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.

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MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS 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 23 to 24 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 25 to 41 of this circular.

A notice convening the special general meeting of Skyfame Realty (Holdings) Limited to be held at 11:00 a.m. on Friday, 1 June 2007 at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong is set out on pages 42 to 43 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.

17 May 2007

* For identification purposes only

			Page
Definitions . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the	Board	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the	Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		23
Letter from Shenyin Wanguo Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			25
Appendix I	—	Financial information of the Group . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II	—	Financial information of Bright Able
		and the Loyal Way 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Appendix VI	—	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			42

— 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)
“Ace Billion” Ace Billion Investments Limited, a company incorporated in the BVI with limited liability which is wholly-owned by Loyal Way as at the Latest Practicable Date
“Ace Billion Share Charge” a first priority fixed charge in favour of the Security Trustee to be granted by Loyal Way over its 100% interest in Ace Billion, upon Zhoutouzui Acquisition Completion
“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 26 April 2007 made by the Company in relation to, among other things, the Zhoutouzui Acquisition
“associate(s)” the meaning ascribed to it under the Listing Rules “BA Loyal Way Share Charge” a first priority fixed charge in favour of the Security Trustee to be granted by Bright Able over its 49% interest in Loyal Way upon Zhoutouzui Acquisition Completion
“Board” the board of Directors “Bright Able” Bright Able Developments Limited, a company incorporated in BVI with limited liability which is wholly-owned by Poly, which in turn, is wholly-owned by Poly Hong Kong as at the Latest Practicable Date

“Bright Able Sale Debt” HK$268,653,601.91, being the face value of the total principal amount due by Bright Able to Poly on Zhoutouzui Acquisition Completion, which sum is interest free, unsecured and has no fixed repayment date

— 1 —

DEFINITIONS

“Bright Able Sale Share”	one ordinary share of US$1.00 each in the capital of Bright
	Able
“Bright Able Share Charge”	a first priority fixed charge in favour of the Security Trustee
	to be granted by Smartford over its 100% interest in Bright
	Able, upon Zhoutouzui Acquisition Completion
“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
“connected person(s)”	the meaning ascribed to it under the Listing Rules
“controlling shareholder”	the meaning ascribed to it under the Listing Rules
“Consideration”	the total consideration for the purchase of the Bright Able
	Sale Share and the Bright Able Sale Debt
“Directors”	directors of the Company
“Enlarged Group”	the Group (including the Loyal Way Group), Bright Able,
	the Red Empire Group (including the Yue Tian Group) and
	Allright
“Fortunate Start”	Fortunate Start Investments Limited, a company incorporated
	in the BVI with limited liability which is wholly-owned by
	Loyal Way as at the Latest Practicable Date

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DEFINITIONS

“Fortunate Start Share Charge” a first priority fixed charge in favour of the Security Trustee to be granted by Loyal Way over its 100% interest in Fortunate Start, upon Zhoutouzui Acquisition Completion
“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
“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, the Hong Kong party of the PRC Company and is indirectly wholly-owned by Loyal Way as at the Latest Practicable Date
“Guangzhou Zhoutouzui the restructuring of Smartford and its subsidiaries to be Restructuring” implemented after Zhoutouzui Acquisition Completion such that Guangzhou Zhoutouzui will become a direct whollyowned subsidiary of Smartford
“Guangzhou Zhoutouzui a first priority fixed charge in favour of the Security Trustee Share Charge” to be granted by Fortunate Start and Ace Billion over the aggregate 100% interest in Guangzhou Zhoutouzui owned by Fortunate Start and Ace Billion upon Zhoutouzui Acquisition Completion
“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 and one of the PRC parties of the PRC Company
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“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 Zhoutouzui Agreement and the transactions contemplated thereunder

— 3 —

DEFINITIONS

“Independent Shareholders”	Shareholders other than Grand Cosmos, the Purchasers and
	their respective 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
“Land”	the piece of land located at the north of Mayong, the east
	and south of Zhujiang and the west of Hongde Road,
	Zhoutouzui, Haizhu District, Guangzhou City, Guangdong
	Province, the PRC having a site area of approximately
	106,273 square metres
“Latest Practicable Date”	11 May 2007, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Loyal Way”	Loyal Way (China) Group Limited, a company incorporated
	in the BVI with limited liability which is a non-wholly
	owned 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
“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 (including the Loyal Way Group but excluding
	the Red Empire Group and Allright) and Bright Able
“Notes”	unlisted secured convertible notes with an aggregate
	principal amount of US$200 million due 2013 issued on 4
	May 2007 by the Company to the Purchasers or their
	nominee(s) pursuant to the Note Purchase Agreement
“Noteholder(s)”	holder(s) of the Notes

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DEFINITIONS

“Note Purchase Agreement” the note purchase agreement dated 2 March 2007 entered into between Fine Luck Group Limited, Great Elegant Investment Limited, Smartford and Nicco Limited as chargors, the Company, Sharp Bright, Grand Cosmos and the 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. Please also refer to the paragraphs headed “Completion” and “Undertakings” as set out in the letter from the Board of this circular for certain terms of 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
“Post Restructuring Guangzhou a first priority fixed charge in favour of the Security Trustee Zhoutouzui Share Charge” to be granted by Smartford over its 100% direct interest in Guangzhou Zhoutouzui upon completion of the Guangzhou Zhoutouzui Restructuring
“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” 廣州市譽城房地產開發有限公司 (Guangzhou Yucheng Real Estate Development Company Limited), a sino-foreign cooperative joint venture established in the PRC by Yuexiu, GZ Port and Guangzhou Zhoutouzui

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DEFINITIONS

“Purchasers”	the purchasers of the Notes under the Note Purchase
	Agreement, namely DKR SoundShore Oasis Holding Fund
	Ltd., Indopark Holdings Limited, Lehman Brothers
	Commercial Corporation Asia Limited, Merrill Lynch
	International, PMA Investment and Standard Bank Asia
	Limited
“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
“Security Trustee”	The Hongkong and Shanghai Banking Corporation Limited
“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 Friday, 1 June 2007 to consider and if thought fit, to
	approve, among other things, the entering into of the
	Zhoutouzui Agreement and the transactions contemplated
	thereunder
“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
“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
	terms of the Zhoutouzui Acquisition

— 6 —

DEFINITIONS

“Smartford”

Smartford Limited, a company incorporated in the BVI with limited liability and is indirectly wholly-owned by the Company

“Special Committee of Noteholders”

the formal committee of Noteholders to be formed pursuant to the provisions of the trust deed dated 4 May 2007 between the Company, Sharp Bright, Grand Cosmos, the chargors named therein and the Security Trustee

“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 Project”
the property development project situated at 廣州天河區林和中路 136號 (No. 136 Linhe Zhong Road, Tianhe District, Guangzhou), PRC, which comprises the entire second, fifth and sixth floors and Rooms 402-403 of the fourth floor of the commercial podium of 天譽花園第二期 (Tianyu Garden Phase 2), with a site area of approximately 10,111 square metres, and abuts 紫荊花園 (Zijing Garden) on its eastern boundary; 天譽花園第三期 (Tianyu Garden Phase 3) hotel and office project, which is currently under construction, 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
“US$”
United States dollars, the lawful currency of the United States of America

— 7 —

DEFINITIONS

“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 the remaining is the road 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
“Yue Tian” Yue Tian Development Limited, a company incorporated in Hong Kong with limited liability and an indirect whollyowned 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 and one of the PRC parties of the PRC Company
“Zhoutouzui Acquisition”
the proposed acquisition of the Bright Able Sale Share and the Bright Able Sale Debt by Smartford from Poly pursuant to the Zhoutouzui Agreement
“Zhoutouzui Acquisition Completion”
completion of the sale and purchase of the Bright Able Sale Share and the Bright Able Sale Debt in accordance with the terms of the Zhoutouzui Agreement
“Zhoutouzui Acquisition Completion Date”
5 June 2007 or an earlier date as Smartford may by not less than 5 Business Days notice informing Poly after the conditions to the Zhoutouzui Agreement have been fulfilled (or where applicable, waived) or such other date as the parties may agree
“Zhoutouzui Agreement”

the conditional agreement dated 24 April 2007 entered into between Poly and Smartford in relation to the Zhoutouzui Acquisition

— 8 —

DEFINITIONS

“Zhoutouzui Project” the property development project to be carried out on the Land “%” 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.

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LETTER FROM THE BOARD

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Executive Directors: Mr. YU Pan Mr. LAU Yat Tung, Derrick Mr. WONG Lok Mr. 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 17 May 2007

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

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS LIMITED

INTRODUCTION

On 26 April 2007, the Board announced that on 24 April 2007, Poly as the vendor and Smartford as the purchaser entered into the Zhoutouzui Agreement pursuant to which Smartford conditionally agreed to purchase, and Poly conditionally agreed to sell, the Bright Able Sale Share, representing 100% of the total issued share capital of Bright Able, and assign the Bright Able Sale Debt, at an aggregate cash consideration of HK$319,970,502 (subject to adjustment, if any).

The Group is currently interested in 51% of the issued share capital of Loyal Way which was acquired by the Company on 13 October 2006. The Zhoutouzui Acquisition, when aggregated with the acquisition in October 2006, constitutes a major transaction of the Company pursuant to Rule 14.06(3) of the Listing Rules. As Loyal Way is a 51% held subsidiary of the Company and Poly is a substantial shareholder of Loyal Way, Poly is a connected person of the Company under the Listing Rules. The Zhoutouzui Acquisition therefore constitutes a connected transaction for the Company under Rule 14A.13(1)(a) of the Listing Rules.

* For identification purposes only

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LETTER FROM THE BOARD

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

The Zhoutouzui Agreement

Date

24 April 2007

Parties

Vendor: Poly, a wholly-owned subsidiary of Poly Hong Kong, a company incorporated in Hong Kong whose shares are listed on the Stock Exchange. To the best of the Directors’ knowledge, information and belief, Poly is an investment holding company and as at the Latest Practicable Date, neither Poly nor its associates or the substantial shareholders of Poly Hong Kong has any shareholding interest in the Company.

Purchaser: Smartford, an investment holding company indirectly wholly-owned by the Company.

Assets to be acquired or assigned

(a) the Bright Able Sale Share, being the entire issued share capital of Bright Able; and
(b) the Bright Able Sale Debt, representing the face value of the total amount due by Bright Able to Poly on the Zhoutouzui Acquisition Completion Date.

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 subsidiary of Poly, at cost of US$49. As at the Latest Practicable Date, Loyal Way is an indirect 51% held subsidiary of the Company. Upon completion of the Zhoutouzui Acquisition, Bright Able and Loyal Way will become indirect wholly-owned subsidiaries of the Company.

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LETTER FROM THE BOARD

Bright Able had an audited net assets value of approximately HK$38.8 million as at 31 December 2006 and recorded an audited net profit before and after taxation of approximately HK$1.5 million for the year ended 31 December 2006 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 respectively.

For further information on Loyal Way, please refer to the paragraphs headed “Information on Loyal Way” and “Shareholding structure of Bright Able and Loyal Way” below.

