1 November 2006
HK(IFRIC) — Interpretation 11	HKFRS 2 — Group and Treasury Share Transactions	1 March 2007
HK(IFRIC) — Interpretation 12	Services Concession Arrangements	1 January 2008

(c) Basis of consolidation

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

On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition.

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

(d) Subsidiaries

A subsidiary is an entity over which Loyal Way is able to exercise control. Control is achieved where Loyal Way has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

— III-113 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(e) Joint ventures

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

Interests in jointly controlled entities are included in the Financial Information using proportionate consolidation. The Loyal Way Group’s share of each of the jointly controlled entity’s assets, liabilities, income and expenses are combined line-by-line with similar items of the Loyal Way Group. Any premium paid for an interest in a jointly controlled entity above the fair value of the Loyal Way Group’s share of identifiable assets, liabilities and contingent liabilities is dealt with under the goodwill policy.

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

(f) Goodwill

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

For goodwill arising on an acquisition in a financial period/year, the CGU to which goodwill has been allocated is tested for impairment before the end of that financial period/year. When the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount to each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

— III-114 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(g) Impairment — other assets

At each balance sheet date, the Loyal Way Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

office equipment;
properties held for development; and
investments in subsidiaries and joint ventures

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

(h) Foreign currency

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the income statement in the period in which they arise, except for exchange differences arising on a monetary item that forms part of Loyal Way’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences is also recognised directly in equity.

On consolidation, the results of overseas operations are translated into the presentation currency of the Loyal Way Group (i.e. Hong Kong dollars) at the average exchange rates for the period/year, unless exchange rates fluctuate significantly during the Relevant Periods, in which case, the rate approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating

— III-115 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the “foreign exchange reserve”). Exchange differences recognised in the income statement of group entities’ separate financial statements on the translation of long-term monetary items forming part of the Loyal Way Group’s net investment in the overseas operation concerned are reclassified to the foreign exchange reserve.

Goodwill and fair value adjustments on identifiable assets acquired arising on acquisition of foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the foreign exchange reserve.

(i) Office equipment

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of office equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in the income statement on disposal.

(j) Properties held for development

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

(k) Cash and cash equivalents

— III-116 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(l) Income taxes

Income taxes for the Relevant Periods comprise current tax and deferred tax.

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

(m) Revenue recognition

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

(n) Financial instruments

(i) Financial assets

The Loyal Way Group classifies its financial assets into the following category, and the Loyal Way Group’s accounting policy for this category is as follows:

— III-117 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(ii) Financial liabilities

The Loyal Way Group classifies its financial liabilities into the following category, and the Loyal Way Group’s accounting policy for this category is as follows:

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

Trade payables and other short-term monetary liabilities, which are recognised at amortised cost.
Amount due to immediate holding company and loans from shareholders 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 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.
(iii) Derecognition

The Loyal Way 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.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

(o) Provision and contingent liabilities

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

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

— III-118 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(p) Employee benefits

(i) Defined contribution pension plan

Contributions to defined contribution pension plan are recognised as an expense in the income statement when the services are rendered by the employees.

The employees of the jointly controlled entity in the PRC, Yucheng, are required to participate in a central pension scheme operated by the local municipal government. Yucheng is required to contribute a certain percentage of its payroll costs to the central pension scheme. The contributions payable are charged to the income statement when they become payable in accordance with the rules of the central pension scheme.

(ii) Employee entitlements

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

(iii) Termination benefits

Termination benefits are recognised when, and only when, the Loyal Way Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

(q) Leases

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Loyal Way 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.

(r) Borrowing costs

— III-119 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

3. Critical accounting estimates

The critical accounting judgments in applying the Loyal Way Group’s accounting policies are described below:

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value-in-use of the CGU to which goodwill has been allocated. The value-in-use calculation requires the Loyal Way Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Both at 31 December 2005 and 2006, the carrying amounts of goodwill in respect of the jointly controlled entity are approximately HK$65,474,000 and no indication of impairment on goodwill was noted during the impairment test for goodwill. Details of the recoverable amount calculation are disclosed in notes 16 and 18 to the Financial Information.

4. Turnover and segment information

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

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

5. Other revenue

	Period from
	6 July
	2005 (date of
	incorporation
	of Loyal Way) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Bank interest income	22	33

— III-120 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

6. Loss before income tax expense

Loss before income tax expense is stated after charging:

	Period from
	6 July
	2005 (date of
	incorporation
	of Loyal Way) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Auditors’ remuneration	150	60
Exchange differences, net	309	—

In addition to the above, the following expenditures have been capitalised as properties held for development as disclosed in note 15 to the Financial Information during the Relevant Periods:

	Period from
	6 July
	2005 (date of
	incorporation
	of Loyal Way) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Depreciation of office equipment	1	9
Imputed interest on loans from shareholders
wholly repayable within five years_(note 21)_	—	17,399

— III-121 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

7. Staff costs

Period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 HK$’000 Staff costs (including directors’ remuneration) comprise: Basic salaries and other benefits — Contributions to defined contribution pension plans — — _Less:_expenses capitalised as properties held for development — —	Year ended 31 December 2006 HK$’000 1,711 170
	1,881 (1,719
	162

8. Directors’ emoluments

No directors’ emoluments were incurred for the Relevant Periods.

9. Five highest paid individuals

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

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

— III-122 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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

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

10. Income tax expense

No provision for Hong Kong profits tax or overseas income tax has been made as the Loyal Way Group has no assessable profits during the Relevant Periods.

The income tax expense for the Relevant Periods can be reconciled to the loss per the consolidated income statements as follows:

Period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 HK$’000 Loss before income tax expense (461) Tax calculated at Hong Kong profits tax rate of 17.5% (81) Tax effect of expenses not deductible for tax purpose 85 Tax effect of income not taxable for tax purpose (4) Income tax expense —	Year ended 31 December 2006 HK$’000 (357

	(62 68 (6
	—

11. Loss attributable to equity holders of Loyal Way

The loss attributable to equity holders of Loyal Way is dealt with in the financial statements of Loyal Way to the extent of HK$10,000 and HK$6,000, respectively, for the period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 and the year ended 31 December 2006.

12. Dividends

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

— III-123 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

13. Loss per share

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

14. Office equipment

Cost At 6 July 2005 (date of incorporation of Loyal Way) Acquired through acquisition of subsidiary_(note 26)_ At 31 December 2005 Additions Foreign currency translation At 31 December 2006 Accumulated depreciation At 6 July 2005 (date of incorporation of Loyal Way) Charge for the period At 31 December 2005 Charge for the year Foreign currency translation At 31 December 2006 Net book value At 31 December 2006 At 31 December 2005	HK$’000 — 15
	15 72 1
	88 ----------------- — 1
	1 9 1
	11 -----------------
	77

	14

15. Properties held for development

Land use right, premium paid for the acquisition of the interest of the land, and demolition and settlement costs Construction costs Others	As at 31 2005 HK$’000 217,637 2,311 1,356 221,304	December 2006 HK$’000 545,183 6,123 21,716
		573,022

Land use right comprises cost of acquiring rights to use certain piece of land, which is all located in the PRC, for property development over fixed periods between 40 and 70 years.

— III-124 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

16. Goodwill

At 6 July 2005 (date of incorporation of Loyal Way) Acquired through acquisition of subsidiary_(note 26)_ At 31 December 2005 and 2006	HK$’000 — 65,474
	65,474

Impairment test for goodwill

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

17. Interests in subsidiaries

Unlisted investment in subsidiaries, at cost_(note a) Amount due to subsidiary(note b)_	As at 31 2005 HK$’000 2 11	December 2006 HK$’000 2

		17

— III-125 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Investment in subsidiaries represents Loyal Way’s direct and indirect interests in the following entities:

	Place and date		Attributable	Attributable
	of incorporation	Authorised and	equity
Name of	and kind of	issued paid-up	interest held		Principal
subsidiaries	legal entity	capital	by Loyal Way		activity
			Direct	Indirect
Fortunate Start	BVI,	Authorised capital of US$50,000	100%	—	Investment
	5 August 2005,	of 50,000 ordinary shares of			holding
	incorporated	US$1 each and issued paid-up
		capital of US$100
Ace Billion	BVI,	Authorised capital of US$50,000	100%	—	Investment
	12 August 2005,	of 50,000 ordinary shares of			holding
	incorporated	US$1 each and issued paid-up
		capital of US$100
GZ ZTZ	Hong Kong,	Authorised capital of HK$10,000	—	100%	Investment
	26 August 2002,	of 10,000 ordinary shares of			holding
	incorporated	HK$1 each and issued paid-up
		capital of HK$100

All subsidiaries of Loyal Way operate in Hong Kong. None of the subsidiaries had any debt securities outstanding as at 31 December 2005 and 2006 or at any time during the Relevant Periods.

(b) The amount due to subsidiary is unsecured, interest-free and repayable on demand.

18. Interest in jointly controlled entity

GZ ZTZ holds 100% equity interest in a jointly controlled entity, Yucheng, which is accounted for in the Financial Information by proportionate consolidation. Details of the Loyal Way Group’s interest in jointly controlled entity are as follows:

	Place and date of	Registered and	Attributable equity
Name of jointly	establishment and	paid-up	interest held indirectly	Principal
controlled entity	kind of legal entity	capital	by Loyal Way	activity
Yucheng	PRC, 31 March 2003,	US$12,000,000	100%	Property
	sino-foreign cooperative		(Note)	development
	joint venture enterprise

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

— III-126 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Financial information of Yucheng is as follows:

	As at 31 December	As at 31 December
	2005	2006
	HK$’000	HK$’000
Non-current assets	75,319	555,700
Current assets	103,827	281
Current liabilities	(2,335)	(299,716)
Non-current liabilities	—	(52,826)
Net assets	176,811	203,439

	Period from
	6 July
	2005 (date of
	incorporation
	of Loyal Way) to	Year ended
	31 December	31 December
	2005	2006
	HK$’000	HK$’000
Revenue	—	—

Results for the period/year	—	—

19. Cash and cash equivalents

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

	As at 31 December	As at 31 December
	2005	2006
	HK$’000	HK$’000
Cash and bank balances	17,310	772

Included in cash and cash equivalents in the consolidated balance sheets are the following significant amounts denominated in currency other than the functional currency of Loyal Way:

Way:
	As at 31 December
	2005	2006
	’000	’000
RMB	17,979	94

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.

— III-127 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

20. Amount due to immediate holding company

The amount due to immediate holding company is unsecured, interest-free, has no fixed repayment date and is expected to be repaid within 12 months.

21. Loans from shareholders

The loans from shareholders are unsecured, interest-free and have no fixed repayment date but are expected to be repayable by 2008.

The fair value of the loan at initial recognition has been determined based on the present value of the estimated future cash flows discounted using the then prevailing market interest rate.

The movements of the loans from shareholders were as follows:

At 6 July 2005 (date of incorporation of Loyal Way) Loans from shareholders Contributions from shareholders_(note 24) At 31 December 2005 Additional loans from shareholders Imputed interest expense(note 6) Contributions from shareholders(note 24)_ At 31 December 2006	HK$’000 — 337,087 (47,107
	289,980 211,095 17,399 (18,604
	499,870

Imputed interest expense on loans from shareholders is calculated using the effective interest method by applying the effective interest rate of 6% per annum to the carrying amounts.

22. Deferred tax liabilities

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

	Revaluation of properties
	held for development
	HK$’000
At 6 July 2005 (date of incorporation of Loyal Way)	—
Acquired through acquisition of subsidiary_(note 26)_	51,233
Foreign currency translation	69
At 31 December 2005	51,302
Foreign currency translation	1,524
At 31 December 2006	52,826

A deferred tax asset of HK$949,000 in respect of unused tax losses of HK$2,876,000 (approximately RMB2,957,000) as at 31 December 2006 has not been recognised due to the unpredictability of future profit streams. The unused tax losses will expire in 2011.

No unused tax loss has been carried forward as at 31 December 2005.

— III-128 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

23. Share capital

	As at 31	December
2005		2006
US$’000	HK$’000	US$’000	HK$’000
	equivalent		equivalent

Loyal Way Group and Loyal Way Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 100 ordinary shares of US$1 each	50 —	390 1	50 —	390

				1

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

24. Reserves/(deficits)

Loyal Way Group At 6 July 2005 (date of incorporation of Loyal Way) Contributions from shareholders (note 21) Exchange differences on translation of financial statements of foreign jointly controlled entity Loss for the period At 31 December 2005 Contributions from shareholders (note 21) Exchange differences on translation of financial statements of foreign jointly controlled entity Loss for the year At 31 December 2006	Capital reserve HK$’000 — 47,107 — — 47,107 18,604 — — 65,711	Foreign exchange Accumulated reserve losses HK$’000 HK$’000 — — — — 223 — — (461) 223 (461) — — 14,121 — — (357) 14,344 (818)	Total HK$’000 — 47,107 223 (461
			46,869 18,604 14,121 (357
			79,237

— III-129 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

	Accumulated losses
	HK$’000
Loyal Way
At 6 July 2005 (date of incorporation of Loyal Way)	—
Loss for the period	(10)
At 31 December 2005	(10)
Loss for the year	(6)
At 31 December 2006	(16)

(a) Nature and purpose of reserves

(i) Capital reserve

The amount represents the capital contributions from shareholders.

(ii) Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of a jointly controlled entity the functional currency of which is different from the presentation currency of the Loyal Way Group. The reserve is dealt with in accordance with the accounting policy set out in note 2(h) to the Financial Information.

(b) Distributable reserves

At 31 December 2005 and 2006, the distributable reserves available for distribution to equity holders of Loyal Way are HK$Nil.

25. Capital commitments

	As at 31 December	As at 31 December
	2005	2006
	HK$’000	HK$’000
Loyal Way Group
Capital expenditure contracted but not provided for
in the Financial Information in respect of additions
to property construction and development costs	1,022,247	825,114

— III-130 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

26. Acquisition of subsidiary

On 25 October 2005, Loyal Way acquired 100% equity interest in GZ ZTZ, which operates a jointly controlled entity, Yucheng, a property development company operating in the PRC. GZ ZTZ and Yucheng contributed no revenue and incurred net loss of HK$128,000 and HK$342,000 for the period from 25 October 2005 to 31 December 2005 and the year ended 31 December 2006, respectively.

Notes Office equipment 14 Properties held for development Prepayments Amount due to an ex-shareholder of GZ ZTZ Other payables and accruals Deferred tax liabilities 22 Net (liabilities)/assets acquired Goodwill arising on acquisition 16 Satisfied by: — Cash consideration paid — Direct costs relating to the acquisition Total consideration	Acquiree’s carrying amount before acquisition HK$’000 15 46,400 16,771 (64,409) (9,470) — (10,693)	Fair value adjustment HK$’000 — 155,252 — — — (51,233) 104,019	Fair value HK$’000 15 201,652 16,771 (64,409) (9,470) (51,233) 93,326 65,474 158,800 158,177 623 158,800

27. Events after balance sheet date

Pursuant to the new PRC Corporate Income Tax Law passed by the Tenth National People’s Congress on 16 March 2007, the new Corporate Income Tax rates for almost all enterprises established in the PRC shall be subject to a unified rate of 25%, which is 33% during the Relevant Periods, and will be effective from 1 January 2008. The impact of such change of Corporate Income Tax rate on the Loyal Way Group’s financial statements will depend on detailed pronouncements that are to be issued. The Loyal Way Group will evaluate the impact of the new PRC Corporate Income Tax Law upon issuance of detailed pronouncements.

28. Financial instruments

The Loyal Way Group’s principal financial assets are cash and bank balances. Financial liabilities of the Loyal Way Group include amount due to immediate holding company and loans from shareholders. The Loyal Way Group does not hold or issue any financial instruments for trading purposes at the balance sheet dates.

— III-131 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(a) Foreign currency risk

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

(b) Fair value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 31 December 2005 and 2006.

The carrying values of cash and bank balances and amount due to immediate holding company approximate their respective fair values because of their short maturities. The carrying amounts of loans from shareholders approximate their fair values because the effective interest rates of the debts are approximate to the prevailing market rates at the balance sheet dates for similar borrowings available to the Loyal Way Group.

C. Subsequent financial statements

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

— III-132 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

3. Management discussion and analysis of Bright Able and the Loyal Way Group for the period from their respective date of incorporation to 31 December 2005 and the year ended 31 December 2006

Bright Able, an indirect wholly-owned subsidiary of Poly Hong Kong, is an investment holding company incorporated in the BVI with limited liability on 13 October 2005 and has not, since its incorporation, carried on any business other than acquisition and holding of 49% interest in Loyal Way. Poly subscribed for its 49% interest in Loyal Way on behalf of Bright Able at nominal value of share capital totaling US$49 on 1 August 2005. Subsequently on 3 January 2006, Poly transferred its shareholding in Loyal Way to Bright Able, the then wholly-owned subsidiary of Poly. As at the Latest Practicable Date, Loyal Way is an indirect 51% held subsidiary of the Company.

The operation of Bright Able as an investment holding company was financed by loan from its shareholder, Poly. The accounts of Bright Able after equity accounting for its investment in Loyal Way by taking up its share of the results of the Loyal Way Group during the years of investment holding, recorded an audited net profit before and after taxation of approximately HK$1.5 million for the year ended 31 December 2006 (mainly attributable to the imputed interest income in respect of part of the loan to associate which was financed by a short term interest-free loan from ex-shareholder) and an audited net loss before and after taxation of approximately HK$0.2 million for the period from 13 October 2005 (being the date of incorporation) to 31 December 2005 (mainly attributable to the share of the Loyal Way Group’s losses). Recorded net assets were HK$38.8 million and HK$18.4 million on the respective balance sheet dates.

Loyal Way was incorporated on 6 July 2005 as a special purpose vehicle to hold the PRC Company established on 31 March 2003 pursuant to a sino-foreign cooperative joint venture agreement between Guangzhou Zhoutouzui, Yuexiu and GZ Port. Under the joint venture agreement, Guangzhou Zhoutouzui is obliged to arrange the necessary financing to the PRC Company for the Zhoutouzui Project.

Loyal Way has not carried on any business since its incorporation save for the acquisition of the 100% issued capital of Guangzhou Zhoutouzui and its shareholder’s loan in October 2005 at a consideration of approximately RMB231.8 million through its two wholly-owned subsidiaries namely Fortunate Start and Ace Billion. Guangzhou Zhoutouzui is also an investment company which holds the proprietary right in the Zhoutouzui Project through the PRC Company. The PRC Company is a project company and has not carried on any business since its establishment other than its beneficial interest in the Land.

— III-133 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

The Zhoutouzui Project principally comprises the development and construction on the Land of residential apartments, serviced-residential apartments, hotel, retail commercial mall and other ancillary facilities. It is expected that the PRC Company will obtain the construction permit in the second half of 2007. Pre-sale of the residential properties is expected to commence in the first quarter of 2009 and the whole Zhoutouzui Project is expected to be completed by the first quarter of 2010.

The total cost of the Zhoutouzui Project to the Group is estimated to be approximately HK$2,387 million, inclusive of approximately HK$119 million paid or payable to the vendors as consideration for the acquisition of the 51% issued share capital of Loyal Way and the Bright Able Sale Share. The remaining balance of total cost of approximately HK$2,268 million is expected to be financed by loans from shareholders of Loyal Way of approximately HK$763 million, bank borrowings of approximately HK$936 million and pre-sale proceeds of approximately HK$569 million. As at 31 December 2006, the balance sheet of the Loyal Way Group recorded development costs in the amount of approximately HK$573.0 million and goodwill of approximately HK$65.5 million arising from the premium given to the vendor by Loyal Way when it acquired the interest of Guangzhou Zhoutouzui in October 2005.

Due to the nature of business as investment vehicles, Loyal Way, the intermediate holding companies and Guangzhou Zhoutouzui have been inactive since their incorporations except that certain general and administrative expenses were incurred. The consolidated accounts of the Loyal Way Group recorded operating loss of approximately HK$0.4 million for the year ended 31 December 2006 and of approximately HK$0.5 million for the period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 respectively, which was mainly attributable to the administrative expenses.

Liquidity and financial resources

Capital structure and liquidity

Bright Able had been fully relied on the interest-free loan from its shareholder to support its investment and onward lending to the Loyal Way Group. Other than the aforesaid, it did not have any material asset other than the investment in Loyal Way or liabilities as at the balance sheet dates. Hence, its gearing ratios, being total liabilities over total assets, was 86.3% as at 31 December 2006 and 88.8% as at 31 December 2005.

— III-134 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Loyal Way’s investment in the PRC Company is entirely financed by shareholders’ advances. As at 31 December 2006, shareholders had contributed a total of approximately HK$552.2 million to the Loyal Way Group. Other than the non-current deferred tax liabilities of approximately HK$52.8 million, the Loyal Way Group had creditor balances of approximately HK$3.6 million as at 31 December 2006. Relying on the continuing financial support of the shareholders, the Loyal Way Group maintained its current assets consisting of cash and bank balances of approximately HK$0.8 million and prepayments and other receivables of approximately HK$0.2 million as at 31 December 2006 (2005: cash and bank balances of approximately HK$17.3 million and prepaid demolition costs of approximately HK$86.5 million), thus leading to a current ratio of approximately 0.1:1 as at 31 December 2006 and approximately 41.7:1 as at 31 December 2005. The decrease in current assets in 2006 was caused by the capitalisation of such prepaid demolition costs as costs of properties held for development which are noncurrent in nature. The Loyal Way Group relied heavily on shareholders’ finance on its investment in the PRC Company. Its gearing ratio, being total liabilities over total assets, was 87.6% as at 31 December 2006 and 88.0% as at 31 December 2005.

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

Bank borrowings and pledge of assets

As the aforesaid, neither Bright Able and the Loyal Way Group had any bank borrowing nor any asset pledge at the respective balance sheet dates.

Foreign currency management

Bright Able’s sole asset is the 49% equity interest in Loyal Way and the Loyal Way Group’s major investment is the indirect interest in the PRC Company which is engaged in property development activities in the PRC. The PRC Company contracts with its suppliers for goods and services that are denominated in RMB. Bright Able and the Loyal Way Group do not hedge its foreign currency risks as the rate of exchange between HK$ and RMB is controlled within a narrow range. However, any permanent changes in foreign exchange rates in RMB may have an impact on results of Bright Able and the Loyal Way Group.

Contingent liabilities

Neither Bright Able nor the Loyal Way Group had any contingent liabilities as at respective balance sheet dates.

— III-135 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Employees

Bright Able has not employed any employee since its incorporation. Since January 2006, the Loyal Way Group has started to recruit suitable workforce for the Zhoutouzui Project. As at 31 December 2006, it employed 16 employees, out of which 9 are technical staff with expertise in the property development industry in the PRC and paid staff costs amounting to approximately HK$1.9 million for the year ended 31 December 2006 of which HK$1.7 million were capitalised as costs of properties held for development. Employees are remunerated according to qualifications and experience, job nature and performance, with pay scale aligned with market conditions.

Segmental Information of the Loyal Way Group

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

— III-136 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

4. Unaudited pro forma financial information of the Group as enlarged by the acquisition of Bright Able

Set out below is the pro forma statement of assets and liabilities of the Group as enlarged by the acquisition of the interest in Bright Able and the report on such pro forma statement of assets and liabilities prepared by BDO McCabe Lo Limited as extracted from Appendix IV to the Company’s circular dated17 May 2007. The term “New Group” used in this paragraph refers to the Group and Bright Able. Capitalised terms used in this section shall have the same meanings as defined in the Company’s circular dated 17 May 2007 and references to appendices as set out in this section are to appendices to the Company’s circular dated 17 May 2007.

A. Unaudited pro forma statement of assets and liabilities of the New Group

The unaudited pro forma statement of assets and liabilities of the New Group is prepared to provide the possible financial effect on the Group upon completion of the Zhoutouzui Acquisition. It is prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Zhoutouzui Acquisition as if the Zhoutouzui Acquisition took place on 31 December 2006. The unaudited pro forma statement of assets and liabilities of the New Group is prepared based on the audited consolidated balance sheet of the Group as at 31 December 2006 as extracted from Appendix I to this circular and the financial information of Bright Able as at 31 December 2006 as extracted from Appendix II to this circular. As it has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position of the New Group at 31 December 2006 or any future date.

— III-137 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

Unaudited pro forma consolidated statement of assets and liabilities of the New Group

Non-current assets Plant and equipment Properties held for development Goodwill Interest in associate Interest in subsidiaries Current assets Trade and other receivables Cash and cash equivalents	The Group as at 31 December 2006 HK$’000 (Note a) 1,648 698,945 49,655 155,203 — 905,451 8,588 44,774 53,362	Pro forma adjustments Reverse Elimination Bright Able relating equity of as at to the accounting inter- Pro forma 31 December Zhoutouzui adopted in company consolidation 2006 Acquisition Bright Able balances adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note b) (Note c) (Note d) (Note e) (Note f) — — — 29,690 283,763 1,898 (285,661) — 319,971 (268,654) (51,317) 283,763 — — (319,971) —	Unaudited pro forma of the New Group HK$’000 1,648 698,945 79,345 155,203 — 935,141 8,588 (275,197) (266,609)

— III-138 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Current liabilities Trade and other payables Income tax payable Net current assets (liabilities) Total assets less current liabilities Non-current liabilities Other payable Deferred tax liabilities Loan from minority shareholder Amount due to immediate holding company Net assets Capital and reserves Share capital Reserves Total equity attributable to equity holders of the Company Minority interests Total equity	The Group as at 31 December 2006 HK$’000 (Note a) 5,168 367 5,535 47,827 953,278 -------------- 63,573 100,122 244,936 — 408,631 544,647 10,899 488,403 499,302 45,345 544,647	Pro forma adjustments Reverse Elimination Bright Able relating equity of as at to the accounting inter- Pro forma 31 December Zhoutouzui adopted in company consolidation 2006 Acquisition Bright Able balances adjustments HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note b) (Note c) (Note d) (Note e) (Note f) — — — — 283,763 -------------- — — — (244,936) 244,977 (244,977) 244,977 38,786 — 38,786 1,898 (23,677) (17,007) 38,786 — (40,725) (4,620) 38,786	Unaudited pro forma of the New Group HK$’000 5,168 367 5,535 (272,144) 662,997 -------------- 63,573 100,122 — — 163,695 499,302 10,899 488,403 499,302 — 499,302

— III-139 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Notes:

(a) Figures are extracted from the audited consolidated balance sheet of the Group as at 31 December 2006 in Appendix I to this circular.
(b) Figures are extracted from the audited consolidated balance sheet of Bright Able as at 31 December 2006 in Appendix II to this circular.
(c) Being the aggregate cash acquisition consideration of approximately HK$319,971,000, comprising (i) approximately HK$51,317,000 for the Bright Able Sale Share and (ii) approximately HK$268,654,000 for the Bright Able Sale Debt.
(d) Adjustment to reverse Bright Able’s share of Loyal Way’s net assets using the equity method upon the completion of the Zhoutouzui Acquisition.
(e) The adjustment represents the elimination of intercompany balances among the Group, Bright Able and the Loyal Way Group as if Bright Able and the Loyal Way Group become the wholly owned subsidiaries of the Company upon completion of the Zhoutouzui Acquisition.
(f) The adjustment represents recognition of goodwill arising from Zhoutouzui Acquisition of approximately HK$29,690,000. Under Hong Kong Financial Reporting Standard 3 “Business Combinations” issued by the Hong Kong Institute of Certified Public Accountants, the Group will apply the purchase method to account for the Zhoutouzui Acquisition in the consolidated financial statements of the Group. The amount of HK$29,690,000 represents the excess of the cost of the Zhoutouzui Acquisition of approximately HK$51,317,000 over the fair value of identifiable assets and liabilities of Bright Able, amounting to approximately HK$21,627,000, which is calculated as follows:

Total acquisition cost of the shares of Bright Able in the
Zhoutouzui Acquisition
Net assets of Bright Able at 31 December 2006
49% share of the Loyal Way Group’s net assets at 31 December 2006
as recognised as minority interests in the Group’s audited
consolidated balance sheet at 31 December 2006 in Appendix I
Elimination of the deemed capital contribution
of Bright Able’s loan from immediate holding company
Elimination of the deemed capital contribution of the Group’s
loan from minority shareholder upon completion of the Zhoutouzui
Acquisition
Reversal of share of loss of the Loyal Way Group recognised
using the equity method
Fair value of net assets acquired
Goodwill arising on the Zhoutouzui Acquisition

HK$’000
51,317
38,786
45,345
(23,677)
(40,725)
1,898
21,627
29,690

(g) 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 2006. Accordingly, the issue of US$200 million 4 per cent secured convertible notes due 2013 and the acquisition of the Westin Project, which were completed an 4 May 2007, are not reflected in this pro forma statement. For illustrative purpose only, upon completion of the aforesaid note issue and acquisition of the Westin Project:
the unaudited pro forma consolidated net assets and the unaudited pro forma consolidated net loss for the year ended 31 December 2006 of the Group would be increased by approximately HK$170,884,000 and HK$236,181,000 respectively as set forth in Appendix III; and
the unaudited pro forma cash and cash equivalent as at 31 December 2006 would be increased upon receipt of the net inflows of approximately HK$880,305,000 from the aforesaid note issue and acquisition of the Westin Project as set forth in Appendix III.

— III-140 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

B. Report on unaudited pro forma statement of assets and liabilities of the New Group

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

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

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

17 May 2007

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

Dear Sirs,

Responsibilities

— III-141 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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

Basis of opinion

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

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

— III-142 —

APPENDIX III FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants

Li Yin Fan

Practising Certificate Number P03113

— III-143 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

The following pro forma financial information is prepared to provide the possible financial effect on the Group as a result of the Completion. It is prepared in accordance with Rule 4.29 of the Listing Rules and in a manner consistent with both the format and accounting policies adopted by the Group in the preparation of its published audited consolidated financial statements for the financial year ended 31 December 2006. As it has been prepared for illustrative purposes only and because of its nature, it may not give a true picture of the financial position of the New Group at any future date or of the results and cash flows of the New Group for any future period.

(a) Unaudited pro forma consolidated income statement of the New Group

The following table is an illustrative and unaudited pro forma consolidated income statement of the New Group which has been prepared based on the audited consolidated income statement of the Group for the year ended 31 December 2006 as set out in Appendix I to this circular and the audited consolidated income statement of the Long World Group for the year ended 31 December 2006 as set out in Appendix II to this circular as if the Completion had taken place on 1 January 2006.