The Consideration

The aggregate consideration for the Bright Able Sale Share and the Bright Able Sale Debt is HK$319,970,502 (subject to adjustment, if any) payable in cash, of which the consideration for the Bright Able Sale Debt shall be the face value of the amount of the Bright Able Sale Debt as at the Zhoutouzui Acquisition Completion Date, being HK$268,653,601.91, and the consideration for the Bright Able Sale Share shall be the balance thereof, being HK$51,316,900.09 (subject to adjustment, if any).

The Consideration is arrived at after arm’s length negotiation between the parties to the Zhoutouzui Agreement with reference to the attributable interest of current market value of the Land (including the Zhoutouzui Project) on vacant possession basis (free from any further demolition cost) as at 31 January 2007 of RMB1,000 million net of HK$192.5 million estimated cost of vacating estimated by an independent valuer, Greater China Appraisal Limited, and the face value of the Bright Able Sale Debt on the Zhoutouzui Acquisition Completion Date. As at 31 March 2007, the market value of the Land on vacant possession basis was approximately RMB1,000 million free from any estimated further costs for site clearance as set out in the valuation report included in Appendix V to this circular and the face value of the total amount due by Bright Able to Poly was approximately HK$268.7 million.

A deposit of HK$6,400,000 has been paid to Poly upon signing of the Zhoutouzui Agreement while the remaining balance of the Consideration will be settled by the Company upon the Zhoutouzui Acquisition Completion Date.

Reference is made to the announcement of the Company dated 12 March 2007. As at the Latest Practicable Date, net proceeds of approximately US$192.5 million (or approximately HK$1,503.8 million) were raised by the Company as a result of the issue of the Notes, of which US$92.5 million (or approximately HK$722.6 million) is held in the escrow account for the payment of, among other things, the remaining balance of the Consideration.

Adjustments to consideration

The Consideration is approximately HK$320.0 million. As at 31 March 2007, the Bright Able Sale Debt was approximately HK$268.7 million and the consideration for the Bright Able Sale Share would be approximately HK$51.3 million (of which approximately HK$140.4 million was denominated in form of RMB (the “RMB Portion”)). In the event that there is any difference between the exchange rate of RMB to HK$ of 0.98823 as agreed between the

— 12 —

LETTER FROM THE BOARD

parties to the Zhoutouzui Agreement and the medium exchange rate as published on the website of the People’s Bank of China on the day immediately before the Zhoutouzui Acquisition Completion Date, the Consideration will be adjusted by the difference of the two rates multiplied by the RMB Portion. Based on the medium exchange rate of 0.98225 as published on the website of the People’s Bank of China as at the Latest Practicable Date, the amount of adjustment was approximately HK$0.9 million.

In addition, in the event that balance of all liabilities (other than the Bright Able Sale Debt) of Bright Able as at the Zhoutouzui Acquisition Completion is more than HK$2,000,000 above that disclosed in the relevant unaudited management accounts as at 31 March 2007, the Consideration shall be reduced by an amount equal to such excess on a dollar-for-dollar basis. As at 31 March 2007, Bright Able had no liability other than the Bright Able Sale Debt.

Conditions precedent

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

(a) completion by Smartford of a due diligence review and investigation on Bright Able and Smartford being satisfied with the results thereof;
(b) the representations, warranties and undertakings given by Poly in the Zhoutouzui Agreement being true and correct and not misleading in any material respects as if repeated at all times between the date of the Zhoutouzui Agreement and Zhoutouzui Acquisition Completion and as at Zhoutouzui Acquisition Completion Date by reference to the facts and circumstances then subsisting;
(c) the passing of the necessary resolutions by the Shareholders (or if required, the Independent Shareholders) at the SGM approving the Zhoutouzui Agreement and the transactions contemplated thereunder, in compliance with the Listing Rules;
(d) all necessary statutory, governmental and regulatory consents, authorisations or other approvals and requirements (or, as the case may be, the relevant waiver) of any kind in connection with the entering into and performance of the terms of the Zhoutouzui Agreement and the transactions contemplated thereunder having been obtained and complied with by Poly and/or Poly Hong Kong, including those under the Listing Rules;
(e) the obtaining of all consents from other third parties which are necessary in connection with the execution and performance of the Zhoutouzui Agreement and any of the transactions contemplated under the Zhoutouzui Agreement;
(f) the delivery by Poly to Smartford of the BVI Registered Agent’s certificate confirming that Bright Able has been duly incorporated and is in good standing together with certificates of incumbency certifying the directors and shareholders of Bright Able;

— 13 —

LETTER FROM THE BOARD

(g) the passing of the necessary resolutions by the shareholders (or, if required by the Stock Exchange, the independent shareholders) of Poly Hong Kong approving the Zhoutouzui Agreement and the transactions contemplating thereunder, in compliance with the Listing Rules;
(h) save as disclosed in the unaudited balance sheet as at 31 March 2007 and the unaudited income statements for the period from 1 January 2007 to 31 March 2007 of Bright Able or in writing to Smartford on the date of the Zhoutouzui Agreement, no material adverse change on the financial position, management, business or property, results of operations, legal or financing structure, business prospects or assets or liabilities of Bright Able having occurred between the date of the Zhoutouzui Agreement and Zhoutouzui Acquisition Completion; and
(i) Smartford and/or the Company having obtained sufficient financing for payment of the Consideration on terms reasonably acceptable to Smartford and the Company.

Smartford may at any time in writing waive conditions (a), (b), (f), (h) and (i). Neither Smartford nor Poly may waive conditions (c), (d), (e) and (g).

If any of the above conditions has not been fulfilled (or waived by Smartford except conditions (c), (d), (e) and (g)) by the Zhoutouzui Acquisition Completion Date, or the conditions (b) and (h) do not remain fulfilled on the Zhoutouzui Acquisition Completion Date (unless waived by Smartford), the Zhoutouzui Agreement shall lapse and be terminated as between Smartford and Poly and Poly shall return to Smartford the deposit without interest and thereafter all rights, obligations and liabilities of Smartford and Poly shall cease and determine and neither Smartford nor Poly shall have any claim against the other under the Zhoutouzui Agreement except for antecedent breach. As at the Latest Practicable Date, except for condition (i) which has been fulfilled, 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 of the Zhoutouzui Acquisition shall take place on the Zhoutouzui Acquisition Completion Date.

Pursuant to the Note Purchase Agreement entered into by the Company on 2 March 2007 and as set out in the Company’s announcement dated 12 March 2007 and Company’s circular dated 4 April 2007, as one of the terms of the Notes, automatic redemption of the Notes would be triggered and the Company has to redeem an aggregate of US$75 million principal amount of the Notes held by the Noteholders if (1) the land use rights certificate for a combined site area of the Zhoutouzui Project of not less than 40,000 square metres (with planning permission on design parameters for an above ground gross floor area of not less than 180,000 square metres) not having been issued by the relevant governmental authority in the PRC; and (2) all of the conditions precedent to the Zhoutouzui Agreement not having been

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LETTER FROM THE BOARD

fulfilled or (where applicable) waived by the parties thereunder, on or before 31 December 2007 or such other date as may be agreed between the Company and the Special Committee of the Noteholders, or as may be approved by an extraordinary resolution of the Noteholders if: (a) the Special Committee of the Noteholders has been dissolved or no committee member has been appointed; or (b) approval of the Special Committee of the Noteholders could not be obtained through want of a quorum. For further details, please refer to the Company’s announcement dated 12 March 2007 and Company’s circular dated 4 April 2007. However, as advised by the Company’s PRC legal adviser, the PRC Company does not have any legal impediment in obtaining the land use rights certificate for any portion of the Land of which site clearance is completed.

Undertakings

Under the Note Purchase Agreement, the Company has undertaken to each Purchaser 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 (i) upon Zhoutouzui Acquisition Completion, procure (1) Smartford executes the Bright Able Share Charge, (2) Bright Able executes the BA Loyal Way Share Charge, (3) Loyal Way executes the Fortunate Start Share Charge and the Ace Billion Share Charge, and (4) Fortunate Start and Ace Billion execute the Guangzhou Zhoutouzui Share Charge; and (ii) upon completion of the Guangzhou Zhoutouzui Restructuring, procure that Smartford executes the Post Restructuring Guangzhou Zhoutouzui Share Charge, as further security for the Notes.

Information on Loyal Way

Loyal Way is an investment holding company incorporated in the BVI with limited liability on 6 July 2005 and has not, since its incorporation, carried on any business other than acquisition and holding of its equity interests in the PRC Company through its two wholly-owned subsidiaries, Ace Billion and Fortunate Start. Ace Billion is an investment holding company incorporated in the BVI with limited liability on 12 August 2005. Fortunate Start is an investment holding company incorporated in the BVI with limited liability on 5 August 2005. Each of Ace Billion and Fortunate Start has no operating business other than holding of 10% and 90% interests respectively in the issued share capital of Guangzhou Zhoutouzui which in turn, is the Hong Kong party of the PRC Company.

The PRC Company is a sino-foreign cooperative joint venture enterprise established by Yuexiu, GZ Port and Guangzhou Zhoutouzui on 31 March 2003 in the PRC with a registered capital of US$12 million (equivalent to approximately HK$93.7 million) and has a term of operation for 15 years. Yuexiu and GZ Port contributed the Land for development while Guangzhou Zhoutouzui contributed the entire amount of the registered capital of the PRC Company in cash and bears the cost of site clearance and property development. 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. Pursuant to the sino-foreign cooperative joint venture agreement entered into by the parties on 18 September 2001, (a) Guangzhou Zhoutouzui has paid RMB10

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LETTER FROM THE BOARD

million to Yuexiu as cash compensation and Yuexiu was then no longer entitled to any profit which may be generated by the PRC Company; (b) GZ Port will be entitled to 28% of the total gross floor area of the Zhoutouzui Project upon completion of the proposed development and after which GZ Port will no longer be entitled to any profit which may be generated by the PRC Company; and (c) Guangzhou Zhoutouzui will be entitled to the remaining 72% of the total gross floor area of the Zhoutouzui Project upon completion of the proposed development and the entire profit which may be generated by the PRC Company.

The Land, with a total site area of approximately 106,273 square metres, is located at the north of Mayong, the east and south of Zhujiang and the west of Hongde Road, Zhoutouzui, Haizhu District, Guangzhou City, Guangdong Province, the PRC. Although Yuexiu is currently the registered owner of the Land as at the Latest Practicable Date, the PRC Company is the beneficial owner of the Land pursuant to the sino-foreign cooperative joint venture agreement and, as referred to in the business license (企業法人營業執照 ) of the PRC Company, has the right to use the Land and develop, construct, sale, lease and manage any properties built thereon. As at the Latest Practicable Date, majority portion of the site with an area of approximately 86,000 square metres, being the area where the Zhoutouzui Project comprising the residential, hotel, serviced apartment and commercial complex will be situated, has been vacated and cleared with a total cost paid of approximately RMB389 million (equivalent to approximately HK$389 million). To the best knowledge of the Company, the demolition and vacating cost of the remaining portion of the Land (which is currently occupied by third parties (who are not any parties as set out in the existing shareholding structure of Loyal Way as illustrated below) independent of the Company and connected persons of the Company) is expected to be approximately RMB192.5 million (equivalent to approximately HK$192.5 million), which will be solely payable by Guangzhou Zhoutouzui according to the sinoforeign cooperative joint venture agreement. As at the Latest Practicable Date, the PRC Company is in the process of applying for the land use rights certificate of the Land.