— IV-1 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

Turnover Cost of sales and services provided Gross profit Other income Selling and marketing costs General and administrative expenses Increase in fair value of investment properties Profit from operations Negative goodwill on acquisition of subsidiaries Share of loss of associate Finance costs Finance income Profit before income tax expense Income tax expense Profit for the year Attributable to : — Equity holders of the Company — Minority interests	The Group for the year ended 31 December 2006 HK$’000 (Note a) 23,456 (1,841) 21,615 114 — (17,980) — 3,749 — (112) (2,347) 2,636 3,926 (1,062) 2,864 4,616 (1,752) 2,864	The Long World Group for the Elimination year ended of inter- Pro forma 31 December company consolidation 2006 transactions adjustment HK$’000 HK$’000 HK$’000 (Note b) (Note c) (Note d) 27,356 (483) (18,191) 9,165 236 (128) (26,457) 483 95,634 78,450 — 11,783 — (5,867) 1,454 74,037 (32,032) 42,005 42,005 11,783 — 42,005	Unaudited pro forma New Group HK$’000 50,329 (20,032)
			30,297 350 (128) (43,954) 95,634
			82,199 11,783 (112) (8,214) 4,090
			89,746 (33,094)
			56,652

			58,404 (1,752)
			56,652

— IV-2 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

Notes:—

(a) Figures are extracted from the audited consolidated income statement of the Group for the year ended 31 December 2006 in Appendix I to this circular.
(b) Figures are extracted from the audited consolidated income statement of the Long World Group for the year ended 31 December 2006 in Appendix II to this circular.
(c) The adjustment represents the elimination of inter-company transactions between the Group and the Long World Group as if the Long World Group had become the wholly-owned subsidiaries of the Company upon the Completion.
(d) On 28 May 2007, Fine Luck Group Limited, a wholly-owned subsidiary of the Company, entered into agreement with Full Ocean Development Inc., which holds the entire equity interest in Long World, to purchase the entire issued share capital of Long World at an aggregate consideration of approximately HK$233,822,000, which will be settled by the issue of 145,537,077 convertible preference shares of HK$0.01 each of the Company (the “Tianyu CPS”) to Grand Cosmos Holdings Limited as directed by Full Ocean Development Inc. at an initial issue price of HK$1.35 per share.

The adjustment represents the negative goodwill on acquisition upon the Completion of approximately HK$11,783,000. Under Hong Kong Financial Reporting Standard 3 “Business Combinations” issued by the Hong Kong Institute of Certified Public Accountants, the Group will apply the purchase method to account for the Tianyu Injection in the consolidated financial statements of the Group. The amount of negative goodwill represents the excess of the fair value of identifiable assets and liabilities of the Long World Group acquired, which is equal to the net assets value of approximately HK$245,605,000, over the cost of the Tianyu Injection of HK$233,822,000.

(e) 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 2006. Accordingly, i) the issue of unlisted US$200 million 4 per cent secured convertible notes due 2013 and the acquisition of the Westin Project, which were completed on 4 May 2007; and ii) the Zhoutouzui Acquisition, which were completed on 4 June 2007, are not reflected in this pro forma consolidated income statement.

For illustrative purposes only, upon completion of the aforesaid issue of notes and acquisition of the Westin Project, the unaudited pro forma consolidated net profit for the year ended 31 December 2006 of the New Group would be decreased by approximately HK$236,181,000 as set forth in Appendix III to this circular. However, no related financial information is available upon completion of the aforesaid Zhoutouzui Acquisition as no unaudited pro forma consolidated income statement has been prepared in this regard.

(b) Unaudited pro forma consolidated balance sheet of the New Group

The following table is an illustrative and unaudited pro forma consolidated balance sheet of the New Group which has been prepared based on the audited consolidated balance sheet of the Group as at 31 December 2006 as set out in Appendix I to this circular and the audited consolidated balance sheet of the Long World Group as at 31 December 2006 as set out in Appendix II to this circular as if the Completion had taken place on 31 December 2006.

— IV-3 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

The Pro forma The Group Long World adjustment as at Group as at relating to Pro forma 31 December 31 December the Tianyu consolidation 2006 2006 Injection adjustment HK$’000 HK$’000 HK$’000 HK$’000 (Note a) (Note b) (Note c) (Note d) Non-current assets Plant and equipment 1,648 75 Investment properties — 475,248 Properties held for development 698,945 — Prepaid lease payments — non-current portion — 165 Loan receivable — non-current portion — 7,963 Goodwill 49,655 — Interest in associate 155,203 — Interests in subsidiaries — — 233,822 (233,822) 905,451 483,451 -------------- -------------- Current assets Properties held for sale — 676 Prepaid lease payments — current portion — 3 Trade and other receivables 8,588 11,457 Financial asset at fair value through profit or loss — 630 Cash and cash equivalents 44,774 3,219 53,362 15,985 -------------- -------------- Current liabilities Bank borrowings — current portion — 17,991 Trade and other payables 5,168 36,144 Income tax payable 367 1,669 5,535 55,804 -------------- -------------- Net current assets (liabilities) 47,827 (39,819) Total assets less current liabilities 953,278 443,632 -------------- -------------- Non-current liabilities Bank borrowings — non-current portion — 82,327 Other payable 63,573 — Loan from minority shareholder 244,936 — Deferred tax liabilities 100,122 115,700 408,631 198,027 -------------- -------------- NET ASSETS 544,647 245,605 Capital and reserves Share capital 10,899 — 1,455 — Convertible preference share — — 37,347 Reserves 488,403 245,605 195,020 (233,822) Total equity attributable to equity holders of the Company 499,302 245,605 Minority interests 45,345 — TOTAL EQUITY 544,647 245,605	Unaudited pro forma New Group HK$’000 1,723 475,248 698,945 165 7,963 49,655 155,203 —
	1,388,902 -------------- 676 3 20,045 630 47,993
	69,347 -------------- 17,991 41,312 2,036
	61,339 --------------
	8,008
	1,396,910 -------------- 82,327 63,573 244,936 215,822
	606,658 --------------
	790,252

	12,354 37,347 695,206
	744,907 45,345
	790,252

— IV-4 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

Notes:—

(a) Figures are extracted from the audited consolidated balance sheet of the Group as at 31 December 2006 in Appendix I to this circular.
(b) Figures are extracted from the audited consolidated balance sheet of the Long World Group as at 31 December 2006 in Appendix II to this circular.
(c) The adjustment represents the issue of the Tianyu CPS of approximately HK$196,475,000 to acquire the entire issued share capital of Long World.
The convertible preference shares have an exercise price reset term and are non-redeemable. They are regarded as compound instruments consisting of non-redeemable preference shares and a derivative instrument. At issue of these convertible preference shares, the fair value of the derivative instrument is determined to be approximately HK$37,347,000 on the assumption that the Closing Date is 2 March 2007 and is regarded as equity. The aggregate consideration, therefore, comprises both the fair value of the non-redeemable preference shares and of the derivative instrument at initial recognition amounting to approximately HK$233,822,000.
(d) The adjustment represents elimination of investment cost in Long World and recognition of negative goodwill on acquisition upon the Completion of approximately HK$11,783,000, where the fair value of identifiable assets and liabilities of the Long World Group acquired is in excess of the total cost of acquisition.
(e) 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 2006. Accordingly, i) the issue of unlisted US$200 million 4 per cent secured convertible notes due 2013 and the acquisition of the Westin Project, which were completed on 4 May 2007; and ii) the Zhoutouzui Acquisition, which were completed on 4 June 2007, are not reflected in this pro forma consolidated balance sheet. For illustrative purposes only, upon completion of the aforesaid issue of notes and acquisition of the Westin Project, and Zhoutouzui Acquisition:
the unaudited pro forma consolidated net assets attributable to equity holders of the Company as at 31 December 2006 would be increased by approximately HK$170,884,000 attributable to the issue of notes and acquisition of the Westin Project while no such financial effect is attributable to the Zhoutouzui Acquisition as set forth in Appendix III to this circular; and
the unaudited pro forma consolidated cash and cash equivalents as at 31 December 2006 of the New Group would be increased by approximately HK$560,334,000, being an increase effect of HK$880,305,000 attributable to the issue of notes and acquisition of the Westin Project as reduced by an amount of HK$319,971,000 attributable to the Zhoutouzui Acquisition as set forth in Appendix III to this circular.

— IV-5 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

(c) Unaudited pro forma consolidated cash flow statement of the New Group

The following table is an illustrative and unaudited pro forma consolidated cash flow statement of the New Group which has been prepared based on the audited consolidated cash flow statement of the Group for the year ended 31 December 2006 as set out in Appendix I to this circular and the audited consolidated cash flow statement of the Long World Group for the year ended 31 December 2006 as set out in Appendix II to this circular as if the Completion had taken place on 1 January 2006.

		The Long
	The Group	World Group
	for the	for the
	year ended	year ended	Unaudited
	31 December	31 December	pro forma
	2006	2006	New Group
	HK$’000	HK$’000	HK$’000
	(Note a)	(Note b)
Operating activities
Profit before income tax expense	3,926	74,037	77,963
Adjustments for:
Finance costs	2,347	5,867	8,214
Finance income	(2,636)	(1,454)	(4,090)
Amortisation of prepaid lease payments	—	3	3
Prepaid lease payments recognised
as cost of sales	—	2,776	2,776
Depreciation of plant and equipment	338	27	365
Impairment losses on trade and
other receivables	—	188	188
Equity-settled share-based payment
expenses	3,584	—	3,584
Share of loss of associate	112	—	112
Increase in fair value of investment
properties	—	(95,634)	(95,634)
Increase in fair value of financial
asset at fair value through profit or loss	—	(132)	(132)
Waiver of amount due from director	—	22,136	22,136
Operating profit before working capital
changes	7,671	7,814	15,485
Decrease in loan receivable	—	8,763	8,763
Decrease in properties held for sale	—	11,008	11,008
(Increase) decrease in trade and other
receivables	(8,032)	94,948	86,916
Decrease in trade and other payables	(818)	(121,015)	(121,833)

— IV-6 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

				The Long
	The Group		World Group
		for the		for the
	year ended		year ended			Unaudited
	31	December	31 December			pro forma
		2006		2006	New Group
		HK$’000		HK$’000		HK$’000
		(Note a)		(Note b)
Net cash (used in) generated from
operations		(1,179)		1,518		339
Income tax paid		(865)		(1,081)		(1,946)
Net cash (used in) from operating
activities		(2,044)		437		(1,607)
		-------------		-------------		-------------
Investing activities
Interest received		2,636		164		2,800
Acquisition of subsidiaries		(285,767)		—		(285,767)
Repayment of loan from an associate		14,652		—		14,652
Additions to properties held
for development		(1,911)		—		(1,911)
Purchase of plant and equipment		(1,748)		—		(1,748)
Acquisition of financial asset at fair
value through profit or loss		—		(495)		(495)
Net cash used in investing activities		(272,138) -------------		(331) -------------		(272,469) -------------
Financing activities
Proceeds from issue of ordinary shares		240,593		—		240,593
Exercise of bonus warrants		11		—		11
Expenses incurred on issue of shares		(5,531)		—		(5,531)
Interest paid		(331)		(5,867)		(6,198)
Proceeds from new bank borrowings		—		62,745		62,745
Repayment of bank borrowings		—		(62,627)		(62,627)
Net cash from (used in) financing
activities		234,742		(5,749)		228,993
		-------------		-------------		-------------
Net decrease in cash and cash equivalents		(39,440)		(5,643)		(45,083)
Effect of foreign exchange rate changes		467		499		966
Cash and cash equivalents at beginning
of year		83,747		8,363		92,110
Cash and cash equivalents at end of year		44,774		3,219		47,993

Notes:—

(a) Figures are extracted from the audited consolidated cash flow statement of the Group for the year ended 31 December 2006 in Appendix I to this circular.

(b) Figures are extracted from the audited consolidated cash flow statement of the Long World Group for the year ended 31 December 2006 in Appendix II to this circular.

— IV-7 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

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

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

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

30 June 2007

Dear Sirs,

We report on the statement of unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Skyfame Realty (Holdings) Limited (the “Company”) and its subsidiaries but excluding Allright Investments Limited, Red Empire Limited and its subsidiaries and Bright Able Developments Limited (hereinafter collectively referred to as the “Group”) set out in Appendix IV to the circular dated 30 June 2007 (the “Circular”) issued by the Company in connection with the proposed acquisition (the “Tianyu Injection”) of 100% shareholding in Long World Trading Limited (the Group and Long World Trading Limited and its subsidiaries being collectively referred to as the “New Group”). The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages IV-1 to IV-7 of the Circular. The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purposes only, to provide information about how the Tianyu Injection might have affected the financial information presented.

— IV-8 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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 the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

the financial position of the New Group as at 31 December 2006 or any future date; and
the results and cash flows of the New Group for the year ended 31 December 2006 or any future period.

— IV-9 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

Opinion

In our opinion:

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

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants

Li Yin Fan

Practising Certificate Number P03113

— IV-10 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

3. INDEBTEDNESS

As at the close of business on 30 April 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group has outstanding (i) bank loans of approximately HK$764.2 million which were secured by mortgages over the land use rights, properties held for development and investment properties of the Enlarged Group with carrying amounts of approximately HK$884.1 million, HK$995.9 million and HK$487.2 million respectively as at 30 April 2007 and (ii) unsecured amount due to a related company of approximately HK$31.8 million.

In addition, as at 30 April 2007, the Enlarged Group had capital commitments contracted but not provided for in respect of the property development costs of approximately HK$1,065.6 million.

Save as aforesaid, the Enlarged Group did not have any debt securities issued and outstanding or agreed to be issued, outstanding bank borrowings, bank overdrafts, liabilities under acceptances, acceptance credits, mortgages, charges, other indebtedness in the nature of borrowing, finance lease or hire purchase commitments, guarantees or material contingent liabilities as at 30 April 2007.

Save for the convertible note payable arising from the issue of the Notes on 4 May 2007, the Directors are not aware of any material changes to the indebtedness and contingent liabilities of the Enlarged Group since 1 May 2007.

4. WORKING CAPITAL

The Directors are of the opinion that taking into account the Enlarged Group’s internal resources, the existing and proposed banking facilities and the net proceeds raised from the issue of the Notes, the Enlarged Group has sufficient working capital for its present requirements in the absence of unforeseeable circumstances.

— IV-11 —

APPENDIX V PROPERTY VALUATION OF THE ENLARGED GROUP

1. The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this circular received from Greater China Appraisal Limited, an independent valuer, in connection with its valuation as at 30 April 2007 of the property interests held by the Enlarged Group but excluding the property interests held by the Yue Tian Group.

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Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

30 June 2007

The Board of Directors Skyfame Realty (Holdings) Limited

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

Dear Sirs,

Re: Valuation of Properties situated in Guangzhou, Guangdong Province, the People’s Republic of China and in Hong Kong (the “properties”)

In accordance with your instructions to value the property interests held by Skyfame Realty (Holdings) Limited (the “Company”), its subsidiaries, Guangzhou Chuangyu Real Estate Development Co., Ltd. and Yaubond Limited and its subsidiaries (altogether referred to as the “Enlarged Group”) situated in the People’s Republic of China (the “PRC”) and in Hong Kong, we confirm that we have carried out inspections of the properties, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the properties as at 30 April 2007 (the “date of valuation”).

BASIS OF VALUATION

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

— V-1 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

TITLESHIP

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

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

VALUATION METHODOLOGY

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

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

For property numbered 4 which is held by the Enlarged Group under a 6-year tenancy and is sub-leased by the Enlarged Group to various sub-tenants, the Enlarged Group’s leasehold interest in the property is valued by capitalization of the profit rent that can be earned by the Enlarged Group given the prevailing market of the property and the contracted rent payable by the Enlarged Group to the landlord.

We have attributed no commercial value to the property numbered 5 and 6 which are rented by the Enlarged Group under short term tenancies due either to the short term nature of the Enlarged Group’s leasehold interest in the properties or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rent.

ASSUMPTIONS

Our valuation has been made on the assumption that the owners sell the properties (saved for property numbered 5 and 6) on the market in their existing state without the benefit of deferred terms contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to affect the value of the properties.

— V-2 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

As the properties in Group I and II are held by the owners by means of long term land use rights granted by the Government, we have assumed that the owner has free and uninterrupted rights to use the properties for the whole of the unexpired term of the respective land use rights.

We have valued property numbered 2 on the basis that Guangzhou Yucheng Real Estate Development Company Limited shall have no legal impediment and subject to no additional land premium in securing legal title to the property. This assumption is considered reasonable and realistic since the PRC Legal Opinion has confirmed that Guangzhou Yuexiu Enterprise (Group) Limited is merely the registered owner of the property at the time being and does not have any real interest in the property. It is bounded to complete the legal formality for transferring the legal title to the property to Guangzhou Yucheng Real Estate Development Company Limited in due course (please refer to footnote 6 in the valuation certificate of the property attached herewith).

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

LIMITING CONDITIONS

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

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

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

— V-3 —

APPENDIX V PROPERTY VALUATION OF THE ENLARGED GROUP

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

We have inspected the exterior and, where possible, the interior of the buildings and structures of the properties. However, no structural survey has been made for them. In the course of our inspection, we did not note any apparent defects. We are not, however, able to report whether the buildings and structures inspected by us are free of rot, infestation or any structural defect. No test was carried out on any of the building services and equipment.

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

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

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

Our summary of valuation and valuation certificate are attached herewith.

Yours faithfully, for and on behalf of

Greater China Appraisal Limited Tse Wai Leung MFin BSc MRICS MHKIS RPS(GP) Assistant Vice President

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

— V-4 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

SUMMARY OF VALUATION

Property

Market value on vacant possession basis as at 30 April 2007 RMB

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

Development site at the junction of 459,000,000 Tianhe Bei Road and free from the estimated costs Linhe Dong Road for relocating the fire station Tianhe District (please refer to note 4 in the valuation Guangzhou certificate attached herewith) Guangdong Province The PRC
A parcel of waterfront land located at 1,000,000,000 the north of Mayong free from the estimated further the east and the south of the Zhujiang costs for site clearance the west of Houde Road (please refer to notes 4 & 5 Zhoutouzui Haizhu District in the valuation Guangzhou certificate attached herewith) Guangdong Province The PRC Sub-total: 1,459,000,000 Market value in existing state as at Property 30 April 2007 RMB

Group II — Property held by the Enlarged Group for investment

3.	All the shops on 2/F, 5/F, 6/F and	480,000,000
	Units 402-403 of 4/F of Commercial Podium
	Tianyu Garden Phase 2
	Nos. 136-146 Linhe Zhong Road
	Tianhe District, Guangzhou
	Guangdong Province
	The PRC

Sub-total:

480,000,000

— V-5 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Property

Market value in existing state as at 30 April 2007 RMB

Group III — Properties rented by the Enlarged Group

Units 301-302 of 3/F and Unit 401 of 8,400,000 4/F of Commercial Podium Tianyu Garden Phase 2 Nos. 136-146 Linhe Zhong Road Tianhe District Guangzhou Guangdong Province The PRC
Office No. 2502B No commercial value 25th Floor, Tower 1 Admiralty Centre No. 18 Harcourt Road Hong Kong
Suite 3106 No commercial value Parkside Pacific Place No. 88 Queensway Hong Kong Sub-total : 8,400,000 Grand Total : 1,947,400,000

— V-6 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

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

				Market value on
				vacant possession
			Particulars	basis as at
Property		Description and tenure	of occupancy	30 April 2007
				RMB
1.	Development site at	The property comprises a	The southern portion	459,000,000
	the junction of	parcel of land with an area	of the property	free from the cost
	Tianhe Bei Road and	of 6,057 square metres	abutting onto Tianhe	for relocating the
	Linhe Dong Road,	(see note 3 below). A	Bei Road is currently	fire station
	Tianhe District,	portion of the property	occupied by a fire	(See Note 4 below)
	Guangzhou,	abutting onto Tianhe Bei	station whilst the
	Guangdong Province,	Road is erected with a 3-	remaining portion is
	the PRC.	storey structure whilst the	vacant.
		remaining portion of it is
		cleared and vacant. As
		confirmed by the
		Company, the 3-storey
		structure shall be
		demolished during the
		course of development.
		According to the planning
		conditions issued by the
		Town Planning Bureau of
		Guangzhou on 29 July
		2004, the property is
		permitted for a
		commercial development
		with a planned gross floor
		area of not exceeding
		84,150.60 square metres.
		The property is held for
		the terms of 40 years for
		commercial purposes.

Notes:

As stipulated in the Land Use Right Certificate (No. Sui Guo Yong 2004 Di 10053 Hao 穗國用 2004第 10053號 ) dated 14 April 2005, the land use rights in the property with a land area of 6,057 square metres are held by 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Development Co Ltd) for a term of 40 years for commercial purpose. It is a wholly-owned subsidiary of Yaubond Limited which is a 49%-owned associate of the Company.
According to the planning conditions issued by the Town Planning Bureau of Guangzhou (廣州市城市規劃局 ) on 29 July 2004, the property is permitted for a commercial development with a planned gross floor area of not exceeding 84,150.60 square metres of which a floor area of not less than 5,400.00 square metres shall be used for accommodating a fire station (see PRC Legal Opinion in note 5.5 below) .

— V-7 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

As revealed by the Construction Land Use Planning Permit issued by the Town Planning Bureau of Guangzhou on 4 September 1995, the subject site initially covered a total area of 7,217 square metres of which 6,057 square metres is attributable to the development site currently held by Guangzhou Huan Cheng Development Co Ltd and the remaining portion with an area of 1,160 square metres is designated for the use as public roads.
Our opinion of the property as mentioned above has been arrived at on the basis that the fire station as mentioned in note 2 above having a floor area of 5,400 square metres has been relocated somewhere else as at the valuation date such that Guangzhou Huan Cheng Development Co Ltd obtains vacant possession of the entire development site and the entire building on the subject site shall be used for commercial/office purposes free from the fire station re-habitation requirement.
The PRC Legal Opinion on the property is summarized as follows:
5.1 The land use rights in the property are held by 廣州寰城實業發展有限公司 (Guangzhou Huan Cheng Development Co Ltd) for a term of 40 years commencing on 12 April 2005 for commercial purpose;
5.2 Guangzhou Huan Cheng Development Co Ltd has settled all land costs for acquiring the property;
5.3 Up to the date of the PRC Legal Opinion, the property was free from any encumbrances and was not subject to any situation leading to re-entry by the government;
5.4 Guangzhou Huan Cheng Development Co Ltd, as a land use right holder of the property, can freely transfer, mortgage or lease the Property on the market during the unexpired land use right term; and
5.5 Regarding the re-habitation of the fire station, Guangzhou Huan Cheng Development Co Ltd. has obtained approval from the Government to relocate the fire station at an alternative location at the full cost of Guangzhou Huan Cheng Development Co Ltd has reached agreement with the fire station on this issue.
The status of the title and grant of major approvals and licences in accordance with the information provided by the Group and the opinion of the Company’s legal advisers on the PRC law is as follows:

Land Use Rights Certificate: Yes Red-line Drawing : Yes Construction Land Permit: Yes Construction Land Planning Permit: Yes Construction Permit: Not yet applied for Business Licence: Yes

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Market value on vacant possession Particulars basis as at Description and tenure of occupancy 30 April 2007 RMB

A parcel of waterfront The property comprises an land located at the irregular-shaped site with north of Mayong a site area of the east and the south approximately 106,273 of the Zhujiang square metres. the west of Houde Road According to a Zhoutouzui development plan handed Haizhu District to us by the Group, a Guangzhou composite development Guangdong accommodating luxury Province residential, serviced The PRC apartments, retail, hotel, community centre and car parking spaces will be constructed on the subject site. The permitted total gross floor area upon completion would be 212,546 square metres plus basement area of 29,000 square metres.

The property comprises an irregular-shaped site with a site area of approximately 106,273 square metres.

The property is 1,000,000,000 currently undergoing free from the clearance and estimated further demolition work. Out costs for site of the total site area of clearance 106,273 square metres (please refer to of the land, notes 4 & 5 approximately 86,272 below) square metres of it has been vacated and cleared. Remaining portion of the property is currently erected with various residential buildings and simple structures and is occupied by existing residents.

The land use rights of the property were granted to 廣州（越秀）企業集團公司 (Guangzhou Yuexiu Enterprise (Group) Company Limted) for a term of 70 years for residential purpose, 40 years for commercial and recreational purpose and 50 years for composite purpose commencing from the issue date of the Land Use Right Certificate.

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APPENDIX V

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract dated 10 September 2003, two supplemental agreements respectively dated 18 February 2004 and 15 September 2004, the land use rights in the subject land with an area of approximately 106,273 square metres were granted by the Land Resource and Building Administration Bureau of Guangzhou to 廣州（越秀）企業集團公司 (Guangzhou Yuexiu Enterprise (Group) Company Limited) for a term of 70 years for residential use, 40 years for commercial and recreational use and 50 years for other uses. Subsequently, a Construction Land Use Permit for the property was issued by the Bureau of Land Resources and Housing Management of Guangzhou Municipality on 8 April 2004 in the name of Guangzhou Yuexiu Enterprise (Group) Company Limited. The following material development conditions are contained in the State-owned Land Use Rights Grant Contract:
Plot Ratio : 2x
Total Gross Floor Area : 212,546 square metres (comprising 10,000 square metres of commercial floor area and 202,546 square metres of residential floor area) plus a basement area of 29,000 square metres
A Construction Land Use Planning Permit (Ref : Sui Guo Tu Jian Yong Zhi [2004] No. 184) in relation to the property was issued by the Bureau of Land Resources and Housing Management of Guangzhou Municipality on 8 April 2004 in the name of Guangzhou Yuexiu Enterprise (Group) Company Limited with such permitted uses as ferry pier, commercial, tourism and residential. The planned site area is approximately 396,629 sq.m.
Pursuant to a Joint Development Agreement dated 18 September 2001 entered into among 廣州（越秀）企業集團公司 (Guangzhou Yuexiu Enterprise (Group) Company Limited) (Party A), 廣州港集團有限公司 (Guangzhou Port Group Co., Limited) (Party B) and 廣州洲頭咀發展有限公司 (Guangzhou Zhoutouzui Development Limited) (Party C), a sino-foreign cooperative joint venture enterprise namely 廣州市譽城房地產開發有限公司 (Guangzhou Yucheng Real Estate Development Company Limited) was established for undertaking the subject development project. Material conditions of the Joint Development Agreement are set out as follows:
Party A and B contributed the subject land for the development and Party C bears the costs of site clearance and property development.
Party C paid to Party A a sum of RMB10,000,000 as cash compensation.
For profit sharing of the project, floor area of the project upon completion shall be shared by the three parties in the following ratios:

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

Given the profit sharing conditions as mentioned above, we have taken out any benefit to be derived from the floor area of the project attributable to Party B in arriving at the market value of property interest attributable to Party C.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

As at the valuation date, majority portion of the subject site with an area of approximately 86,272 square metres has been vacated and cleared. The remaining portion of the subject site with an area of 20,001 square metres (the “uncleared land portion”) was being erected with buildings or simple structures of 1 to 23-storey high. Given the total floor area of approximately 55,000 square metres of those existing buildings and structures on the uncleared land portion and their prevailing market prices at an unit rate of RMB3,000 to RMB3,500 per square metre in term of floor area, the cost for vacating the uncleared land portion is estimated at RMB192,500,000 as at the valuation date.
We have been provided with the PRC Legal Opinion, which contains, inter alia , the followings:
(i) The land use rights in the property have been legally, validly and properly granted by the relevant Government authority to Guangzhou Yuexiu Enterprise (Group) Company Limited for the purpose of the subject project were legal and validly transferred to Guangzhou Yucheng Real Estate Development Company Limited and the land premium underlying the land grant have been legally settled in full by Guangzhou Yucheng Real Estate Development Company Limited.
(ii) Guangzhou Yuexiu Enterprise (Group) Company Limited, is merely the registered owner of the property, which does not have any real interest in the property and is bounded to complete the legal formality for transferring the legal title to the property to Guangzhou Yucheng Real Estate Development Company Limited in due course.
(iii) Guangzhou Yucheng Real Estate Development Company Limited does not have any legal impediment and subject to no additional land premium in obtaining Land Use Right Certificate for any portion of the property of which site clearance is completed.
(iv) The Construction Land Use Planning Permit dated 8 April 2004 is expiring in June 2007. As there is no undue delay situation existing in the development of the property, Guangzhou Yucheng Real Estate Development Company Limited shall have no legal impediment in applying for extension for the Construction Land Use Planning Permit.
The status of the title and grant of major approvals and licences in accordance with the information provided by the Group and the PRC Legal Opinion is as follows:

Land Use Rights Certificate: In the process of applying for Red-line Drawing : Yes Construction Land Permit: Yes Construction Land Planning Permit: Yes Construction Permit: Not yet applied for Business Licence: Yes

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Group II — Property held by the Enlarged Group for investment

Description and tenure

Property

All the shops on 2/F, Tianyu Garden Phase 2 5/F, 6/F and Units consists of four 31-storey 402-403 of 4/F of residential towers all Commercial Podium surmounting a 6-storey Tianyu Garden Phase 2 commercial podium and 3 Nos. 136-146 Linhe basement levels completed Zhong Road in October 2001. Tianhe District Guangzhou The property comprises Guangdong Province commercial spaces on The PRC Level 2, 4, 5 and 6 within the 6-storey commercial podium with a total gross floor area (“G.F.A.”) of 21,160.6534 square metres which is broken down into the followings:

Floor Level 2 4 5 6 Total	G.F.A (square metres) 5,824.1948 5,388.1825 6,130.1720 3,818.1041
	21,160.6534

The land use rights of the Property were granted for a term of 40 years (for commercial uses) commencing on 30 April 2000.

Market value in existing state Particulars as at of occupancy 30 April 2007 RMB Portion of the property 480,000,000 with a total gross floor area of 11,239.1404 square metres is subject to existing tenancies in favour of various independent third parties for terms expiring on between 31 May 2008 and June 2013 at a total current monthly rent of RMB1,037,981. Another portion of the property with a gross floor area of 1,295 square metres is leased to the Enlarged Group for terms expiring on 31 October 2007 at a monthly rent of RMB41,440.

The remaining portion is either vacant or occupied by the Enlarged Group and a related company beneficially owned by the controlling shareholder of the Enlarged Group.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Notes:

As revealed by 27 sets of Building and Land Ownership Certificate (Ref No. C3891039, C4017613, C4017614, C4028907 to C4028915 and C4028917 to C4028929, C5565490 and C5565491) issued by the Land Resources and Building Administration Bureau of Guangzhou in either 2005 or 2007, the property is held by Guangzhou Chuangyu Real Estate Development Co., Ltd. (廣州市創譽房地產開發有限公司 ) (“Guangzhou Chuangyu”) for a term of 40 years commencing on 30 April 2000.
We have been provided with the PRC Legal Opinion, which contains, inter alia, the followings:
(i) Guangzhou Chuangyu is the legal and sole owner of the property.
(ii) The property has been pledged by means of bank mortgage and all necessary consent, permit and registration have been completed by Guangzhou Chuangyu for the mortgage.
(iii) Subject to the consent of the mortgagee, the property can be leased, transfer, occupied, managed and disposed of by Guangzhou Chuangyu.
(iv) Up to the date of the PRC Legal Opinion, the property was free from any litigation, arbitration and enforcement notice nor any situation leading to re-entry by the government.
(v) All tenancy agreements entered by Guangzhou Chuangyu are legal and valid.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Group III — Properties rented by the Enlarged Group

Description and tenure

Property

Units 301-302 of 3/F Tianyu Garden Phase 2 and Unit 401 of 4/F of consists of four 31-storey Commercial Podium residential towers all Tianyu Garden Phase 2 surmounting a 6-storey Nos. 136-146 Linhe commercial podium and 3 Zhong Road basement levels completed Tianhe District in October 2001. Guangzhou Guangdong Province The property comprises The PRC commercial spaces on Level 3 and 4 within the 6-storey commercial podium with a total gross floor area (“G.F.A.”) of 6,848.8574 square metres which is broken down into the followings:

Tianyu Garden Phase 2 consists of four 31-storey residential towers all surmounting a 6-storey commercial podium and 3 basement levels completed in October 2001.