The Zhoutouzui Project principally comprises the development and construction on the Land of luxury high rise residential apartments, serviced-residential apartments, hotel, community center and other ancillary facilities such as retail commercial mall, club house and underground car parks etc., which is expected to generate steady income to the Group from both rental and sale of the properties. Under the existing condition set out in the State-owned Land Use Rights Grant Contract dated 10 September 2003, the maximum gross floor area of the Zhoutouzui Project upon completion would be approximately 212,546 square metres plus basement area of 29,000 square metres. As at the Latest Practicable Date, construction work on the Land has not yet commenced and according to the latest plan and progress, it is expected that the PRC Company will obtain the relevant construction permit for the Zhoutouzui Project in the second half of 2007 and construction of the Zhoutouzui Project will commence thereafter. The pre-sale of the residential properties is expected to commence in the first quarter of 2009 and the construction is expected to be completed and ready for occupation by the first quarter of 2010. As at the Latest Practicable Date, the Company is currently in discussion with potential international hotel management groups regarding the management of the hotel but no agreement has been reached.

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LETTER FROM THE BOARD

The total cost of the Zhoutouzui Project (inclusive of the land title rights and premium paid for the acquisition of the interest of the Land, demolition and settlement charges, development costs, and other related expenses) to the Group is estimated to be approximately RMB2,387 million (equivalent to 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 RMB763 million, bank borrowings of approximately RMB936 million and proceeds from pre-sale of residential units of approximately RMB569 million. Up to the Latest Practicable Date, the total amount of shareholders’ loans in face value recorded by Loyal Way was approximately HK$552 million (which was contributed by the shareholders of Loyal Way on a pro rata basis in accordance to their respective shareholding interests and of which approximately HK$268.6 million was contributed by Bright Able), of which approximately HK$223 million has been utilized for the land title rights and premium paid for the acquisition of the interest of the Land, approximately HK$316 million has been utilized for demolition and settlement charges, and approximately HK$13 million has been utilized for the development costs and other related expenses. Upon Zhoutouzui Acquisition Completion, Loyal Way will become a wholly-owned subsidiary of the Company and any shareholder’s loan to Loyal Way will be financed by the Company solely to support the development of the Zhoutouzui Project. The Company may finance the shareholder’s loan by the net proceeds raised from the issue of the Notes. As at the Latest Practicable Date, Poly has not made any commitment to provide any further shareholder’s loan to Bright Able and Loyal Way.

According to the valuation report prepared by Greater China Appraisal Ltd, an independent professional valuer, as set out in Appendix V to this circular, the market value of the Land on vacant possession basis as at 31 March 2007 was approximately RMB1,000 million (equivalent to approximately HK$1,000 million) free from any estimated further costs for site clearance.

Loyal Way had an audited consolidated net assets value of approximately HK$79.2 million as at 31 December 2006 and recorded an audited consolidated net loss before and after taxation of approximately HK$0.4 million for the year ended 31 December 2006 and approximately HK$0.5 million for the period from 6 July 2005 (being the date of incorporation) to 31 December 2005 respectively, which was mainly attributable to the administrative expenses.

Based on the unaudited pro forma financial information as set out in Appendix IV to this circular, upon completion of the Zhoutouzui Acquisition, the minority interest of approximately HK$45.3 million would be eliminated, the Group’s total assets and total liabilities would be decreased by approximately HK$290.3 million and approximately HK$245.0 million respectively, and the amount of the net assets value of the Group attributable to equity holders of the Company would remain unchanged. Accordingly, there would be no adverse impact on the net assets value attributable to equity holders of the Company upon completion of the Zhoutouzui Acquisition. The details of the financial effect of the Zhoutouzui Acquisition on the assets and liabilities 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.

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LETTER FROM THE BOARD

Shareholding structure of Bright Able and Loyal Way

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

Existing structure

==> picture [214 x 228] intentionally omitted <==

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

Poly Hong Kong (Note 1) The Company
100% 100%
Poly Fine Luck Group
Limited
100% 100%
Bright Able Smartford
49% 51%
Loyal Way
100% 100%
Fortunate Start Ace Billion
90% 10%
Yuexiu GZ Port Guangzhou Zhoutouzui
PRC Company
(Note 2)
----- End of picture text -----

Upon completion of the Zhoutouzui Acquisition

==> picture [215 x 261] intentionally omitted <==

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

The Company
100%
Fine Luck
Group Limited
100%
Smartford
100%
Bright Able
49% 51%
Loyal Way
100% 100%
Fortunate Start Ace Billion
90% 10%
Yuexiu GZ Port Guangzhou Zhoutouzui
PRC Company
(Note 2)
----- End of picture text -----

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LETTER FROM THE BOARD

Notes:

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

Reasons for and benefits of the Zhoutouzui Acquisition

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.

On 13 October 2006, the Company completed the acquisition of 51% shareholding in and shareholders’ loan due by Loyal Way. Since then, Loyal Way has become a non-wholly owned subsidiary of the Company. In light of the Company’s confidence and optimism for the prospects in Guangzhou’s property market and its management expertise in the property development business, the Company considers the Zhoutouzui Project a quality property project which has high earning potential. The Zhoutouzui Acquisition would provide the Company with an opportunity to further acquire an effective interest of 49% in the issued share capital of Loyal Way and upon the Zhoutouzui Acquisition Completion, Loyal Way will become an indirect wholly-owned subsidiary of the Company. Accordingly, the Company will have entire control of Loyal Way, and in turn, the Zhoutouzui Project and the return from the Zhoutouzui Project will be fully consolidated into the results of the Company.

The Company has earmarked part of the net proceeds raised from the issue of the Notes for the Zhoutouzui Acquisition and will therefore finance the remaining balance of the Consideration by the net proceeds raised from the issue of the Notes.

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

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LETTER FROM THE BOARD

GENERAL

Since the Note Purchase Agreement is conditional upon, among other things, the entering into of the Zhoutouzui Agreement, Grand Cosmos (who has given certain undertakings under the Note Purchase Agreement, the Purchasers under the Note Purchase Agreement and their respective associates shall abstain from voting on the resolution to approve the Zhoutouzui Acquisition at the SGM. As at the Latest Practicable Date, to the best knowledge of the Company, Grand Cosmos and its associates controlled 627,791,985 Shares (representing approximately 57.5% of the issued share capital) and certain Purchasers and their respective associates controlled 177,782,000 Shares (representing approximately 16.3% of the issued share capital) respectively whereas Poly and its associates do not hold any shareholding interests in the Company. Should Poly or its associates hold any Shares at the date of the SGM, Poly and its associates will abstain from voting on the resolution to approve the Zhoutouzui Acquisition at the SGM. For further details of the shareholding interest in the Company of Grand Cosmos and the Purchasers, please refer to the paragraph headed “Substantial Shareholders’ interests” in Appendix VI to this circular. To the best knowledge of the Directors after reasonable enquiry, save for the aforesaid, there are no shareholders who have material interests in the Zhoutouzui Agreement and shall abstain from voting on the resolution to approve the Zhoutouzui Acquisition at the SGM.

As completion of the Zhoutouzui Acquisition is subject to the satisfaction and/or waiver of certain conditions precedents and may or may not complete, the Shareholders, 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.

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LETTER FROM THE BOARD

THE SGM

Set out on pages 42 to 43 of this circular is a notice convening the SGM to be held at 11:00 a.m. on Friday, 1 June 2007, at the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong at which resolution will be proposed to the Independent Shareholders to consider and, if thought fit, approve the Zhoutouzui 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.

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

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LETTER FROM THE BOARD

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

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 Zhoutouzui Agreement and the transactions contemplated thereunder.

RECOMMENDATION

The Directors consider the terms of the Zhoutouzui Agreement and the transactions contemplated thereunder are fair and reasonable and the entering into of the Zhoutouzui 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 Zhoutouzui 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 25 to 41 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

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [264 x 65] intentionally omitted <==

17 May 2007

To the Independent Shareholders and,

for information only, holders of the 2006 Warrants

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS LIMITED

We refer to the circular of the Company dated 17 May 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 Zhoutouzui 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 Zhoutouzui 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 25 to 41 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 10 to 22 of the Circular and the additional information set out in the Appendices to the Circular.

* For identification purposes only

— 23 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Zhoutouzui Agreement and the advice of Shenyin Wanguo Capital, we are of the opinion that the terms of the Zhoutouzui 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 Zhoutouzui 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

— 24 —

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 Zhoutouzui Acquisition, 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

17 May 2007

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

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS 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 Zhoutouzui Acquisition. The details of the Zhoutouzui Acquisition are contained in the circular of the Company to the Shareholders dated 17 May 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 24 April 2007, Poly as the vendor and Smartford, an indirect wholly-owned subsidiary of the Company, as the purchaser entered into the Zhoutouzui Agreement pursuant to which Smartford conditionally agreed to purchase, and Poly conditionally agreed to sell, the Bright Able Sale Share, representing 100% of the issued share capital of Bright Able, and assign the Bright Able Sale Debt. Bright Able has not, since its incorporation, carried on any business other than acquisition and holding of 49% interest in Loyal Way. The Group is currently interested in 51% of the issued share capital of Loyal Way which was acquired by the Company on 13 October 2006. The Zhoutouzui Acquisition would provide the Company with an opportunity to further acquire an effective interest of 49% in the issued share capital of Loyal

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LETTER FROM SHENYIN WANGUO CAPITAL

Way. Accordingly, upon completion of the Zhoutouzui Acquisition, the Company will have the entire control of Loyal Way. The Zhoutouzui Acquisition, when aggregated with the acquisition in October 2006, constitutes a major transaction of the Company pursuant to Rule 14.06(3) of the Listing Rules. As Poly is a substantial shareholder of Loyal Way, a nonwholly owned subsidiary of the Company, Poly is a connected person of the Company under the Listing Rules. The Zhoutouzui Acquisition therefore constitutes a connected transaction for the Company under Rule 14A.13(1)(a) of the Listing Rules. Accordingly, completion of the Zhoutouzui Acquisition is subject to, among other things, approval by the Independent Shareholders at the SGM.

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

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 Zhoutouzui Acquisition, 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, Bright Able, Loyal Way Group, the PRC Company and the Zhoutouzui 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.

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LETTER FROM SHENYIN WANGUO CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

i. Background

On 24 April 2007, Smartford, an indirect wholly-owned subsidiary of the Company, as the purchaser and Poly as the vendor entered into the Zhoutouzui Agreement pursuant to which Smartford conditionally agreed to purchase, and Poly conditionally agreed to sell, the Bright Able Sale Share, representing 100% of the issued share capital of Bright Able, and assign the Bright Able Sale Debt, at an aggregate cash consideration of HK$319,970,502 (subject to adjustment, if any).

ii. Information on Bright Able

Bright Able 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. For the shareholding structure of Bright Able and Loyal Way before and after completion of the Zhoutouzui Acquisition, please refer to the paragraph headed “Shareholding structure of Bright Able and Loyal Way” in the letter from the Board of the Circular.