Market Value in existing state Particulars as at of occupancy 30 April 2007 RMB Portions of the 8,400,000 property with a total gross floor area of 5,062.8690 square metres are sub-let to various sub-tenants for terms expiring on between 31 May 2008 and 14 April 2011 at a total monthly rent of RMB351,815. The remaining portion of the property is vacant.

Floor Level 3 4 Total	G.F.A (square metres) 6,118.5196 730.3378
	6,848.8574

The property is rented by the Enlarged Group for a term of 6 years commencing on 1 January 2006 and expiring on 31 December 2011 at a monthly rent of RMB265,178.47 for the first three year term and RMB273,133.82 for the remaining three year term.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Notes:

Pursuant to a tenancy agreement dated 27 May 2005, the property is rented by 廣州市電力總公司 (Guangzhou Electric Company) as the landlord and 廣州市創譽房地產開發有限公司 (Guangzhou Chuangyu Real Estate Development Co. Ltd.) as the tenant for a term of 6 years expiring on 31 December 2011 at a monthly rent of RMB265,178.47 for the first three year term and RMB273,133.82 for the remaining three year term.
As revealed by three sets of Building and Land Ownership Certificate (ref no. C3891036, C4083624 and C4083625), the property is held by 廣州市電力總公司 (Guangzhou Electric Company) for a term of 40 years commencing on 30 April 2000.
The PRC Legal Opinion is summarized as follows:
(i) The legal owner of the property is 廣州市電力總公司 (Guangzhou Electric Company).
(ii) The tenancy agreement entered into between 廣州市電力總公司 (Guangzhou Electric Company) (the “Landlord”) and 廣州市創譽房地產開發有限公司 (Guangzhou Chuangyu Real Estate Development Co. Ltd.) (the “Tenant”) is legal and valid.
(iii) The Tenant has obtained the Landlord’s consent in sub-letting the property.
(iv) All tenancies entered into between the Tenant and various sub-tenants are legal and valid.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Market Value in existing state Particulars as at Property Description and tenure of occupancy 30 April 2007 HK$ 5. Office No. 2502B The property comprises The property is No commercial 25th Floor, Tower 1 office space on Level 25 currently occupied value Admiralty Centre of a 33-storey office tower by the Enlarged No. 18 Harcourt Road completed in 1980. Group as an Hong Kong office. The gross floor area of the property is approximately 306.58 square metres. The property is rented by the Group for a term of 9 months commencing on 1 January 2007 and expiring on 30 September 2007 at a monthly rent of HK$89,100 exclusive of rates, air-conditioning and management fee, utility and other charges of a recurring and/or noncapital nature.

Notes:

Pursuant to a Tenancy Agreement dated 16 January 2007 entered into between Geldy Limited and Skyfame Management Services Limited, the property is leased from the former to the latter for a term of 9 months from 1 January 2007 to 30 September 2007.
The registered owner of the property is Geldy Limited via memorial no. UB6206850 dated 26 October 1987.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Market Value in existing state Particulars as at Property Description and tenure of occupancy 30 April 2007 HK$ 6. Suite 3106 The property comprises an The property is No commercial Parkside apartment on the 31st currently occupied by value Pacific Place floor of a 27-storey the Enlarged Group as No. 88 Queensway apartment tower director’s quarter. Hong Kong surmounting a commercial podium. The property was completed in 1991. The gross floor area of the property is approximately 113 square metres. The property is rented by the Group for a term of 12 months commencing on 16 May 2007 and expiring on 15 May 2008 at a monthly rent of HK$58,800 inclusive of rates and management fees.

Notes:

Pursuant to a Tenancy Agreement dated 14 June 2007 entered into between Pacific Place Holdings Limited and Skyfame Management Services Limited, the property is leased from the former to the latter for a term of 12 months from 16 May 2007 to 15 May 2008.
The registered owner of the property is Pacific Place Holdings Limited via memorial no. UB5713623 dated 30 March 1993.

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APPENDIX V PROPERTY VALUATION OF THE ENLARGED GROUP

2. The following is the text of a letter and valuation certificates prepared for the purpose of incorporation in this circular received from DTZ Debenham Tie Leung Limited, an independent property valuer, in connection with its opinion of value as at 30 April 2007 of the property interest held by the Yue Tian Group.

==> picture [64 x 58] intentionally omitted <==

10th Floor Jardine House 1 Connaught Place Central Hong Kong

30 June 2007

The Directors Skyfame Realty (Holdings) Ltd. Room 2502B 25th Floor Tower I Admiralty Centre 18 Harcourt Road Hong Kong

Dear Sirs,

INSTRUCTIONS, PURPOSE & DATE OF VALUATION

In accordance with your instructions for us to value the property interests held by Yue Tian Development Limited and Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited (altogether referred to as the “Yue Tian Group”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the property interests as at 30 April 2007 for disclosure purpose.

BASIS OF VALUATION

Our valuation of the property interests represents the market value which in accordance with The HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors is defined as “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION ASSUMPTIONS

Our valuation excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

In valuing the property interests which is situated in the PRC, we have assumed that transferable land use rights in respect of the property interest for a specific land use term at nominal annual land use fee have been granted and that any premium has already been fully settled. We have relied on the advice given by Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited (“Guangzhou Cheng Jian Tianyu”) and the opinion of the legal adviser to Skyfame Realty (Holdings) Limited (the “Company”) as to PRC laws, Guang Dong Fair Strategy Law Firm（廣東正大方略律師事務所）, regarding the title to the properties and have valued the entire interest of the properties.

In valuing the property interests, we have assumed that the grantees of the property interest have free and uninterrupted rights to use or to assign the property interests for the whole of the unexpired term as granted.

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

METHOD OF VALUATION

In valuing the property interest of Property No. 1 in Group I, which is held by the Yue Tian Group under development in the PRC, we have valued the property interest on the basis that the property will be developed and completed in accordance with the latest development proposals provided to us. In arriving at our opinion of value, we have adopted Direct Comparison Approach by making reference to comparable sales evidences as available in the relevant market and we have also taken into account the expended construction costs and the construction costs that will be expended to complete the development to reflect the quality of the completed development.

The properties in Group II, which are leased to the Yue Tian Group in the PRC, have no commercial value due to prohibition against assignment or lack of substantial profit rent.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

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

SOURCE OF INFORMATION

We have relied to a considerable extent on the information provided by the Company and the opinion of the legal adviser to the Company as to PRC laws, Guang Dong Fair Strategy Law Firm（廣東正大方略律師事務所）, regarding the title to the property interests in the PRC. We have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, development scheme, construction cost, site and floor areas, completion date of buildings and all other relevant matters.

Dimension, measurements and areas included in this valuation certificate are based on the information provided to us by Guangzhou Cheng Jian Tianyu and are therefore only approximation. We have had no reason to doubt the truth and accuracy of the information provided to us by Guangzhou Cheng Jian Tianyu which is material to the valuation. We were also advised that no material facts have been omitted from the information provided to us.

We would point out that the copies of documents provided to us are mainly compiled in Chinese characters and the transliteration into English represents our understanding of the contents. We would therefore advise the Company to make reference to the original Chinese edition of the documents and consult your legal adviser regarding the legality and interpretation of these documents.

TITLE INVESTIGATION

We have been provided with extracts of the title documents relating to the property interests in the PRC. However, we have not searched the original documents to ascertain ownership or to verify any amendments which may not appear on the copies handed to us. We have therefore relied on the advice given by the Company regarding the property interests.

SITE INSPECTION

We have inspected the exterior and, where possible, the interior of the property. However, no structural survey has been made, but in the course of our inspections, we did not note any serious defects. We are not, however, able to report whether the property is free of rot, infestation or any other structural defect. No tests were carried out on any of the services. We have not carried out investigations on site to determine the suitability of the ground conditions, and the services etc. for any future developments. Our valuations

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period. We have not carried out detailed on-site measurements to verify the site and floor areas of the property and we have assumed that the site and floor areas shown on the copies of documents handed to us are correct.

CURRENCY

Unless otherwise stated, all money amounts stated in our valuation are in Renminbi (“RMB”), the official currency of the PRC.

We enclose herewith a summary of valuation and our valuation certificates.

Yours faithfully, For and on behalf of

DTZ Debenham Tie Leung Limited

Philip C.Y. Tsang

Registered Professional Surveyor (GP) China Real Estate Appraiser MSc., M.H.K.I.S., M.R.I.C.S. Senior Associate Director

Note: Mr. Philip C. Y. Tsang is a Registered Professional Surveyor who has over 15 years’ of experience in the valuation of properties in the PRC.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

SUMMARY OF VALUATION

Property

Capital value in existing state as at 30 April 2007 RMB

Group I — Property interest held by the Yue Tian Group under development in the PRC

The Westin Guangzhou Project, 1,880,000,000 situated at West of Linhe Dong Road, Zone 7 of Tianhe Shanglü, Tianhe District, Guangzhou, Guangdong Province, the PRC Group II — Property interests leased to the Yue Tian Group in the PRC 2. Whole of Level 12, Block 3, No commercial value Dongjun Plaza, No. 836 Dongfeng East Road, Yuexiu District, Guangzhou, Guangdong Province, the PRC 3. Units 2305 and 2306 No commercial value Level 23, Block 3, Dongjun Plaza, No. 836 Dongfeng East Road, Yuexiu District, Guangzhou, Guangdong Province, the PRC 4. Unit 1001, No commercial value Level 10, Block K3, Villandry, Favoroview, No. 235 Huijing South Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Property

Capital value in existing state as at 30 April 2007 RMB

Unit 1110, No commercial value Level 11, Tianhui Building, No. 190 Longkou Middle Road, Tianhe District, Guangzhou, Guangdong Province, the PRC 6. Unit 402, No commercial value Level 4, No. 251 Tianhe North Road, Tianhe District, Guangzhou, Guangdong Province, the PRC 7. Unit 806, No commercial value Level 8, Block T1, Phase 3, Qiaolin Garden, No. 68 Qiaolin Street, Tianhe North Road, Tianhe District, Guangzhou, Guangdong Province, the PRC 8. Unit 2303, No commercial value Level 23, Block T2, Phase 3, Qiaolin Garden, No. 66 Qiaolin Street, Tianhe North Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Property

Unit 1907, Level 19, Nanyue Pavilion, No. 63 Linhe Xiheng Road, Tianhe District, Guangzhou, Guangdong Province, the PRC 10. Unit 1002, Level 10, Hengkang Pavilion, No. 121 Linhe West Road, Tianhe District, Guangzhou, Guangdong Province, the PRC 11. Unit 901, Level 9, Hengkang Pavilion, No. 121 Linhe West Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

Capital value in existing state as at 30 April 2007 RMB

No commercial value

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Group I — Property interest held by the Yue Tian Group under development in the PRC

Capital value in Particulars of existing state as at Property Description and tenure occupancy 30 April 2007 1. The Westin The Westin Guangzhou As at 30 April 2007, RMB1,880,000,000 Guangzhou Project, Project occupies a roughly the property was under situated at West of rectangular-shaped site construction. Linhe Dong Road, with a site area of 9,121 Zone 7 of sq.m. (98,178 sq.ft.), The main body of the Tianhe Shanglü, among which 7,672 sq.m. property has been Tianhe District, (82,581 sq.ft.) is the completed and was Guangzhou, granted area and the under interior and Guangdong Province, remaining is the road area. exterior decoration the PRC works. The Westin Guangzhou Project is planned to comprise a 36-storey office building and a 40storey hotel building both erected on a 6-storey commercial podium plus a 6-storey basement. The planned total gross floor area is approximately 137,315 sq.m. (1,478,059 sq.ft.). The Westin Guangzhou Project will be completed on or before 31 July 2007. The land use rights of the property have been granted (Refer to Note (1) (vii)) .

Notes:

(1) According to State-owned Land Use Rights Certificate Sui Guo Yong Zi No. (2005)127（穗國用 [2005]字第 127號）issued by the Bureau of Land Resources and Housing Management of Guangzhou Municipality on 9 May 2005, the land use rights with a site area of 7,672 sq.m. have been granted to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited
（廣州市城建天譽房地產開發有限公司）. The details are summarized as follows:
(i) Registered Owner

: Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited（廣州市城建天譽房地產開發有限公司）

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APPENDIX V

PROPERTY VALUATION OF THE ENLARGED GROUP

(ii)	Location	:	West of Linhe Dong Road, Zone 7 of Tianhe
			Shanglü, Tianhe District, Guangzhou
(iii)	Plot No.	:	2
(iv)	Land Use	:	Commercial and Service
(v)	Site Area	:	7,672 sq.m.
(vi)	Nature of Land Use Right	:	Granted
(vii)	Land Use Term	:	70 years for residential use from 25 July 2001
			40 years for commercial, tourism and
			entertainment uses from 25 July 2001
			50 years for other uses from 25 July 2001
(viii)	Excursus	:	Contract for Transfer of State-owned Land Use
			Right No. (2004)28 of this site has been
			signed.
			Land use term commenced on 25 July 2001.
			The land use fee has been fully settled.
			Source of land use right: Purchased from
			Guangzhou City Construction & Development
			Holdings Limited（廣州市城市建設開發集團
			有限公司）on 6 November 2003.

(2) According to the copy of “Contract for Transfer of State-owned Land Use Right” Sui Guo Di Chu He No. (2004) 28（穗國地出合 [2004] 28號）entered into between the Bureau of Land Resources and Housing Management of Guangzhou Municipality and Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited（廣州市城建天譽房地產開發有限公司） on 11 February 2004, the details are summarized as follows:
(i) Location : West of Linhe Dong Road, Zone 7 of Tianhe Shanglü, Tianhe District, Guangzhou
(ii) Site Area : 7,672 sq.m. (iii) Land Use : Commercial, office and hotel (iv) Land Use Term : 70 years for residential use, 40 years for commercial and tourism uses, 50 years for composite use or other use
(v) Plot Ratio : 13.2 (vi) Planned Total Gross : 120,358 sq.m. Floor Area (GFA)
(vii) Storey of Construction : 36-storey (viii) Total Land Premium : RMB30,652,866

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(3) According to the copy of “Modification Agreement for Transfer Contract of State-owned Land Use Right” Sui Guo Di Chu He No. (2004)28-1（穗國地出合 [2004] 28號變更協議之一號） entered into between Bureau of Land Resources and Housing Management of Guangzhou Municipality and Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited
（廣州市城建天譽房地產開發有限公司）on 15 February 2006, due to the adjustment of total gross floor area for planning reason, the following items have been changed while others remain unchanged:

Planned Total Gross Floor Area (GFA) : 137,315 sq.m. Storey of Construction : 36-storey (Office), 40-storey (Hotel) Total Land Premium : RMB30,333,243

(4)	According to the copy of “Planning Permit for Construction Use of Land” Sui Gui Di Zheng	According to the copy of “Planning Permit for Construction Use of Land” Sui Gui Di Zheng	According to the copy of “Planning Permit for Construction Use of Land” Sui Gui Di Zheng
	No. (2002)87（穗國地證(2002)	87號）issued by	Guangzhou Urban Planning Bureau dated 2
	July 2002, the details are summarized as follows:
	Constructor	:	Guangzhou City Construction & Development
			Holdings Limited（廣州市城市建設開發集團
			有限公司）
	Construction Name	:	Commercial use (C21), Residential use (R1),
			Office use (C13)
	Location	:	West of Linhe Dong Road, Zone 7 of Tianhe
			Shanglü, Tianhe District, Guangzhou
	Site Area	:	9,121 sq.m., among which net site area is 7,672
			sq.m. and road area is 1,449 sq.m.
(5)	According to the copy of “Planning Permit for Construction Works” Sui Gui Jian Zheng No.
	(2005)367（穗國地證(2005) 367號）issued by Guangzhou Urban Planning Bureau dated 14
	April 2005, the details are summarized as follows:
	Constructor	:	Guangzhou Cheng Jian Tianyu Real Estate
			Development Company Limited（廣州市城建
			天譽房地產開發有限公司）
	Construction Name	:	One block of office/hotel building
	Location	:	Linhe Zhong Road, Tianhe District,
			Guangzhou
	Construction Scale	:	40-storey aboveground (Portion of 7-storey,
			33-storey, 35-storey and 36-storey
			respectively) with a total gross floor area of
			109,336 sq.m.
			6-storey underground with a total gross floor
			area of 27,979 sq.m.

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PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(6) According to the copy of “Commencement Permit for Construction Works” No. 440101200504280101 issued by the Construction Council of Guangzhou dated 28 April 2005, the details are summarized as follows:

Constructor : Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited（廣州市城建天譽房地產開發有限公司） Construction Name : One block of office/hotel building Location : Linhe Zhong Road, Tianhe District, Guangzhou Construction Scale : Total gross floor area is 137,315 sq.m. 40-storey aboveground (Portion of 7-storey, 33-storey, 35-storey and 36-storey respectively) 6-storey underground

(7) According to the copy of “The Reply about Specify the Gross Floor Area for Commercial Use” Sui Gui Han No. (2005)4315（穗規函 (2005) 4315號）issued by the Guangzhou Urban Planning Bureau dated 14 November 2005, the total gross floor area of the hotel section of the property is 63,397 sq.m., among which the gross floor area of 56,202 sq.m. is for hotel rooms and 7,195 sq.m. is for relevant commercial use.
(8) According to the copy of “Commodity Housing Pre-sale Permit of Guangzhou, Guangdong Province” Sui Fang Yu (Wang) Zi No. 20060008-1（穗房預（網）字第 20060008號 -1）issued by the Bureau of Land Resources and Housing Management of Guangzhou Municipality dated 15 May 2006, the details are summarized as follows:
Developer : Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited（廣州市城建天譽房地產開發有限公司）
Certificate No. of Development : 1320193-11 Qualification
Project Name : Tianyu Mansion Location : West of Linhe Dong Road, Zone 7 Tianhe Shanglü, Tianhe District, Guangzhou
Pre-sale GFA/Units : 100,507.56 sq.m./666 Units Including: Commercial 63,297.95 sq.m./439 Units Office 37,209.61 sq.m./227 Units
Certificate No. for the Use of : No. (2005)127（穗國用 (2005)第 127號） State-owned Land For commercial and service use

— V-28 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

Pre-sale Block : Block A (Office) 36-Storey. Portion of 33storey and 35-storey. Block B (Hotel) 40-storey. Completion status when the Pre-sale : Block A (Office) 36-Storey. Permit is issued Block B (Hotel) 40-storey.

(9) According to the information provided by Guangzhou Cheng Jian Tianyu, the total construction costs to complete the development is approximately RMB1,138 million and the total expended construction costs up to 30 April 2007 was approximately RMB938 million. In the course of our valuation, we have taken into account such construction costs.
(10) According to Business Licence No. 006918 dated 11 July 2005, Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited（廣州市城建天譽房地產開發有限公司）was established as a cooperation enterprise in the PRC with a registered capital of USD45 million for a valid operation period from 24 September 2002 to 24 September 2018.
(11) According to the PRC legal opinion prepared by Guang Dong Fair Strategy Law Firm（廣東正大方略律師事務所）:
(i) According to State-owned Land Use Rights Certificate No. (2005)127（穗國用 [2005]字第 127號）issued by the People’s Government of Guangzhou and the Bureau of Land Resources and Housing Management of Guangzhou Municipality on 9 May 2005, the land use rights with a site area of 7,672 sq.m. have been granted to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited（廣州市城建天譽房地產開發有限公司） (Refer to Note (1) (vii)) ;
(ii) the Westin Guangzhou Project comprises an office building and a hotel building with a total gross floor area of 137,315 sq.m.;
(iii) Guangzhou Cheng Jian Tianyu is in possession of a proper legal title to the property and is entitled to transfer the property with the residual term of its land use rights at no extra land premium or other onerous payment payable to the government;
(iv) all land premium and other costs of ancillary utilities services have been settled in full;
(v) the proposed design and construction of the development are in compliance with the local planning regulations and have been approved by the relevant authorities; and
(vi) According to the Guangzhou Real Estate Mortgage Registered Certificate（廣州市房地產抵押登記證明書）dated 9 March 2007, Guangzhou Cheng Jian Tianyu has mortgaged the land use rights of the land and portion of the building of the property with a gross floor area of 100,507.56 sq.m. to Agriculture Bank of China Guangzhou Yangcheng Sub-branch（中國農業銀行廣州市羊城支行）with a determined value of RMB1,733,439,000.

As confirmed by Guangzhou Cheng Jian Tianyu, as far as we aware, and subject to the aforesaid mortgages, such land use rights are free from and clear of encumbrance and Guangzhou Cheng Jian Tianyu is entitled to transfer, mortgage or lease the land use right during the aforesaid period.

— V-29 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

(12) The status of title and grant of major approvals and licences in accordance with the PRC legal opinion and the information provided by the Company are as follows:

State-owned Land Use Rights Certificate Yes Contract for Grant of State-owned Land Use Rights Yes Modification Agreement for Grant of State-owned Land Use Right Yes Planning Permit for Construction Yes Planning Permit for Construction Works Yes Commencement Permit for Construction Works Yes Commodity Housing Pre-sale Permit Yes Business Licence Yes

— V-30 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Group II — Property interests leased to the Yue Tian Group in the PRC

Capital value in existing state as at Property Description and tenancy particulars 30 April 2007 2. Whole of Level 12, Dongjun Plaza comprises 2 blocks of 34No commercial Block 3, Dongjun Plaza, storey office building and 2 blocks of 36value No. 836 Dongfeng East Road, storey office building. The Levels 1 to 4 of Yuexiu District, each of the buildings are devoted to Guangzhou, commercial use, while Level 5 and the Guangdong Province, levels above are devoted to office use. the PRC Dongjun Plaza was completed in 1996.

The property comprises the whole of Level 12, Block 3 of Dongjun Plaza. Block 3 is a 36-storey office building. The property has a total gross floor area of approximately 675.12 sq.m. (7,267 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 1 year from 11 April 2007 to 10 April 2008 at a monthly rent of RMB32,380.40 (exclusive of management fees and utilities charges but inclusive of 2 car parking spaces monthly fees). The property is currently occupied by the Yue Tian Group for office use.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-31 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenancy particulars

Capital value in existing state as at 30 April 2007

Units 2305 and 2306 Level 23, Block 3, Dongjun Plaza, No. 836 Dongfeng East Road, Yuexiu District, Guangzhou, Guangdong Province, the PRC

Dongjun Plaza comprises 2 blocks of 34No commercial storey office building and 2 blocks of 36value storey office building. The Levels 1 to 4 of each of the buildings are devoted to commercial use, while Level 5 and the levels above are devoted to office use. Dongjun Plaza was completed in 1996.

The property comprises two office units on Level 23, Block 3 of Dongjun Plaza. Block 3 is a 36-storey office building. The property has a total gross floor area of approximately 283.93 sq.m. (3,056 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 1 year from 15 May 2007 to 14 May 2008 at a monthly rent of RMB12,776.85 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group for office use.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-32 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Capital value in existing state as at Property Description and tenancy particulars 30 April 2007 4. Unit 1001, Villandry comprises 11 blocks of middle to No commercial Level 10, Block K3, high-rise residential building was completed value Villandry, Favoroview, in 2005. No. 235 Huijing South Road, Tianhe District, The property comprises a residential unit on Guangzhou, Level 10, Block K3 of Villandry. Block K3 Guangdong Province, is a 11-storey residential building. The the PRC property has a total gross floor area of approximately 294.83 sq.m. (3,174 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 2 years from 27 August 2006 to 26 August 2008 at a monthly rent of RMB27,000 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-33 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Unit 1110, Level 11, Tianhui Building, No. 190 Longkou Middle Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

Capital value in existing state as at 30 April 2007

Description and tenancy particulars

Tianhui Building is a 27-storey composite No commercial building plus a 2-storey basement. Levels 1 value to 5 are for commercial use, Levels 6 to 27 are for residential use and the 2-storey basement is devoted to car parking spaces. The building was completed in 2006.

The property comprises a residential unit on Level 11 of Tianhui Building. The property has a total gross floor area of approximately 45.75 sq.m. (492 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 1 year from 2 April 2007 to 1 April 2008 at a monthly rent of RMB2,400 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-34 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenancy particulars

Capital value in existing state as at 30 April 2007

Unit 402, The property comprises a residential unit on No commercial Level 4, Level 4 of a 32-storey residential building value No. 251 Tianhe North Road, plus a basement completed in 2000. Tianhe District, Guangzhou, The property has a total gross floor area of Guangdong Province, approximately 119 sq.m. (1,281 sq.ft.) as the PRC stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of half year from 19 April 2007 to 18 October 2007 at a monthly rent of RMB4,445 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-35 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenancy particulars

Capital value in existing state as at 30 April 2007

Unit 806, Phase 3 of Qiaolin Garden comprises 3 Level 8, blocks of 28-storey residential building Block T1, Phase 3, erected on a 3-storey commercial podium Qiaolin Garden, plus a basement. Levels 1 to 3 are for No. 68 Qiaolin Street, commercial use, Levels 4 to 31 are for Tianhe North Road, residential use and the basement is devoted Tianhe District, to car parking spaces. Phase 3 of Qiaolin Guangzhou, Garden was completed in 2004. Guangdong Province, the PRC The property comprises a residential unit on Level 8 of Block T1, Phase 3 of Qiaolin Garden. Block T1 is a 28-storey residential building. The property has a total gross floor area of approximately 51.78 sq.m. (557 sq.ft.) as stated in the tenancy agreement.

Phase 3 of Qiaolin Garden comprises 3 No commercial blocks of 28-storey residential building value erected on a 3-storey commercial podium plus a basement. Levels 1 to 3 are for commercial use, Levels 4 to 31 are for residential use and the basement is devoted to car parking spaces. Phase 3 of Qiaolin Garden was completed in 2004.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 1 year from 21 May 2007 to 20 May 2008 at a monthly rent of RMB2,780 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-36 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenancy particulars

Capital value in existing state as at 30 April 2007

Unit 2303, Level 23, Block T2, Phase 3, Qiaolin Garden, No. 66 Qiaolin Street, Tianhe North Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

The property comprises a residential unit on Level 23 of Block T2, Phase 3 of Qiaolin Garden. Block T2 is a 28-storey residential building. The property has a total gross floor area of approximately 83.44 sq.m. (898 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of half year from 11 April 2007 to 10 October 2007 at a monthly rent of RMB5,200 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-37 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Unit 1907, Level 19, Nanyue Pavilion, No. 63 Linhe Xiheng Road, Tianhe District, Guangzhou, Guangdong Province, the PRC

Description and tenancy particulars

Nanyue Pavilion is a 29-storey composite building plus a basement car park. Levels 1 to 4 are for commercial use and Levels 5 to 29 are for residential use. The building was completed in 1998.

The property comprises a residential unit on Level 19 of Nanyue Pavilion. The property has a total gross floor area of approximately 90.33 sq.m. (972 sq.ft.) as stated in the tenancy agreement.

Capital value in existing state as at 30 April 2007

No commercial value

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term from 21 May 2007 to 10 November 2007 at a monthly rent of RMB2,840 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-38 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenancy particulars

Capital value in existing state as at 30 April 2007

Unit 1002, Hengkang Pavilion is a 25-storey composite No commercial Level 10, building plus a basement car park. Level 1 value Hengkang Pavilion, is for commercial use and Levels 2 to 25 No. 121 Linhe West Road, are for residential use. The building was Tianhe District, completed in 2000. Guangzhou, Guangdong Province, The property comprises a residential unit on the PRC Level 10, Hengkang Pavilion. The property has a total gross floor area of approximately 115.58 sq.m. (1,244 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 5 years from 15 May 2007 to 14 May 2012 at a monthly rent of RMB3,000 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-39 —

PROPERTY VALUATION OF THE ENLARGED GROUP

APPENDIX V

VALUATION CERTIFICATE

Property

Description and tenancy particulars

Capital value in existing state as at 30 April 2007

Unit 901, Hengkang Pavilion is a 25-storey composite No commercial Level 9, building plus a basement car park. Level 1 value Hengkang Pavilion, is for commercial use and Levels 2 to 25 No. 121 Linhe West Road, are for residential use. The building was Tianhe District, completed in 2000. Guangzhou, Guangdong Province, The property comprises a residential unit on the PRC Level 9, Hengkang Pavilion. The property has a total gross floor area of approximately 136.55 sq.m. (1,470 sq.ft.) as stated in the tenancy agreement.

The property is leased to Guangzhou Cheng Jian Tianyu Real Estate Development Company Limited （廣州市城建天譽房地產開發有限公司）, for a term of 5 years from 15 May 2007 to 14 May 2012 at a monthly rent of RMB3,200 (exclusive of management fees and utilities charges). The property is currently occupied by the Yue Tian Group as staff quarters.

According to the PRC legal opinion, the lease agreement is legal and valid.

— V-40 —

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were and immediately upon full conversion of the Tianyu CPS will be as follows:

thorised share capital as at the Latest Practicable Date: 29,000,000,000 Shares 1,000,000,000 Convertible Preference Shares	HK$ 290,000,000 10,000,000
	300,000,000

Authorised share capital as at the Latest Practicable Date:

Issued and to be issued share capital:

1,093,971,156 Shares as at the Latest Practicable Date 145,537,077 New Shares to be issued upon full conversion of the Tianyu CPS_(Note 1)_ 1,239,508,233	10,939,712 1,455,371
	12,395,083

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 New Shares to be issued upon conversion of the Tianyu CPS will, when issued, be fully paid and rank pari passu in all respects with the Shares then in issue on the date of allotment and issue.

Notes:

The maximum number of Shares to be issued upon conversion based on the corresponding adjustment to the conversion ratio to 1 Tianyu CPS to 1.35 New Shares would be 196,475,053 Shares.
The above issued and to be issued share capital has not taken into account any exercise of the subscription rights attaching to the 2006 Warrants, the share options granted under the share option scheme adopted by the Company on 4 August 2005 and the conversion rights attaching to the Notes and the Westin CPS. As at the Latest Practicable Date, the principal amount of the Notes outstanding is US$200 million. Upon full conversion of the Notes at the initial conversion price of HK$1.35 per Share, 1,157,318,518 conversion Shares will be issued while upon full conversion at the adjusted conversion price of HK$1.00 per Share, 1,562,380,000 conversion Shares will be issued. In addition, there are 190,447,209 Westin CPS in issue. Upon full conversion of the Westin CPS at the initial conversion ratio of 1 Westin CPS to 1 new Share, 190,447,209 new Shares will be issued while upon full conversion of the Westin CPS at the adjusted conversion ratio of 1 Westin CPS to 1.35 new Shares, 257,103,733 new Shares will be issued.