Bright Able had an audited net asset value of approximately HK$38.8 million as at 31 December 2006 and recorded an audited loss attributable to equity holder of approximately HK$0.2 million for the period from 13 October 2005 (being the date of incorporation) to 31 December 2005 and an audited profit attributable to equity holder of approximately HK$1.5 million for the year ended 31 December 2006.

iii. Information on Loyal Way

Loyal Way is an investment holding company incorporated in the BVI with limited liability on 6 July 2005 and has not, since its incorporation, carried on any business other than acquisition and holding of its equity interests in the PRC Company through its two wholly-owned subsidiaries, Ace Billion and Fortunate Start. Each of Ace Billion and Fortunate Start has no operating business other than holding of 10% and 90% interests respectively in the issued share capital of Guangzhou Zhoutouzui which, in turn, is the foreign party of the PRC Company, a sino-foreign cooperative joint venture enterprise holding beneficial interest in the Land on which the Zhoutouzui Project will be carried out. For information on the PRC Company, please refer to the paragraph headed “Information on the PRC Company” below. On 13 October 2006, the Company completed the acquisition of 51% shareholding in and shareholders’ loan due by Loyal Way (the “51% Acquisition”). Since then, Loyal Way has become a non-wholly owned subsidiary of the Company.

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LETTER FROM SHENYIN WANGUO CAPITAL

Loyal Way had an audited consolidated net asset value of approximately HK$79.2 million as at 31 December 2006 and recorded an audited consolidated loss attributable to equity holders of approximately HK$0.5 million and HK$0.4 million for the period from 6 July 2005 (being the date of incorporation) to 31 December 2005 and for the year ended 31 December 2006 respectively. Upon completion of the Zhoutouzui Acquisition, Loyal Way will become an indirect wholly-owned subsidiary of the Company.

iv. Information on the PRC Company

We note from the letter from the Board that the PRC Company is a sino-foreign cooperative joint venture enterprise established by Yuexiu, GZ Port and Guangzhou Zhoutouzui on 31 March 2003 in the PRC with a registered capital of US$12 million (or approximately HK$93.7 million) and has a term of operation of 15 years. Yuexiu and GZ Port contributed the Land for development while Guangzhou Zhoutouzui contributed the entire amount of the registered capital of the PRC Company in cash and bears the cost of site clearance and property development. 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. Pursuant to the sino-foreign cooperative joint venture agreement entered into by the parties on 18 September 2001 (the “JV Agreement”), (i) Guangzhou Zhoutouzui has paid RMB10 million (or approximately HK$10 million) to Yuexiu as cash compensation and Yuexiu was then no longer entitled to any profit which may be generated by the PRC Company; (ii) GZ Port will be entitled to 28% of the gross floor area (“GFA”) of the Zhoutouzui Project upon completion of the proposed development and after which GZ Port will no longer be entitled to any profit which may be generated by the PRC Company; and (iii) Guangzhou Zhoutouzui will be entitled to the remaining 72% of the GFA of the Zhoutouzui Project upon completion of the proposed development and the entire profit which may be generated by the PRC Company.

The Zhoutouzui Project principally comprises the development and construction on the Land of luxury high rise residential apartments, serviced apartments, a hotel tower of approximately 270 rooms, community centre and other ancillary facilities. The permitted GFA of the Zhoutouzui Project upon completion would be approximately 212,546 square metres plus basement area of 29,000 square metres.

v. Reasons for the Zhoutouzui Acquisition

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. The Company, formerly named renren Holdings Limited, was taken control by Mr. YU through Grand Cosmos in December 2004. Leveraging on the experience of

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LETTER FROM SHENYIN WANGUO CAPITAL

Mr. YU and Mr. Derrick Lau, the deputy chairman of the Company, both of whom have substantial property development experience in the PRC, the Group began to diversify into property development and provision of property project management services in 2005. 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 51%, 49% and 100% in the Zhoutouzui Project, the Tianhe Project and the Westin Project respectively. Based on the current plan, the Tianhe Project will comprise a hotel, serviced apartments and parking spaces, and related construction is scheduled for completion in 2010. For information on the Zhoutouzui Project, please refer to the paragraph headed “The Land and the Zhoutouzui Project” below.

As disclosed in the announcement of the Company dated 12 March 2007 (the “March Announcement”) and the circular of the Company dated 4 April 2007 (the “April Circular”), the Group entered into various agreements in respect of the acquisition of 100% interest in the Westin Project comprising a hotel building, namely The Westin, Guangzhou and an annexed office tower with a total GFA of approximately 137,315 square metres (the “Westin Acquisition”). We understand from the Directors that, as at the Latest Practicable Date, construction of The Westin, Guangzhou has been completed. The hotel, 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 disclosed in the announcement of the Company dated 4 May 2007, completion of the Westin Acquisition took place on 4 May 2007.

As confirmed by the Directors, the Group will continue its prudent land reserve strategy and explore more premium grade projects with promising potentials in the PRC especially in Guangzhou, and 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 Zhoutouzui Project, the Company considers the Zhoutouzui Acquisition represents a valuable opportunity to the Company, which allows the Company to expand its property portfolio with premium grade properties. By acquiring the full control of the Zhoutouzui Project, the Directors believe the Company can further strengthen its position as a major player in the premium grade property market in Guangzhou. In addition, the Zhoutouzui Project would enable the Company to earn strong development revenue in the years to come. We are of the view that the Zhoutouzui Acquisition is in line with the business strategy of the Company.

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LETTER FROM SHENYIN WANGUO CAPITAL

B. The Land and the Zhoutouzui Project

(a) The Land

As stated in the letter from the Board, the Land is located at the north of Mayong, the east and south of Zhujiang and the west of Hongde Road, Zhoutouzui, Haizhu District in Guangzhou, the PRC.

We understand from the Directors that the Land is certainly a property with geographic supremacy. The Land is located opposite to the White Swan Hotel on the converging point of the three estuaries of the Pearl River where the Directors consider as a prime site for development of luxury residential and commercial (including hotel tower) buildings. The following map shows the geographical location of the Land.

==> picture [341 x 299] intentionally omitted <==

The total site area of the Land is approximately 106,273 square metres. Pursuant to the JV Agreement, Yuexiu and GZ Port were responsible for contributing the Land for development. However, we note from the letter from the Board that Yuexiu was the registered owner of the Land as at the Latest Practicable Date. According to a letter issued by the Company’s PRC legal advisers, Guang Dong Fair Strategy Law Firm （廣東正大方略律師事務所） (the “PRC Legal Advisers”), pursuant to, among others, the

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LETTER FROM SHENYIN WANGUO CAPITAL

JV Agreement, the articles of association of the PRC Company and an agreement entered into between Yuexiu and the PRC Company on 5 August 2004, Yuexiu is obliged to transfer the legal title of the Land to the PRC Company. The PRC Legal Advisers are of the view that the arrangement to transfer the legal title of the Land from Yuexiu to the PRC Company is in compliance with relevant laws and regulations of the PRC. Furthermore, as referred to in the business license（企業法人營業執照）of the PRC Company, the PRC Company has the right to use the Land and develop, construct, sell, lease and manage any properties built thereon. As at the Latest Practicable Date, majority portion of the site with an area of approximately 86,000 square metres, being the area where the Zhoutouzui Project comprising the residential, serviced apartment, commercial and hotel complex will be situated, has been vacated and cleared with a total cost paid of approximately RMB389 million (or approximately HK$389 million). The remaining portion of the Land is currently occupied by parties (who are not any parties as set out in the existing shareholding structure of Loyal Way as illustrated in the paragraph headed “Shareholding structure of Bright Able and Loyal Way” in the letter from the Board) independent of the Company and connected persons (as defined under the Listing Rules) of the Company. The Directors expect the site clearance cost of the remaining portion of the Land to be approximately RMB192.5 million (or approximately HK$192.5 million), which will be solely payable by Guangzhou Zhoutouzui according to the JV Agreement.

We note from the letter from the Board that as at the Latest Practicable Date, the PRC Company is in the process of applying for the land use rights certificate of the Land. Independent Shareholders need to note that pursuant to the Note Purchase Agreement entered into by the Company on 2 March 2007 and as set out in the March Announcement and the April Circular, as one of the terms of the Notes, automatic redemption of the Notes would be triggered and the Company has to redeem an aggregate of US$75 million (or approximately HK$585.9 million) principal amount of the Notes held by the Noteholders if (i) the land use rights certificate for a combined site area of the Zhoutouzui Project of not less than 40,000 square metres (with planning permission on design parameters for an above ground GFA of not less than 180,000 square metres) not having been issued by the relevant governmental authority in the PRC; and (ii) all of the conditions precedent to the Zhoutouzui Agreement not having been fulfilled or (where applicable) waived by the parties thereunder, on or before 31 December 2007 or such other date as may be agreed between the Company and the Special Committee of the Noteholders, or as may be approved by an extraordinary resolution of the Noteholders if: (a) the Special Committee

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LETTER FROM SHENYIN WANGUO CAPITAL

of the Noteholders has been dissolved or no committee member has been appointed; or (b) approval of the Special Committee of the Noteholders could not be obtained through want of a quorum.

As advised by the Directors, completion of the Zhoutouzui Acquisition is expected to take place on 5 June 2007 or such other date as the parties to the Zhoutouzui Agreement may agree. As confirmed by the Directors, (i) they have not identified any major factor which would have rendered the PRC Company unable to obtain the land use rights certificate of the Land on or before 31 December 2007; and (ii) as advised by the PRC Legal Advisers, the PRC Company does not have any legal impediment in obtaining the land use rights certificate for any portion of the Land of which site clearance is completed. We understand from the Directors that US$92.5 million (or approximately HK$722.6 million) of the net proceeds of the issue of the Notes is held in an escrow account for the payment of, among others, the consideration under the Zhoutouzui Agreement and the acquisition of GZ Port’s entitlement in the Zhoutouzui Project (or for the automatic redemption of the Notes as referred to above) (the “Escrow Account”). As confirmed by the Directors, in the event that the above mentioned automatic redemption of the Notes occurs, the funds held in the Escrow Account shall be applied for such redemption and any shortfall shall be paid by the Company from proceeds to be raised from the sale of the Group’s properties. Given (i) the attractiveness of the location of the Land; (ii) the prospects of the Zhoutouzui Project; and (iii) the readiness of the financing arrangement to meet the funding requirement for the possible automatic redemption of the Notes as discussed above, we consider that the entering into of the Zhoutouzui Agreement is in the interest of the Company and the Independent Shareholders as a whole.

(b) The Zhoutouzui Project

As advised by the Directors, the Zhoutouzui Project principally comprises the development and construction on the Land 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. Under the existing condition set out in the State-owned Land Use Rights Grant Contract dated 10 September 2003, the maximum GFA of the Zhoutouzui Project upon completion would be approximately 212,546 square metres plus basement area of 29,000 square metres. As confirmed by the Directors, it is expected that the total GFA of the luxury residential apartments and serviced apartments will be approximately 171,000 square metres and the hotel will comprise approximately 270 rooms. We understand from the Directors that it is the

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LETTER FROM SHENYIN WANGUO CAPITAL

current intention of the Company to have the hotel managed and operated by an international hotel management group. The Company is currently in discussion with potential international hotel management groups regarding the management of the hotel but as at the Latest Practicable Date, no agreement has been reached.

As at the Latest Practicable Date, construction work on the Land has not yet commenced and according to the latest plan and progress, it is expected that the PRC Company will obtain the relevant construction permit for the Zhoutouzui Project in the second half of 2007 and construction of the Zhoutouzui Project will commence thereafter. As advised by the Directors, the pre-sale of the residential properties is expected to commence in the first quarter of 2009 and the construction is expected to be completed and ready for occupation by the first quarter of 2010.

We consider that the Zhoutouzui Acquisition will provide an opportunity for the Group to expand its property portfolio with premium grade properties and enable the Group to earn development revenue. We concur with the Directors that the Zhoutouzui Acquisition would offer a stable return to the Group.

C. Luxury residential property and serviced apartment markets in Guangzhou

(a) Economic growth of Guangzhou

The PRC economy has been growing with strong momentum during the ten year period from 1996 to 2005, as evidenced by the increase in its gross domestic product (“GDP”) from approximately RMB7,117.7 billion in 1996 to approximately RMB18,308.5 billion in 2005, representing a compound annual growth rate (“CAGR”) of approximately 11.1%. The economic growth rate of Guangzhou, the capital of Guangdong province in the PRC, as expressed by its GDP has exceeded the national growth rate for the ten year period as stated above. Based on the statistics published on the website of Guangzhou Statistics Department, the GDP of Guangzhou during the ten year period from 1996 to 2005 increased from approximately RMB146.8 billion in 1996 to approximately RMB515.4 billion in 2005, representing a CAGR of approximately 15.0%. The GDP of Guangzhou was estimated to reach approximately RMB606.8 billion in 2006, representing an increase of approximately 17.7% from 2005. Strong economic growth has resulted in improvement in the spending power of Guangzhou citizens as shown by the increase in disposable income. Based on the statistics published on the website of Guangzhou Statistics Department, the per capita annual disposable income of urban residents in Guangzhou increased by a CAGR of

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LETTER FROM SHENYIN WANGUO CAPITAL

approximately 7.1% from 1996 to 2005. In 2006, the per capita annual disposable income of urban residents in Guangzhou further increased by 8.6% from that in 2005.

(b) Residential property market of Guangzhou

As referred to in the quarterly research report headed “Greater China Office and Residential Market Overview” issued by Colliers International in April 2007 (the “April Report”), capital values and rentals of luxury residential property market in Guangzhou are expected to rise steadily. Moreover, it is anticipated that average selling prices of luxury residential properties in Guangzhou will increase in the future. As noted in the April Report, there was no new supply of luxury residential units in Guangzhou in the first quarter of 2007. Moreover, the overall vacancy rate is expected to decrease from 11.19% in 2007 to 9.91% in 2008, due to the decrease in the supply of new luxury residential units. We also note from the April Report that serviced apartments managed by internationally well known property management companies will become the focus of the leasing market in Guangzhou in the future.

As a result of the accession of the PRC into the World Trade Organisation in 2000, foreign investors are allowed to participate in more business sectors in the PRC. According to the statistics published on the website of Guangzhou Statistics Department, the number of wholly foreign funded enterprises in Guangzhou increased from 2,620 in 2000 to 4,964 in 2005, representing a CAGR of approximately 13.6%. In view of the accession of the PRC into the World Trade Organisation would offer more business and investment opportunities for different sectors in Guangzhou, the growth in the number of foreign funded enterprises in Guangzhou is expected to continue in the next few years, which may in turn lead to an increase in demand for high quality serviced apartments in Guangzhou.

Given the continuing economic growth in Guangzhou and the positive outlook of luxury residential property and serviced apartment markets in Guangzhou as stated above, we concur with the Directors that the prospects of attracting buyers to purchase the luxury residential units or tenants to lease the available serviced apartments look favourable.

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LETTER FROM SHENYIN WANGUO CAPITAL

D. Tourism and hotel industry in Guangzhou

The statistics published on the website of Guangzhou Statistics Department indicate that the total number of tourists from foreign countries, Hong Kong, Macau and Taiwan visiting Guangzhou reached approximately 5.1 million in 2005, representing an increase of approximately 16.7% from 2004. As advised by the Directors, the prevailing occupancy rate of five-star hotels in the PRC ranges from 70% to 80%. In view of the continuing economic growth in Guangzhou and with Guangzhou hosting the 2010 Asian Games, the growth in business and leisure travellers is expected to increase in the next few years, which may in turn lead to an increase in demand for hotel rooms in Guangzhou.

Having considered that (i) the principal business of the Group includes property development and the Zhoutouzui Acquisition is in line with the Company’s business strategy; (ii) the outlook for the luxury residential property and serviced apartment markets in Guangzhou is in general positive; and (iii) the anticipated increase in demand for hotel rooms in Guangzhou, we are of the view that the Zhoutouzui Agreement is entered into in the ordinary and usual course of the business of the Group, and the Zhoutouzui Acquisition is in the interests of the Company and the Independent Shareholders as a whole.

vi. Consideration

A. Consideration and terms of payment

A deposit of HK$6.4 million has been paid to Poly upon signing of the Zhoutouzui Agreement while the remaining balance of the Consideration will be settled by the Company upon the Zhoutouzui Acquisition Completion Date with the proceeds raised from the issue of the Notes.

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LETTER FROM SHENYIN WANGUO CAPITAL

B. Adjustments to the Consideration

(a) Adjustment in relation to fluctuation in the exchange rate between HK$ and RMB (“Exchange Rate Adjustment”)

We note from the letter from the Board that a portion of the Bright Able Sale Debt is subject to the Exchange Rate Adjustment (the “RMB Portion”). Please refer to the paragraph headed “Adjustments to consideration” in the letter from the Board for details regarding the Exchange Rate Adjustment mechanism.

As the value of the RMB against HK$ may fluctuate, any appreciation/ depreciation of RMB against HK$ would increase/decrease the amount of the Consideration. The Directors consider that the Exchange Rate Adjustment mechanism, which serves to account for the translation difference in respect of the RMB Portion between the exchange rate of RMB to HK$ of 0.98823 as agreed by the parties to the Zhoutouzui Agreement and the medium exchange rate as published on the website of the People’s Bank of China on the day immediately before the Zhoutouzui Acquisition Completion Date, is acceptable and we concur with their view.

(b) Adjustment in relation to the excess of the liabilities of Bright Able

As mentioned in the letter from the Board, in the event that balance of all liabilities (other than the Bright Able Sale Debt) of Bright Able as at the Zhoutouzui Acquisition Completion is more than HK$2 million above that disclosed in the relevant unaudited management accounts as at 31 March 2007, the Consideration shall be reduced by an amount equal to such excess on a dollar-for-dollar basis. As at 31 March 2007, Bright Able had no liability other than the Bright Able Sale Debt.

As advised by the Board, the above adjustment mechanism under the Zhoutouzui Agreement is intended to cover any potential liabilities which may arise between 31 March 2007 and the Zhoutouzui Acquisition Completion Date. The Directors have confirmed that the minimum threshold amount over which the adjustment mechanism will kick in, being HK$2 million, was arrived at after arm’s length negotiations between the parties to the Zhoutouzui 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.

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LETTER FROM SHENYIN WANGUO CAPITAL

C. Evaluation of the Consideration

As confirmed by the Directors, the Consideration was arrived at after arm’s length negotiations between Smartford and Poly with reference to the attributable interest of the current market value of the Land (including the Zhoutouzui Project) on vacant possession basis as at 31 January 2007 of RMB1,000 million (or approximately HK$1,000 million) net of HK$192.5 million estimated cost for site clearance estimated by an independent valuer, Greater China Appraisal Limited (the “Valuer”).

Bright Able is an investment holding company and has not, since its incorporation, carried on any business other than acquisition and holding of 49% interest in Loyal Way. Moreover, Loyal Way is an investment holding company and has not, since its incorporation, carried on any business other than acquisition and holding of its equity interests in the PRC Company which is a project company and has not carried on any business since its establishment other than holding its beneficial interest in the Land. As at the date of the Zhoutouzui Agreement (being 24 April 2007), construction work on the Land has not yet commenced. Accordingly, we consider that using price-earning ratio and price-book ratio analysis to assess the Consideration would be inappropriate.

The market value of the Land on vacant possession basis as at 31 March 2007 was valued by the Valuer at RMB1,000 million (or approximately HK$1,000 million) (the “Valuation Amount”). A copy of the valuation report is set out in Appendix V to the Circular. In assessing the fairness and reasonableness of the basis for determining the Consideration, we have reviewed the valuation report prepared by the Valuer. As referred to in the valuation report, the Zhoutouzui Project is planned to comprise luxury residential apartments , serviced apartments, retail commercial mall, hotel, community centre and car parking spaces. The permitted total GFA upon completion would be 212,546 square metres plus basement area of 29,000 square metres. We also note from the valuation report that the Land is currently undergoing clearance and demolition work. Out of the total site area of 106,273 square metres of the Land, approximately 86,272 square metres of it has been vacated and cleared. The remaining portion of the Land with an area of approximately 20,001 square metres is currently erected with various residential buildings and simple structures and is occupied by existing residents.

We have also discussed with the Valuer the methodology adopted, and the bases and assumptions used in arriving at the market value of the Land as at 31 March 2007. We understand that the Valuer has carried out inspections of the Land 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

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LETTER FROM SHENYIN WANGUO CAPITAL

valuation report, discussions with the Valuer and review of the legal opinion regarding the PRC Company’s interest in the Land provided by the PRC Legal Advisers, we accept the fairness and reasonableness of the methodology adopted and the bases and the assumptions applied by the Valuer in arriving at the valuation of the Land.

We note from the valuation report that the Valuation Amount was free from the estimated further costs for site clearance of HK$192.5 million (the “Estimated Site Clearance Costs”). The attributable interest of 49% of the Valuation Amount net of the Estimated Site Clearance Costs would amount to approximately HK$395.7 million (the “Attributable Land Value”). Therefore, the Consideration, amounting to approximately HK$320.0 million, represents a discount of approximately 19.1% to the Attributable Land Value.