— VI-1 —

GENERAL INFORMATION

APPENDIX VI

3. DISCLOSURE OF DIRECTORS’ INTERESTS

(a) Directors’ interests in the securities of the Company and its associated corporation

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:

(i) Interests in the Shares or underlying Shares

			Number
	Company/		of Shares or	Approximate
Name of	Associated		underlying Shares	shareholding
Director	corporation	Capacity	(long position)	percentage
Mr. YU Pan	Company	Interest of	1,006,511,271	92.01%
		controlled	(note 1)	(note 2)
		corporation
		and/or
		beneficial	owner

Notes:

These Shares comprise (i) 42,732,000 underlying Shares which would be issued pursuant to the exercise of the subscription rights attaching to 42,732,000 2006 Warrants held directly by Mr. YU; and (ii) 627,791,985 existing Shares, 3,000 underlying Shares which would be issued pursuant to the exercise of the subscription rights attaching to 3,000 2006 Warrants, 190,447,209 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Westin CPS at the conversion ratio of 1 Westin CPS to 1 Share and 145,537,077 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Tianyu CPS at the conversion ratio of 1 Tianyu CPS to 1 New Share held directly by Grand Cosmos. The entire issued share capital of Grand Cosmos is held by Sharp Bright, the entire issued share capital of which is held by Mr. YU. Item (ii) above representing 963,776,271 Shares and/or underlying Shares (which does not include the underlying interest in 3,000 2006 Warrants) have been charged in favour of the Security Trustee by way of a share charge dated 4 May 2007.
For the purposes of this section, the shareholding percentage in the Company is calculated on the basis of 1,093,971,156 Shares in issue as at the Latest Practicable Date.

— VI-2 —

GENERAL INFORMATION

APPENDIX VI

(ii) Interests in underlying Shares

As at the Latest Practicable Date, the following Directors had interests as beneficial owner in options to subscribe for Shares granted under the share option scheme adopted by the Company on 4 August 2005:

			Number of
			underlying
			Shares
			(under share	Approximate
	Exercise		options of the	shareholding
Name of Director	Price	Exercise Period	Company)	percentage
	(HK$)			(note 1)
Mr. WEN Xiao Bing	1.31	13 March 2007 to	5,000,000	0.46%
		31 July 2015
Mr. LAU Yat Tung,	1.31	13 March 2007 to	3,000,000	0.27%
Derrick		31 July 2015
Mr. CHOY Shu Kwan	1.31	13 March 2007 to	600,000	0.05%
		31 July 2015
Mr. CHENG Wing Keung, 1.31		13 March 2007 to	600,000	0.05%
Raymond		31 July 2015
Ms. CHUNG Lai Fong	1.31	13 March 2007 to	600,000	0.05%
		31 July 2015

Note:

For the purpose of this section, the shareholding percentage in the Company is calculated on the basis of 1,093,971,156 Shares in issue as at the Latest Practicable Date.

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.

— VI-3 —

GENERAL INFORMATION

APPENDIX VI

(b) Directors’ interests in assets/contracts and other interests

Save for Mr. YU’s interest in the Tianyu Agreement, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Enlarged Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group.

Save and except for Mr. YU’s interest in respect of 29% effective interest in the Westin Project which has been sold to the Group (being material contract no. 18 as referred to below) and the entire effective interest in the Tianyu Project, none of the Directors has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 December 2006, being the date to which the latest published audited consolidated accounts of the Group were made up.

(c) Directors’ interests in 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 Enlarged Group other than contracts expiring or determinable by the Company or the relevant member of the Enlarged Group within one year without payment of compensation (other than statutory compensation).

— VI-4 —

GENERAL INFORMATION

APPENDIX VI

4. SUBSTANTIAL SHAREHOLDERS’ INTERESTS

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

Interests in the Shares or underlying Shares

		Number of
		Shares	Approximate
Name of		or underlying	shareholding
Shareholder	Capacity	Shares	percentage
			(note 8)
Sharp Bright	Interest of controlled	963,779,271 (long)	88.10%
	corporation	(note 1)
Grand Cosmos	Beneficial owner	963,779,271 (long)	88.10%
		(note 1)
Merrill Lynch	Interests of controlled	1,451,728,718 (long)	132.70%
& Co., Inc.	corporation	(note 2)
Lehman Brothers	Interests of controlled	1,278,190,718 (long)	116.84%
Holdings Inc.	corporation and/or	(note 3)
	person having a
	security interest
	in shares
	Interests of controlled	2,700,000 (short)	0.25%
	corporation
DKR Capital Inc.	Interests of controlled	1,174,225,351 (long)	107.34%
	corporation and/or	(note 4)
	parties to an agreement
	under s.317(1)(b)
	and s.318 of the SFO

— VI-5 —

GENERAL INFORMATION

APPENDIX VI

		Number of
		Shares	Approximate
Name of		or underlying	shareholding
Shareholder	Capacity	Shares	percentage
			(note 8)
DKR Management	Interests of controlled	1,174,225,351 (long)	107.34%
Co, Inc.	corporation and/or	(note 4)
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
DKR Capital	Interests of controlled	1,174,225,351 (long)	107.34%
Partners LP	corporation and/or	(note 4)
	parties to an agreement
	under s.317(1)(b) and
	s.318 of the SFO
DKR Oasis	Investment manager	1,174,225,351 (long)	107.34%
Management Co.	and/or parties to	(note 4)
LP	an agreement
	under s.317(1)(b) and
	s.318 of the SFO
DKR SoundShore	Beneficial owner	1,174,225,351 (long)	107.34%
Oasis Holding	and/or parties to	(note 4)
Fund Ltd.	an agreement under
	s.317(1)(b) and
	s.318 of the SFO
Oasis Management	Beneficial owner	1,174,225,351 (long)	107.34%
Holdings LLC	and/or parties to	(note 4)
	an agreement under
	s.317(1)(b) and
	s.318 of the SFO
Deutsche Bank	Person having a	154,086,068 (long)	14.09%
Aktiengesellschaft	security interest
	in shares
PMA Capital	Investment manager	1,176,694,668 (long)	107.56%
	and/or person	(note 5)
	having a security
	interest in shares
PMA Prospect Fund	Beneficial owner	973,951,378 (long)	89.03%
	and/or person	(note 5)
	having a security
	interest in shares

— VI-6 —

GENERAL INFORMATION

APPENDIX VI

		Number of
		Shares	Approximate
Name of		or underlying	shareholding
Shareholder	Capacity	Shares	percentage
			(note 8)
Diversified Asian	Beneficial owner	109,958,068 (long)	10.05%
Strategies Fund		(note 5)
PMA Asian	Beneficial owner	44,128,000 (long)	4.03%
Opportunities Fund		(note 5)
PMA Focus Fund	Investment manager	913,018,558 (long)	83.46%
	and/or person	(note 5)
	having a security
	interest in shares
Mr. Luo Dong	Beneficial owner	88,262,000 (long)	8.07%
Liang		(note 6)
Leader Gain	Beneficial owner	66,666,666 (long)	6.09%
Limited		(note 7)
Ms. Azuma Sarina	Interest of controlled	66,666,666 (long)	6.09%
	corporation	(note 7)
Dalton Greater China	Beneficial owner	61,181,893 (long)	5.59%
(Master) Fund	and/or persons
	having a security
	interest in shares
Dalton Investments LLC	Investment manager	61,181,893 (long)	5.59%

Notes:

These Shares comprise 627,791,985 existing Shares, 3,000 underlying Shares which would be issued pursuant to the exercise of the subscription rights attaching to 3,000 2006 Warrants, 190,447,209 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Westin CPS at the conversion ratio of 1 Westin CPS to 1 Share and 145,537,077 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Tianyu CPS at the conversion ratio of 1 Tianyu CPS to 1 New Share held directly by Grand Cosmos. As the entire issued share capital of Grand Cosmos is held by Sharp Bright, Sharp Bright is deemed to be interested in the Shares and underlying Shares in which Grand Cosmos is interested by virtue of the SFO. As the entire issued share capital of Sharp Bright is held by Mr. YU, Mr. YU is deemed to be interested in the Shares and underlying Shares in which Sharp Bright is interested by virtue of SFO. The above representing 963,776,271 Shares and/or underlying Shares (which does not include the underlying interest in 3,000 2006 Warrants) have been charged in favour of the Security Trustee by way of share charge dated 4 May 2007.

— VI-7 —

GENERAL INFORMATION

APPENDIX VI

These Shares comprise (i) 20,000,000 existing Shares; (ii) 884,895,718 Shares and/or underlying Shares (representing 627,791,985 existing Shares and 257,103,733 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Westin CPS at the conversion ratio of 1 Westin CSP to 1.35 Shares) charged in favour of the Security Trustee (who holds the benefit on trust for the Noteholders) by Grand Cosmos; and (iii) an aggregate of 546,833,000 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the minimum reset reference price of HK$1.00 held directly or indirectly by Merrill Lynch Group, Inc, Merrill Lynch L.P., Indopark Holdings Ltd, Merrill Lynch International Incorporated, Merrill Lynch International Holdings Inc., Merrill Lynch Europe PLC, Merrill Lynch Europe Intermediate Holdings, Merrill Lynch Holdings Limited, ML UK Capital Holdings and Merrill Lynch International. All of these entities are controlled by Merrill Lynch & Co., Inc.
These Shares comprise (i) a long position of 2,700,000 existing Shares; (ii) 884,895,718 Shares and/or underlying Shares (representing 627,791,985 existing Shares and 257,103,733 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Westin CPS at the conversion ratio of 1 Westin CSP to 1.35 Shares) charged in favour of the Security Trustee (who holds the benefit on trust for the Noteholders) by Grand Cosmos; and (iii) 390,595,000 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the minimum reset reference price of HK$1.00 held directly or indirectly by Lehman Brothers Commercial Corporation Asia Limited, LBCCA Holdings I LLC. and LBCCA Holdings II LLC. All these entitled are controlled by Lehman Brothers Holdings Inc.
These Shares comprise (i) 884,895,718 Shares and/or underlying Shares (representing 627,791,985 existing Shares and 257,103,733 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Westin CPS at the conversion ratio of 1 Westin CSP to 1.35 Shares) charged in favour of the Security Trustee (who holds the benefit on trust for the Noteholders) by Grand Cosmos; and (ii) 289,329,633 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the initial conversion price of HK$1.35.
These Shares comprise (i) 884,895,718 Shares and/or underlying Shares (representing 627,791,985 existing Shares and 257,103,733 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the Westin CPS at the conversion ratio of 1 Westin CSP to 1.35 Shares) charged in favour of the Security Trustee (who holds the benefit on trust for the Noteholders) by Grand Cosmos; (ii) 155,082,000 existing Shares (99,194,000 Shares held by Diversified Asian Strategies Fund and 44,128,000 Shares held by PMA Asian Opportunities Fund); (iii) 19,538,450 underlying Shares which would be issued upon exercise of the subscription rights attaching to 19,538,450 2006 Warrants held by Asian Diversified Total Return Limited Duration Company, Diversified Asian Strategies Fund and PMA Asian Opportunities Fund; and (iv) 117,178,500 underlying Shares which would be issued upon exercise of the conversion rights attaching to the Notes at the minimum reset reference price of HK$1.00 by PMA Prospect Funds (as to 89,055,660 underlying Shares) and PMA Focus Fund (as to 28,122,840 underlying Shares). All of these funds are controlled by PMA Capital.
These Shares comprise 11,990,000 existing Shares and 76,272,000 underlying Shares which would be issued upon exercise of the subscription rights attaching to 76,272,000 2006 Warrants.
These Shares are existing Shares held by Leader Gain Limited of which the entire issued share capital is held by Ms. AZUMA Sarina.
For the purpose of this section, the shareholding percentage in the Company is calculated on the basis of 1,093,971,156 Shares in issue as at the Latest Practicable Date.

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 the Company or any other member of the Enlarged Group.

— VI-8 —

GENERAL INFORMATION

APPENDIX VI

Save that Mr. YU is the sole director of Sharp Bright and Grand Cosmos and that he is also the sole shareholder of Sharp Bright which in turn is the sole shareholder of Grand Cosmos as at the Latest Practicable Date, none of the Directors held any directorship or employment in a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

5. MATERIAL CONTRACTS

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

the settlement agreement dated 9 August 2005 entered into between Ms. CHENG Siu Ying Pinky, an Independent Third Party, and the Company in relation to the settlement of the sum outstanding under a convertible bond in the amount of HK$480,000;
the settlement agreement dated 26 August 2005 entered into between Mr. TSANG Ching Biu, an Independent Third Party, and the Company in relation to the settlement of the sum outstanding under a convertible bond in the amount of HK$480,000;
the sale and purchase agreement dated 27 September 2005 entered into between Yue Tai Group Limited (“Yue Tai”), and City Key Investments Limited (“City Key”) as vendors (both of which are Independent Third Parties) and Fortunate Start Investments Limited (“Fortunate Start”) and Ace Billion Investments Limited (“Ace Billion”) as purchasers pursuant to which Fortunate Start and Ace Billion agreed to purchase 90% and 10% issued shares of Guangzhou Zhoutouzui and the shareholders’ loans due by Guangzhou Zhoutouzui for a total consideration of RMB231,800,890;
the underwriting agreement entered into between the Company, Grand Cosmos and Taifook Securities Company Limited (“Taifook Securities”) (as underwriters) and Mr. YU on 5 October 2005 in relation to the underwriting of 302,487,048 rights Shares;
the counter-indemnity dated 5 October 2005 executed by Mr. YU in favour of the Company and Nicco Limited (“Nicco”) pursuant to which Mr. YU agreed to indemnify the Company and Nicco against any of their liabilities under the deed of appointment executed by Yaubond, Sunny Billion Holdings Limited (“Sunny Billion”), a then Independent Third Party and the Company in relation to the appointment of Yaubond as the project manager of the development of a piece of land located at Tianhe Bei Road, Tianhe District in the PRC;

— VI-9 —

GENERAL INFORMATION

APPENDIX VI

the agreement dated 5 October 2005 entered into between Sunny Billion and Nicco in relation to the proposed acquisition of 49 shares of US$1.00 each in the issued share capital of Yaubond, a shareholder’s loan due by Yaubond to Sunny Billion 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 deed of tax indemnity dated 25 October 2005 executed by Fortunate Start, Ace Billion, Yue Tai and City Key pursuant to the agreement referred to in item 4 above whereby Yue Tai and City Key covenanted to indemnify Fortunate Start and Ace Billion against certain tax liability of Guangzhou Zhoutouzui arising before completion of the said agreement;
the shareholders agreement in respect of Yaubond dated 16 December 2005 entered into between Nicco, Sunny Billion, the Company and Poly Hong Kong pursuant to which the parties thereto regulate the management of Yaubond;
the deed of appointment dated 16 December 2005 entered into between Yaubond, Sunny Billion, United Prime Limited (a wholly-owned subsidiary of the Company), the Company and Nicco pursuant to which Yaubond appointed United Prime Limited as the project manager to undertake and supervise the construction and development of a piece of land located at Tianhe Bei Road, Tianhe District, Guangzhou, the PRC;
the deed of indemnity dated 16 December 2005 executed by Sunny Billion, Yaubond and Nicco pursuant to the agreement referred to in item 6 above whereby Sunny Billion covenanted with and undertook to indemnify Nicco for itself and as trustee for its successors in title and Yaubond against certain taxation liability of Yaubond arising before completion of the said agreement;
the assignment of debt dated 16 December 2005 executed by Sunny Billion, Nicco and Yaubond pursuant to which Sunny Billion assigned to Nicco a debt in the principal sum of HK$82,892,297.96 owed by Yaubond;
an agreement dated 30 April 2006 entered into between 廣州市天譽房地產開發有限公司 (Guangzhou Tianyu Real Estate Development Co. Ltd.) (“Guangzhou Tianyu”) as transferor and Trenco as transferee whereby Guangzhou Tianyu agreed to transfer to Trenco 75% equity interest in the PRC Company at a consideration of US$4,500,000;
the underwriting agreement dated 2 June 2006 entered into between the Company, Taifook Securities and Grand Cosmos in relation to the open offer of 267,324,486 offer shares at the subscription price of HK$0.90 per Share (in the proportion of 13 offer shares for every 40 Shares held with 10 2006 Warrants for every 13 offer shares taken up) as varied by a supplemental agreement dated 7 June 2006 made between the Company, Taifook Securities and Grand Cosmos;

— VI-10 —

GENERAL INFORMATION

APPENDIX VI

the agreement dated 6 July 2006 entered into between Mr. LUO Dong Liang, a then Independent Third Party, and Smartford (an indirectly wholly-owned subsidiary of the Company) in relation to the acquisition of 51% shareholding in and shareholder’s loan due by Loyal Way (with consideration in aggregate not more than HK$400 million) by Smartford from Mr. LUO Dong Liang;
the supplemental agreement dated 6 October 2006 entered into between Mr. LUO Dong Liang and Smartford pursuant to which the parties agreed to proceed to completion of acquisition of 51% shareholding in and shareholder’s loan due by Loyal Way by 16 October 2006, with outstanding consideration of approximately HK$63.6 million to be settled after the obtaining of the land use rights certificate by廣州市譽城房地產開發有限公司 (Guangzhou Yucheng Real Estate Development Company Limited);
the Note Purchase Agreement;
the Poly/Shell Westin Agreement;
the agreement dated 2 March 2007 entered into between Great Elegant (a whollyowned subsidiary of the Company) and Wise Gain Investment Limited (“Wise Gain”) (which entire issued share capital is held by Mr. YU) for the acquisition of 29% shareholding in and shareholder’s loan due by Yue Tian for a total consideration of HK$257,103,733;
the private placement agency agreement dated 2 March 2007 entered into by the Company and Merrill Lynch Far East Limited in respect of the appointment by the Company of Merrill Lynch Far East Limited as the placing agent of the Notes;
20 the shareholders’ loan agreement dated 5 March 2007 entered into between Allright, Wise Gain, Red Empire and Yue Tian in relation to a HK$560 million bridging loan facility given to Yue Tian for the repayment of loan due to Citic Ka Wah Bank Limited and the financing of development costs of the Westin Project;
the Zhoutouzui Agreement;
the trust deed dated 4 May 2007 entered into between the Company, Sharp Bright, Grand Cosmos, Fine Luck, Great Elegant, Smartford, Nicco and the Hongkong and Shanghai Banking Corporation Limited (“HSBC”);
the supplemental trust deed dated 4 May 2007 entered into between the Company, Sharp Bright, Grand Cosmos, Fine Luck, Great Elegant, Smartford, Nicco, Red Empire, Allright and HSBC;

— VI-11 —

GENERAL INFORMATION

APPENDIX VI

the paying and conversion agency agreement dated 4 May 2007 entered into between the Company and the HSBC;
the share charge on the entire issued share capital of Fine Luck dated 4 May 2007 executed by the Company in favour of HSBC as security trustee;
the share charge on the entire issued share capital of Great Elegant dated 4 May 2007 executed by Fine Luck in favour of HSBC as security trustee;
the share charge on the entire issued share capital of Red Empire dated 4 May 2007 executed by Great Elegant in favour of HSBC as security trustee;
the share charge on the entire issued share capital of Allright dated 4 May 2007 executed by Great Elegant in favour of HSBC as security trustee;
the share charge on 51% of the issued share capital of Yue Tian dated 4 May 2007 executed by Great Elegant and Red Empire in favour of HSBC as security trustee;
the share charge on 20% of the issued share capital of Yue Tian dated 4 May 2007 executed by Great Elegant and Allright in favour of HSBC as security trustee;
the share charge on 29% of the issued share capital of Yue Tian dated 4 May 2007 executed by Great Elegant in favour of HSBC as security trustee;
the share charge on the entire issued share capital of Smartford dated 4 May 2007 executed by Fine Luck in favour of HSBC as security trustee;
the share charge on 51% of the issued share capital of Loyal Way dated 4 May 2007 executed by Smartford in favour of HSBC as security trustee;
the share charge on the entire issued share capital of Nicco dated 4 May 2007 executed by Fine Luck in favour of HSBC as security trustee;
the share charge on 49% of the issued share capital of Yaubond dated 4 May 2007 executed by Nicco in favour of HSBC as security trustee;
the charge over accounts dated 4 May 2007 executed by the Company in favour of HSBC as security trustee;

— VI-12 —

GENERAL INFORMATION

APPENDIX VI

the deed of indemnity dated 4 May 2007 executed by Poly, Great Elegant and Red Empire pursuant to the agreement referred to in item 17 above whereby Poly covenanted with and undertook to indemnify Great Elegant and Red Empire against certain taxation liability of Red Empire before completion of the said agreement;
the assignment of debt dated 4 May 2007 executed by Poly, Great Elegant and Red Empire pursuant to which Poly assigned to Great Elegant a debt in the sum of HK$312,145,343 owed by Red Empire;
the deed of indemnity dated 4 May 2007 executed by Shell, Great Elegant and Allright pursuant to the agreement referred to in item 17 above whereby Poly covenanted with and undertook to indemnify Great Elegant and Allright against certain taxation liability of Allright before completion of the said agreement;
the assignment of debt dated 4 May 2007 executed by Shell, Great Elegant and Allright pursuant to which Shell assigned to Great Elegant a debt in the sum of HK$124,689,718 owed by Allright;
the deed of indemnity dated 4 May 2007 executed by Wise Gain, Great Elegant and Yue Tian pursuant to the agreement referred to in item 18 above whereby Wise Gain covenanted with and undertook to indemnify Great Elegant and Yue Tian against certain taxation liability of Yue Tian before completion of the said agreement;
the assignment of debt dated 4 May 2007 executed by Wise Gain, Great Elegant and Yue Tian pursuant to which Wise Gain assigned to Great Elegant a debt in the sum of HK$173,357,134 owed by Yue Tian;
the deed of release dated 4 May 2007 executed by Red Empire and Allright in favour of Wise Gain whereby Red Empire and Allright agreed to release and discharge the share mortgage over 20,880 shares in Yue Tian legally and beneficially owned by Wise Gain;
the Tianyu Agreement;
the deed of indemnity dated 4 June 2007 executed by Poly, Smartford and Bright Able pursuant to the agreement referred to in item 21 above whereby Poly covenanted with and undertook to indemnify Smartford and Bright Able against certain taxation liability of Bright Able before completion of the said agreement;
the assignment of debt dated 4 June 2007 executed by Poly, Smartford and Bright Able pursuant to which Poly assigned to Smartford a debt in the sum of HK$268,653,601.91 owed by Bright Able; and

— VI-13 —

GENERAL INFORMATION

APPENDIX VI

the agreement dated 21 June 2007 entered into between a wholly owned subsidiary of the Company, Sky Honest Investments Corp. (“Sky Honest”), and Sunny Billion in relation to the proposed acquisition of 9,594,885 shares of US$1.00 each in the issued share capital of Yaubond and all shareholder’s loan due by Yaubond to Sunny Billion at an aggregate consideration of not more than HK$203,113,916.

The material contracts numbered 22 to 36 are entered into in accordance with the terms of the material contract no. 16.

6. COMPETING INTERESTS

As at the Latest Practicable Date, save for Mr. YU, the chairman of the Company, being a director and substantial shareholder of a company listed on the Shenzhen Stock Exchange (the “PRC Listco”) which is engaged in the mass market real estate development business, and Mr. YU and his associates have personal interest in certain properties including residential buildings and commercial buildings in the PRC, none of the Directors and his/her respective associates had any interests in any business, which competes or is likely to compete, either directly or indirectly, with the Company’s business (as would be required to be disclosed under rule 8.10 of the Listing Rules if each of them were a controlling shareholder of the Company).

Mr. YU has undertaken to the Company that for so long as he remains as Director or controlling shareholder of the Company, all enquiries and actual or potential business opportunities received by him (and/or his associates) in relation to property development project management and property investment in the PRC (the “Business Opportunities”) shall be referred by Mr. YU to the Company on a timely basis and the Business Opportunities must be first offered or made available to the Group.

In addition, Mr. YU entered into a deed of non-competition with the Note Purchasers on 4 May 2007 and agreed that he will not, and procure that none of his affiliates (other than the Group) will directly or indirectly, among other things, (i) be engaged or interested in any capacity in any business which is, or is about to be, the same as, or of a type similar to the business carried on by the Group from time to time or in competition with the Group; or (ii) vote in favour of any resolutions at a general meeting of the PRC Listco that may cause PRC Listco to engage in any business which is, or is about to be, the same as, or of a type similar to, the business carried on by the Group from time to time or in competition with the Group, in either case save and except in relation to business of the type currently carried out by the PRC Listco.

7. LITIGATION

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

— VI-14 —

GENERAL INFORMATION

APPENDIX VI

8. EXPERTS AND CONSENTS

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

Name

Qualification

BDO McCabe Lo Limited (“BDO”)

Certified Public Accountants

Greater China Appraisal Limited (“GCA”)

Property valuer, chartered surveyor

DTZ Debenham Tie Leung Limited (“DTZ”)

Property valuer, chartered surveyor

廣東正大方略律師事務所 (Guang Dong Fair Strategy Law Firm) (“Fair Strategy”)

PRC legal adviser

Shenyin Wanguo Capital

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

BDO, GCA, DTZ, Fair Strategy and Shenyin Wanguo Capital have given and have not withdrawn their written consents to the issue of this circular with the inclusion therein of their letters or references to their names in the form and context in which they respectively appear.

None of BDO, GCA, DTZ, Fair Strategy and Shenyin Wanguo Capital has any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.

None of BDO, GCA, DTZ, Fair Strategy and Shenyin Wanguo Capital has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group since 31 December 2006 (being the date to which the latest published audited consolidated accounts of the Company were made up), or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

— VI-15 —

GENERAL INFORMATION

APPENDIX VI

9. MISCELLANEOUS

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

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the head office and principal place of business of the Company in Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the memorandum of association and the Bye-laws;
(b) the material contracts referred to in the paragraph headed “Material contracts” in this Appendix;
(c) the annual reports of the Company for the two years ended 31 December 2006;
(d) the letter of advice from Shenyin Wanguo Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 28 to 49 of this circular;
(e) the report of BDO in respect of the unaudited pro forma financial information of the New Group as set out in Appendix IV to this circular;
(f) the valuation reports prepared by GCA and DTZ included in Appendix V to this circular;
(g) the accountants’ report on the Long World Group included in Appendix II to this circular;

— VI-16 —

GENERAL INFORMATION

APPENDIX VI

(h) the accountant’s report on Bright Able, the Loyal Way Group, the Red Empire Group, Allright and the Yue Tian Group included in Appendix III to this circular;
(i) the report of BDO in respect of the unaudited proforma financial information of the Group as enlarged by the acquisitions of the interest in the Westin Project as set out in Appendix III to this circular;
(j) the report of BDO in respect of the unaudited pro forma financial information of the Group as enlarged by the acquisition of Bright Able as set out in Appendix III to this circular;
(k) the written consents referred to under the paragraph headed “Experts and consents” in this Appendix; and
(l) the circulars of the Company dated 4 April 2007 and 17 May 2007.

— VI-17 —

NOTICE OF THE SGM

==> picture [263 x 65] intentionally omitted <==

NOTICE IS HEREBY GIVEN that a special general meeting of Skyfame Realty (Holdings) Limited (the “Company”) will be held at Luk Kwok Hotel, Basement, 72 Gloucester Road, Wanchai, Hong Kong on Wednesday, 18 July 2007 at 10:30 a.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT ,

(i) the sale and purchase agreement dated 28 May 2007 (the “Tianyu 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) entered into between Fine Luck Group Limited (“Fine Luck”), a wholly-owned subsidiary of the Company, as purchaser and Full Ocean Development Inc. (“Full Ocean”) as vendor whereby, inter alia, Fine Luck conditionally agrees to purchase from Full Ocean and Full Ocean conditionally agrees to sell to Fine Luck, the entire issued share capital of Long World Trading Limited at a consideration of HK$196,475,055 (subject to adjustment) and the transactions contemplated thereunder including:
(a) the issue and allotment of 145,537,077 convertible preference shares of HK$0.01 each in the share capital of the Company (the “ Tianyu CPS ”), having the terms and conditions set out in the bye-laws of the Company to Grand Cosmos Holdings Limited, as directed by Full Ocean, for settlement of the consideration;
(b) conditional on the Listing Committee of The Stock Exchange of Hong Kong Limited approving the listing of, and granting permission to deal in, new ordinary shares in the Company to be issued upon exercise of the conversion rights attaching to the Tianyu CPS (“ New Shares ”), the issue and allotment of the New Shares upon exercise of the conversion rights attaching to the Tianyu CPS which New Shares shall, when allotted and issued, rank pari passu in all respect with all other ordinary shares of the Company in issue at the date of the conversion notice,

be and are hereby generally and unconditionally approved in all respects and,

* For identification purposes only

— SGM-1 —

NOTICE OF THE SGM

(ii) the directors of the Company (“Directors”) be and are hereby authorized to do all things and acts and sign all documents which they consider necessary, desirable or expedient in connection with or to implement and/or give effect to the Tianyu Agreement and the transactions contemplated thereunder and to agree to such variation, amendment or waiver as are, in the opinion of the Directors, in the interest of the Company.”

By Order of the Board CHEUNG Lin Shun Company Secretary

Hong Kong, 30 June 2007

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

Notes:

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

— SGM-2 —

AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2007

48939_rns_2007-06-29_46ea3286-50d3-4511-aff5-e45611a0604a.pdf

CONTENTS

DEFINITIONS

“2006 Warrants”

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

INTRODUCTION

LETTER FROM THE BOARD

Tianyu Agreement

Date

Parties

Asset to be acquired

Consideration

Adjustments to consideration

Conditions precedent

Completion

LETTER FROM THE BOARD

UNDERTAKING TO NOTEHOLDERS

INFORMATION ON THE LONG WORLD GROUP

SHAREHOLDING STRUCTURE OF THE LONG WORLD GROUP

Existing structure

Upon completion of the Tianyu Injection

PRINCIPAL TERMS OF THE TIANYU CPS

LETTER FROM THE BOARD

Issue price

EFFECT OF CONVERSION OF THE TIANYU CPS ON THE ISSUED SHARE CAPITAL OF THE COMPANY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE TIANYU INJECTION

LETTER FROM THE BOARD

POSSIBLE CONTINUING CONNECTED TRANSACTIONS

FUND RAISING ACTIVITIES OF THE COMPANY IN THE 12 MONTHS IMMEDIATELY PRECEDING THE LATEST PRACTICABLE DATE

GENERAL

THE SGM

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

RECOMMENDATION

FURTHER INFORMATION

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Shenyin Wanguo Capital (H.K.) Limited

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN LONG WORLD TRADING LIMITED

INTRODUCTION

LETTER FROM SHENYIN WANGUO CAPITAL

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

i. Background

ii. Information on Long World Group

iii. Reasons for the Tianyu Injection

A. Business and strategy of the Group

B. The Tianyu Project

LETTER FROM SHENYIN WANGUO CAPITAL

C. Retail property market in Guangzhou

(a) Economic growth of Guangzhou

iv. Consideration

A. Consideration and terms of payment

B. Adjustments to the Consideration

LETTER FROM SHENYIN WANGUO CAPITAL

C. Evaluation of the Consideration

(a) Net asset value

(b) Price to earnings ratio

v. Financing of the Tianyu Injection

LETTER FROM SHENYIN WANGUO CAPITAL

A. Principal terms of the Tianyu CPS

B. The Issue Price

C. Potential dilution effect

vi. Financial effects of the Completion

A. Net asset value

B. Earnings

C. Working capital

D. Gearing ratio

RECOMMENDATION

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

2. AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006

Greenheart Group Limited Proxy Solicitation & Information Statement 2007