Given that (i) the Consideration was arrived at after arm’s length negotiations between the parties to the Zhoutouzui Agreement; (ii) 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 of the Land on vacant possession basis as at 31 March 2007; and (iii) the Consideration represents a discount of approximately 19.1% to the Attributable Land Value, we consider the Consideration to be fair and reasonable so far as Company and the Independent Shareholders are concerned and is on normal commercial terms.

vii. Project cost of the Zhoutouzui Project

As advised by the Directors, the total project cost of the Zhoutouzui Project to the Group is estimated to be approximately RMB2,387.3 million (or approximately HK$2,387.3 million) comprising:

(a) the Consideration payable for the Zhoutouzui Acquisition amounting to approximately HK$320.0 million. A deposit of HK$6.4 million has been paid upon signing of the Zhoutouzui Agreement. The remaining balance of the Consideration will be financed by the net proceeds from the Notes issue;
(b) consideration for the 51% Acquisition amounting to approximately HK$351.6 million of which approximately HK$288.0 million has been paid. The remaining balance of the consideration of approximately HK$63.6 million will be settled by way of issue of a promissory note to the vendor. We note from an announcement of the Company dated 6 October 2006 that save for the obtaining of the formal land use rights certificate in respect of the Land by the PRC Company (the “Condition”), all of the conditions precedent to the agreement in relation to the 51% Acquisition had been fulfilled or if applicable, waived. As advised by the Directors, the vendor and Smartford entered into a supplemental agreement on 6

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LETTER FROM SHENYIN WANGUO CAPITAL

October 2006 regarding the 51% Acquisition with the effect that (i) completion of the 51% Acquisition took place on 13 October 2006 albeit the Condition had not been fulfilled as of that date; and (ii) the promissory note would be issued within three business days after the obtaining of the formal land use rights certificate in respect of the Land by the PRC Company; and

(c) the balance of the project cost of approximately HK$1,715.7 million is expected to be financed by:
(i) shareholders’ loans to Loyal Way of approximately RMB211.0 million (or approximately HK$211.0 million) to finance the consideration for the acquisition of GZ Port’s entitlement in the Zhoutouzui Project;
(ii) bank borrowings of approximately RMB936.0 million (or approximately HK$936.0 million). As confirmed by the Directors, the Company is currently in negotiation with a bank regarding a facility of US$120 million (or approximately HK$937.4 million) for financing the Zhoutouzui Project; and
(iii) proceeds of approximately RMB568.7 million (or approximately HK$568.7 million) from pre-sale of residential units of the Zhoutouzui Project which is expected to commence in the first quarter of 2009.

As at the Latest Practicable Date, Poly has not made any commitment to provide any further shareholder’s loan to Bright Able and Loyal Way. Upon Zhoutouzui Acquisition Completion, Loyal Way will become a wholly-owned subsidiary of the Company and any shareholder’s loan to Loyal Way will be financed by the Company solely to support the development of the Zhoutouzui Project. As advised by the Directors, the Company will finance the shareholder’s loans to Loyal Way by the net proceeds raised from the issue of the Notes of which US$30 million (or approximately HK$234.4 million) has been earmarked for the acquisition of GZ Port’s entitlement in the Zhoutouzui Project.

viii. Financial effects of completion of the Zhoutouzui Acquisition

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 as set out in Appendix IV to the Circular prepared based on the assumption that the Zhoutouzui Acquisition took place on 31 December 2006 and without taking into account the increase in net assets as a result of completion of the Westin Acquisition and the

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LETTER FROM SHENYIN WANGUO CAPITAL

issue of the Notes, the amount of the unaudited pro forma net asset value of the New Group attributable to equity holders of the Company upon completion of the Zhoutouzui Acquisition remains unchanged. Accordingly, there will be no adverse impact on the net asset value attributable to equity holders of the Company upon completion of the Zhoutouzui Acquisition.

B. Earnings

Upon completion of the Zhoutouzui Acquisition, Bright Able and members of the Loyal Way Group will become indirect wholly-owned subsidiaries of the Company and their respective accounts will be consolidated in the financial statements of the Company.

Loyal Way recorded an audited consolidated loss attributable to equity holders of approximately HK$0.4 million for the year ended 31 December 2006. It is expected that Loyal Way will record revenue when properties under the Zhoutouzui Project are completed and ready for occupation in the first quarter of 2010. In light of the positive outlook of the luxury residential property and serviced apartment markets in Guangzhou and the anticipated increase in demand for hotel rooms in Guangzhou, we concur with the Directors’ view that the Zhoutouzui Acquisition would provide an opportunity for the Group to earn development revenue and build up a recurring income base from its serviced apartment leasing and hotel operations but the quantification of such income will depend on the future performance of the Zhoutouzui Project.

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 as set out in Appendix IV to the Circular prepared based on the assumption that the Zhoutouzui Acquisition took place on 31 December 2006 and without taking into account the increase in working capital as a result of completion of the Westin Acquisition and the issue of the Notes, the amount of unaudited pro forma current liabilities of the New Group remains unchanged when compared to the audited consolidated current liabilities of the Group of approximately HK$5.5 million as at 31 December 2006 whereas its current assets will be decreased by approximately HK$320.0 million. The New Group will have unaudited pro forma net current liabilities of approximately HK$272.2 million upon completion of the Zhoutouzui Acquisition. The decrease in current assets amounting to approximately HK$320.0 million is the result of cash outlay in settling the Consideration which will be financed by the proceeds raised from the issue of the Notes. 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

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LETTER FROM SHENYIN WANGUO CAPITAL

issue of the Notes, the Enlarged Group has sufficient working capital for its ongoing operations in the absence of unforeseeable circumstances. We have discussed with the Directors the assumptions they used in arriving at the operating projection of the existing property development projects of the Group and accept the reasonableness of such assumptions used. Having considered that (i) part of the net proceeds from the issue of the Notes has been earmarked for payment of the Consideration; and (ii) we accept the reasonableness of the assumptions used in arriving at the operating projection of the existing property development projects of the Group, we concur with the Directors’ view that the Enlarged Group has sufficient working capital for its ongoing operations in the absence of unforeseeable circumstances.

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 statement of assets and liabilities of the New Group as set out in Appendix IV to the Circular prepared based on the assumption that the Zhoutouzui Acquisition took place on 31 December 2006 and without taking into account the financial effect of the completion of the Westin Acquisition and the issue of the Notes on the assets and liabilities of the Group, the gearing ratio will decrease to approximately 25.3% for the unaudited pro forma New Group as a result of the completion of the Zhoutouzui Acquisition. As such, there will be no adverse impact on the gearing ratio of the Group upon completion of the Zhoutouzui Acquisition.

RECOMMENDATION

Having considered the principal factors and reasons above, we consider that the Zhoutouzui Acquisition 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 Zhoutouzui Acquisition at the SGM.

Yours faithfully, For and on behalf of

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

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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

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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

	Continuing	operations	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 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	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 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
Property management HK$’000 23,456 12,519 — — — 16,867 784 15 18	Property development HK$’000 —	Unallocated HK$’000 1,728 320	Online operations HK$’000 — — — — — — — — —	Trading and financial advisory HK$’000 — — — — — — — — —	Advertising space leasing and securities holding HK$’000 — — — — — — — — —

	(104 )

	(112 ) 155,203 698,945 50,692
	312,103
	1,916 —

— I-20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

	Continuing	operations	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
Property management HK$’000 4,757 4,190 — 6,498 170 86 — — —	Property development HK$’000 —	Unallocated HK$’000 — — — 78	Online operations HK$’000 450 130 — — — — — — —	Trading and financial advisory HK$’000 — (3,998 ) — — — — 3,431 — 43

	—

	165,807 —
	—
	97 — — —

— 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 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

— I-44 —

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

— I-47 —

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 — — — — — — — —
				— —
				— —
				—

				— —
				— —
				—

				— —
				— —
				—

— I-48 —

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

— I-49 —

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.

— I-50 —

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 —

— I-51 —

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.

— I-52 —

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).

— I-53 —

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.

— I-54 —

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. 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 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.

4. 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 upon the completion of the acquisition of 51% interest in the Zhoutouzui Project in October 2006 and the completion of the acquisition of 100% interest in the Westin Project in May 2007 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 a 51% interest. As set out in the letter from the Board contained in this circular, the Company proposed to acquire the remaining 49% interest in the Zhoutouzui Project. 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 and the project is expected to be completed and ready for occupation by the first quarter of 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 and proceed with the acquisition of the Tianyu Project as and when appropriate.

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-56 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

1. ACCOUNTANTS’ REPORT OF BRIGHT ABLE

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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==> picture [131 x 56] intentionally omitted <==

17 May 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 Bright Able Developments Limited (“Bright Able”) and its interest in an associate for the period from 13 October 2005 (date of incorporation of Bright Able) to 31 December 2005 and the year ended 31 December 2006 (the “Relevant Periods”) for inclusion in the circular of Skyfame Realty (Holdings) Limited (the “Company”) dated 17 May 2007 (the “Circular”) issued in connection with, inter alia, the proposed acquisition of 100% shareholding in and shareholder’s loan due by Bright Able.

Bright Able was incorporated in the British Virgin Islands (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 the 49% equity interest in Loyal Way (China) Group Limited (“Loyal Way”).

— II-1 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

As at the date of this report, Bright Able has direct interest in the following associate.

	Place and date of	Authorised and	Attributable equity
Name of	incorporation and	issued paid-up	interest directly	Principal
associate	kind of legal entity	capital	held by Bright Able	activity
Loyal Way	BVI, 6 July 2005,	Authorised capital of United States	49%	Investment
	incorporated	dollars (“US$”) 50,000 of 50,000		holding
		ordinary shares of US$1 each and
		issued paid-up capital of US$100

No audited financial statements have been prepared for Bright Able since its date of incorporation. We have, however, reviewed all relevant transactions of Bright Able since its date of incorporation and carried out such procedures as we considered necessary for inclusion of the financial information relating to Bright Able.

We have audited the consolidated financial statements of Loyal Way and its subsidiaries and jointly controlled entity for the period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 and the year ended 31 December 2006, which were prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) promulgated by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

For the purpose of this report, the directors of Bright Able have prepared the management accounts of Bright Able for the Relevant Periods in accordance with HKFRSs. We have undertaken an independent audit of the management accounts of Bright Able in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Periods set out in Sections A to C below have been prepared based on the management accounts of Bright Able. We have examined the management accounts of Bright Able and have carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

The preparation of the management accounts of Bright Able is the responsibility of the directors of Bright Able 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.

— II-2 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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 Bright Able as at 31 December 2005 and 2006, and of the results and cash flows of Bright Able for the Relevant Periods.

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

— II-3 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

— II-4 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

— II-5 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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	—	—

— II-6 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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 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

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 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.

— II-7 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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) 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.

— II-8 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

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.

(e) 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.

(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.

— II-9 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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:

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) 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.

— II-10 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

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 31 December 2005 HK$’000 Imputed interest on amount due from associate — 5. Directors’ emoluments	Year ended 31 December 2006 HK$’000 8,526

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.

— II-11 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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

— II-12 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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)

— II-13 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

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.

— II-14 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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.

— II-15 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

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.

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants

Li Yin Fan

Practising Certificate Number: P03113

— II-16 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

2. ACCOUNTANTS’ REPORT OF THE LOYAL WAY GROUP

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

==> picture [89 x 59] intentionally omitted <==

==> picture [131 x 56] intentionally omitted <==

17 May 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 Loyal Way (China) Group Limited (“Loyal Way”) and its subsidiaries and jointly controlled entity (hereinafter collectively referred to as the “Loyal Way Group”) for the period from 6 July 2005 (date of incorporation of Loyal Way) to 31 December 2005 and the year ended 31 December 2006 (the “Relevant Periods”) for inclusion in the circular of Skyfame Realty (Holdings) Limited (the “Company”) dated 17 May 2007 (the “Circular”) issued in connection with, inter alia, the proposed acquisition of 100% shareholding in and shareholder’s loan due by Bright Able Developments Limited.

Loyal Way was incorporated in the British Virgin Islands (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 Guangzhou Zhoutouzui Development Limited (“GZ ZTZ”) through its two wholly-owned subsidiaries, namely Fortunate Start Investments Limited (“Fortunate Start”) and Ace Billion Investments Limited (“Ace Billion”).

— II-17 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

	Place and date	Authorised/	Attributable	Attributable	Attributable
Name of	of incorporation/	registered and	equity
subsidiaries/jointly	establishment and	issued paid-up	interest	held		Principal
controlled entity	kind of legal entity	capital	by Loyal Way			activity
			Direct	Indirect
Fortunate Start	BVI,	Authorised capital of	100%		—	Investment
	5 August 2005,	United States dollars				holding
	incorporated	(“US$”) 50,000 of
		50,000 ordinary shares
		of US$1 each and
		issued paid-up capital
		of US$100
Ace Billion	BVI,	Authorised capital of	100%		—	Investment
	12 August 2005,	US$50,000 of 50,000				holding
	incorporated	ordinary shares of
		US$1 each and issued
		paid-up capital
		of US$100
GZ ZTZ	Hong Kong,	Authorised capital of	—		100%	Investment
	26 August 2002,	Hong Kong dollars				holding
	incorporated	(“HK$”) 10,000 of 10,000
		ordinary shares of HK$1
		each and issued paid-up
		capital of HK$100
廣州市譽城房地產	The People’s	Registered and paid-up	—		100%	Property
開發有限公司	Republic of China	capital of US$12,000,000		(Note)		development
(Guangzhou Yucheng	(the “PRC”),
Real Estate Development	31 March 2003,
Company Limited)	sino-foreign
(“Yucheng”)	cooperative joint
	venture enterprise

— II-18 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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 廣州越秀企業（集團）公司 (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.

No audited financial statements have been prepared for Fortunate Start and Ace Billion since their dates of incorporation as there are no statutory requirements for them to prepare audited financial statements.

We have audited the statutory financial statements of GZ ZTZ for each of the two years ended 31 December 2004 and 2005, which 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 GZ ZTZ have been prepared in respect of any period subsequent to 31 December 2005.

The statutory financial statements of Yucheng 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 深圳大華天誠會計師事務所 (Shenzhen Da Hua Tian Cheng Certified Public Accountants) and 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.

For the purpose of this report, the directors of Loyal Way have prepared the management accounts of the Loyal Way Group and of Loyal Way for the Relevant Periods in accordance with HKFRSs. We have undertaken an independent audit of the management accounts of the Loyal Way Group in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Financial Information and the notes thereto for the Relevant Periods set out in Sections A to C below have been prepared based on the management accounts of the Loyal Way Group. We have examined the management accounts of the Loyal Way Group and have carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

— II-19 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

The preparation of the management accounts of the Loyal Way Group is the responsibility of the directors of Loyal Way 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 Loyal Way Group and of Loyal Way as at 31 December 2005 and 2006, and of the consolidated results and cash flows of the Loyal Way Group for the Relevant Periods.

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)

— II-20 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

— II-21 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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)

— II-22 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

— II-23 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

— II-24 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

— II-25 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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.

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

— II-26 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

(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.

— II-27 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

(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

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.

— II-28 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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 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

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.

— II-29 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

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.

(k) Cash and cash equivalents

(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.

— II-30 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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:

(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.

— II-31 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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.

(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.

— II-32 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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

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.

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.

— II-33 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

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

— II-34 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

— II-35 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

— II-36 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

12. Dividends

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

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

— II-37 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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.

— II-38 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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

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.

— II-39 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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	—	—

— II-40 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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.

— II-41 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

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.

— II-42 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

24. Reserves/(deficits)

Capital
reserve
HK$’000
Loyal Way Group
At 6 July 2005 (date of incorporation
of Loyal Way)
—
Contributions from shareholders
(note 21)
47,107
Exchange differences on translation
of financial statements of foreign
jointly controlled entity
—
Loss for the period
—
At 31 December 2005
47,107
Contributions from shareholders
(note 21)
18,604
Exchange differences on translation
of financial statements of foreign
jointly controlled entity
—
Loss for the year
—
At 31 December 2006
65,711
Loyal Way
At 6 July 2005 (date of incorporation of Loyal Way)
Loss for the period
At 31 December 2005
Loss for the year
At 31 December 2006

Foreign
exchange Accumulated
reserve
losses
Total
HK$’000
HK$’000
HK$’000
—
—
—
—
—
47,107
223
—
223
—
(461)
(461)
223
(461)
46,869
—
—
18,604
14,121
—
14,121
—
(357)
(357)
14,344
(818)
79,237
Accumulated losses
HK$’000
—
(10)
(10)
(6)
(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.

— II-43 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

(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

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

— II-44 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

(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.

Yours faithfully,

BDO McCABE LO LIMITED

Certified Public Accountants

Li Yin Fan

Practising Certificate Number: P03113

— II-45 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

— II-46 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

— II-47 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

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.

— II-48 —

FINANCIAL INFORMATION OF BRIGHT ABLE AND THE LOYAL WAY GROUP

APPENDIX II

Contingent liabilities

Neither Bright Able nor the Loyal Way Group had any contingent liabilities as at respective balance sheet dates.

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.

— II-49 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

BACKGROUND

On 2 March 2007, Great Elegant Investment Limited (“Great Elegant”), a wholly-owned 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 summary of the audited financial information, together with the relevant notes to the accounts, as extracted from the accountants’ report of the Red Empire Group for each of the three years ended 31 December 2006, the accountants’ report of the Yue Tian Group for each of the three years ended 31 December 2006 and the accountants’ report of Allright for the period from 12 November 2004 (date of incorporation) to 31 December 2005 and the year ended 31 December 2006 prepared by BDO McCabe Lo Limited as set out in Appendices II and III of the Company’s circular dated 4 April 2007 and the pro forma financial information of the Group as enlarged by the acquisitions of the interest in the Westin Project extracted from Appendix IV of 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 December 2004 2005 2006 HK$’000 HK$’000 HK$’000 — — — 163 121 407 (2,764) (2,959) (10,219) (2,601) (2,838) (9,812) — (8,068) (1,989) (2,601) (10,906) (11,801) — — — (2,601) (10,906) (11,801) (1,146) (3,582) (479) (1,455) (7,324) (11,322) (2,601) (10,906) (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	Share capital HK$’000 — — — — — — — — — — — — —	Attributable to equity holders of Red Empire Foreign exchange Revaluation Accumulated reserve reserve losses HK$’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

— 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 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.

— III-7 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

(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.

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.

(f) Foreign currencies

— III-8 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

monetary assets and liabilities are similarly recognised immediately in the income statement, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation.

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

(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

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

9. Directors’ emoluments

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 —

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

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.

— 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

	For the year ended 31	For the year ended 31	December
	2004	2005	2006
	HK$’000	HK$’000	HK$’000
Bank interest income	36	120	407

6. Loss from operations

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
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$’000
515
7,606
9,855
—
—
18,825
—
—
14,646
646
535
565
For the year ended 31 December
2004
2005
2006
HK$’000
HK$’000
HK$’000
1,206
1,174
3,425
177
205
379
1,383
1,379
3,804
(1,262)
(1,246)
(3,734)
121
133
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$1 each 24. Reserves	As at 31 December 2004 2005 2006 HK$’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

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 —

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

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.

— III-52 —

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

3. 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-53 —

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-54 —

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

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-55 —

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-56 —

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-57 —

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-58 —

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-59 —

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-60 —

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

	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-61 —

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

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-62 —

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-63 —

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-64 —

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-65 —

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-66 —

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.

— III-67 —

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 ACQUISITIONS OF THE INTEREST IN THE WESTIN PROJECT

Set out below is the pro forma financial information of the Group as enlarged by the acquisitions of the interest in the Westin Project 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 appendix 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-68 —

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-69 —

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-70 —

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-71 —

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

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-72 —

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-73 —

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-74 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

Scenario 2: Completion of the 29% Acquisition

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) Non-current assets Plant and equipment 176 Properties held for development 495,530 Goodwill 135,939 Interest in associate 165,807 257,104 (c) 797,452 Current assets Prepayments, trade and other receivables 403 Cash and cash equivalents 53,990 54,393 Current liabilities Trade, other payables and accruals 4,901 Income tax payable 66 4,967 Net current assets 49,426 Total assets less current liabilities 846,878 ---------------- Non-current liabilities Convertible note 55,087 Financial derivative liabilities — 122,100 (c) Promissory note payable 64,000 Deferred tax liabilities 52,162 Amount due to shareholders 9,849 181,098 Net assets 665,780 Capital and reserves Share capital 9,080 135,004 (c) Reserves 417,754 Total equity attributable to equity holders of the Company 426,834 Minority interests 238,946 Total equity 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-75 —

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-76 —

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

*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-77 —

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-78 —

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-79 —

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.

— III-80 —

FINANCIAL INFORMATION OF COMPANIES ACQUIRED SINCE THE LATEST PUBLISHED AUDITED ACCOUNTS

APPENDIX III

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 (“HKICPA”).

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

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the 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-81 —

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

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-82 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

1. 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.

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)

— IV-1 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

The Group as at 31 December 2006 HK$’000 (Note a) Current liabilities Trade and other payables 5,168 Income tax payable 367 5,535 Net current assets (liabilities) 47,827 Total assets less current liabilities 953,278 -------------- Non-current liabilities Other payable 63,573 Deferred tax liabilities 100,122 Loan from minority shareholder 244,936 Amount due to immediate holding company — 408,631 Net assets 544,647 Capital and reserves Share capital 10,899 Reserves 488,403 Total equity attributable to equity holders of the Company 499,302 Minority interests 45,345 Total equity 544,647	Pro forma adjustments Reverse Elimination Bright Able relating equity of as at to the accounting inter- Pro forma 31 December Zhoutouzui adopted in company consolidation 2006 Acquisition Bright Able balances adjustments HK$’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

— IV-2 —

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 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.

— IV-3 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

2. 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.

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17 May 2007

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

Dear Sirs,

Responsibilities

— IV-4 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

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.

— IV-5 —

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-6 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

APPENDIX IV

3. INDEBTEDNESS

As at the close of business on 31 March 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$647.1 million which were secured by mortgages over the land use rights and the properties held for development of the Enlarged Group and (ii) unsecured amount due to a related company of approximately HK$22.5 million.

In addition, as at 31 March 2007, the Enlarged Group had capital commitments contracted but not provided for in respect of the property development costs of approximately HK$1,180.0 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 31 March 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 31 March 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-7 —

PROPERTY VALUATION

APPENDIX V

The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this circular received from Greater China Appraisal Limited, an independent property valuer, in connection with its valuation as at 31 March 2007 of the Land.

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Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

17 May 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 a parcel of waterfront land located at the north of Mayong, the east and south of Zhujiang, the west of Hongde Road, Zhoutouzui, Haizhu District, Guangzhou City, Guangdong Province, the People’s Republic of China (the “Land”)

In accordance with the instructions from Skyfame Realty (Holdings) Limited (the “Company”), we have undertaken a valuation of the Land situated in the People’s Republic of China (the “PRC”). We confirm that we have carried out inspections of the Land, 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 Land as at 31 March 2007 (the “date of valuation”).

— V-1 —

PROPERTY VALUATION

APPENDIX V

BASIS OF VALUATION

Our valuation of the Land 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”.

TITLESHIP

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

We have also relied upon the legal opinion provided by the PRC legal adviser 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 Land.

VALUATION METHODOLOGY

The Land is 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 Land which is held for future development, we have considered its development or redevelopment potential mentioned herein.

ASSUMPTIONS

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

As the Land is 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 Land for the whole of the unexpired term of the respective land use rights.

— V-2 —

APPENDIX V

PROPERTY VALUATION

We have valued the Land 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 Land. 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 Land at the time being and does not have any real interest in the Land. It is bounded to complete the legal formality for transferring the legal title to the Land to Guangzhou Yucheng Real Estate Development Company Limited in due course (please refer to footnote 6 in the valuation certificate 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 Land valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Land is free from encumbrances, restrictions and outgoings of an onerous nature, which could affect its value. Our valuation have been made on the assumption that the seller sells the Land 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 value of the Land.

We have relied to a very considerable extent on the information given by the Company 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 Land but have assumed that the site areas shown on the documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations.

We have carried out inspections of the Land. 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 Land. 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.

— V-3 —

PROPERTY VALUATION

APPENDIX V

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also sought confirmation from the Company 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 Land, 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 January 2005.

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

Our valuation certificate is 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

APPENDIX V

VALUATION CERTIFICATE

Properties held for future development

Property

Description and tenure

Particulars of occupancy

Market value on vacant possession basis as at 31 March 2007 RMB

A parcel of waterfront land located at the north of Mayong, the east and south of Zhujiang, the west of Hongde Road Zhoutouzui Haizhu District Guangzhou City Guangdong Province The PRC

The Land comprises an irregular-shaped site with a site area of approximately 106,273 square metres

According to a

development plan handed to us by the Group, a composite development accommodating luxury residential, serviced 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 Land is currently undergoing clearance and demolition work. Out of the total site area of 106,273 square metres of the land, approximately 86,272 square metres of it has been vacated and cleared. Remaining portion of the Land is currently erected with various residential buildings and simple structures and is occupied by existing residents.

1,000,000,000 free from the estimated further costs for site clearance (please refer to notes 4 & 5 below)

The land use rights of the Land were granted 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 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.

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 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)

— V-5 —

PROPERTY VALUATION

APPENDIX V

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 Land 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 Land 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 Land attributable to Party C.
As at the valuation date, majority portion of the Land with an area of approximately 86,272 square metres has been vacated and cleared. The remaining portion of the Land 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 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 metres in term of floor area, the cost for vacating the uncleared land portion is estimated at RMB192,500,000 as at the valuation date.

— V-6 —

PROPERTY VALUATION

APPENDIX V

We have been provided with the PRC Legal Opinion, which contains, inter alia, the followings:
(i) The land use rights in the Land which 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 legally 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 Land, which does not have any real interest in the Land and is bounded to complete the legal formality for transferring the legal title to the Land 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 in obtaining Land Use Right Certificate for any portion of the Land of which site clearance is completed.
(iv) Guangzhou Yucheng Real Estate Development Company Limited’s interest in the Land is not subject to any mortgage.
(v) The Construction Land Use Planning Permit dated 8 April 2004 is expiring on June 2007. As there is no undue delay situation existing in the Land, 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

— V-7 —

GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF DIRECTORS’ INTERESTS

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:

(a) 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	927,630,718	84.98%
		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 and 257,103,733 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the convertible preference shares at the conversion ratio of 1 convertible preference share to 1.35 Shares 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 884,895,718 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 1,091,636,656 Shares in issue as at the Latest Practicable Date.

— VI-1 —

GENERAL INFORMATION

APPENDIX VI

(b) 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 1,091,636,656 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-2 —

GENERAL INFORMATION

APPENDIX VI

3. 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:

(a) 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	884,898,718 (long)	81.06%
	corporation	(note 1)
Grand Cosmos	Beneficial owner	884,898,718 (long)	81.06%
		(note 1)
Merrill Lynch	Interests of controlled	1,451,728,718 (long)	132.99%
& Co., Inc.	corporation	(note 2)
Lehman Brothers	Interests of controlled	1,278,190,718 (long)	117.09%
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)	107.57%
	corporation and/or	(note 4)
	parties to an agreement
	under s.317(1)(b)
	and s.318 of the SFO

— VI-3 —

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)	107.57%
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)	107.57%
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)	107.57%
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)	107.57%
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)	107.57%
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)	14.12%
Aktiengesellschaft	security interest
	in shares
PMA Capital	Investment manager	1,176,694,668 (long)	107.79%
	and/or person	(note 5)
	having a security
	interest in shares
PMA Prospect Fund	Beneficial owner	973,951,378 (long)	89.22%
	and/or person	(note 5)
	having a security
	interest in shares

— VI-4 —

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)	10.07%
Strategies Fund		(note 5)
PMA Asian	Beneficial owner	44,128,000 (long)	4.04%
Opportunities Fund		(note 5)
PMA Focus Fund	Investment manager	913,018,558 (long)	83.64%
	and/or person	(note 5)
	having a security
	interest in shares
Mr. Luo Dong	Beneficial owner	88,262,000 (long)	8.09%
Liang		(note 6)
Leader Gain	Beneficial owner	66,666,666 (long)	6.11%
Limited		(note 7)
Ms. Azuma Sarina	Interest of controlled	66,666,666 (long)	6.11%
	corporation	(note 7)

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 and 257,103,733 underlying Shares which would be issued upon exercise in full of the conversion rights attaching to the convertible preference shares at the conversion ratio of 1 convertible preference share to 1.35 Shares 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 884,895,718 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.
These Shares comprise (i) 20,000,000 existing Shares; (ii) 884,895,718 Shares and/or underlying 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

— VI-5 —

GENERAL INFORMATION

APPENDIX VI

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 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 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 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; (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 1,091,636,656 Shares in issue as at the Latest Practicable Date.

(b) Interests in the shares in other member of the Enlarged Group

Name of member of the	Name of	Shareholding
Enlarged Group	substantial shareholder	percentage
Poly Tianyu (Guangzhou)	Absolute Best Limited_(Note 1)_	29%
Limited	Double Treasure Limited_(Note 2)_	10%
	Wise Gain_(Note 3)_	10%

Notes:

Absolute Best Limited is a subsidiary of Poly Hong Kong.
Double Treasure Limited is a fellow subsidiary of Poly Hong Kong.
Wise Gain is wholly owned by Mr. YU.

— VI-6 —

GENERAL INFORMATION

APPENDIX VI

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.

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.

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

Save and except for the counter-indemnity (being material contract no. 6 as referred to below) granted by Mr. YU in favour of the Company and Nicco Limited (“Nicco”) (a wholly-owned subsidiary of the Company) against any of their liabilities under the deed of appointment dated 16 December 2005 between Yaubond Limited, Sunny Billion Holdings Limited, United Prime Limited and the Company and Mr. YU’s undertaking given in the Note Purchase Agreement and his interest in the sale and purchase agreement dated 2 March 2007 made between Wise Gain Investment Limited (“Wise Gain”) and Great Elegant Investment Limited (“Great Elegant”) in respect of the acquisition of 29% effective interest in the Westin Project as set out in the Company’s circular dated 4 April 2007, 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.

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.

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 placing agreement dated 17 May 2005 entered into between the Company and Taifook Securities Company Limited (“Taifook Securities”), an Independent Third

— VI-7 —

GENERAL INFORMATION

APPENDIX VI

Party, pursuant to which the Company appointed Taifook Securities as placing agent of the placing of 1,355,000,000 new shares of HK$0.01 each in the share capital of the Company at the issue price of HK$0.016 per placing share;

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 and 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 (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 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 Limited (“Yaubond”) (an associate of the Company), 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;
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;

— VI-8 —

GENERAL INFORMATION

APPENDIX VI

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 7 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 a debt in the principal sum of HK$82,892,297.96 to Nicco;
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;
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;

— VI-9 —

GENERAL INFORMATION

APPENDIX VI

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 agreement dated 2 March 2007 entered into between Great Elegant Investment Limited (“Great Elegant”) (a wholly-owned subsidiary of the Company), 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) in relation to 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;
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;
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-10 —

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 Group Limited (“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; and
the charge over accounts dated 4 May 2007 executed by the Company in favour of HSBC as security trustee.

The material contracts numbered 22 to 36 are entered into in accordance with the terms of the material contract no. 16.

— VI-11 —

GENERAL INFORMATION

APPENDIX VI

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with 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).

7. 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).

Mr. YU has undertaken to the Company that for so long as he remains as Director or controlling Shareholder, 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 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.

8. LITIGATION

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

— VI-12 —

GENERAL INFORMATION

APPENDIX VI

9. EXPERTS AND CONSENTS

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

Name

Qualification

BDO McCabe Lo Limited (“BDO”)

Greater China Appraisal Limited (“GCA”)

Certified Public Accountants Property valuer, chartered surveyor

廣東正大方略律師事務所

PRC legal adviser

(Guang Dong Fair Strategy Law Firm)

(“Fair Strategy”)

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, 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, 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, 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-13 —

GENERAL INFORMATION

APPENDIX VI

10. 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.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. (except Saturdays and public holidays) at the 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 25 to 41 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 report prepared by GCA included in Appendix V to this circular;
(g) the accountants’ report on Bright Able included in Appendix II to this circular;

— VI-14 —

GENERAL INFORMATION

APPENDIX VI

(h) the accountant’s report on the Loyal Way Group included in Appendix II to this circular;
(i) the accountant’s report on the Red Empire Group, Allright and the Yue Tian Group included in Appendix III to this circular;
(j) the report of BDO in respect of the audited 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;
(k) the written consents referred to under the paragraph headed “Experts and consents” in this Appendix; and
(l) the circular of the Company dated 4 April 2007.

— VI-15 —

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 the office of Strategic Public Relations Group Limited, Room 3203, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong on Friday, 1 June 2007 at 11:00 a.m. for the purpose of considering and, if thought fit, passing with or without modifications, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT ,

(i) the sale and purchase agreement dated 24 April 2007 (the “Zhoutouzui 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 Smartford Limited (“Smartford”), a wholly-owned subsidiary of the Company, as purchaser and CMIC Property (China) Limited (“Poly”) as vendor whereby, inter alia, Smartford conditionally agrees to purchase from Poly and Poly conditionally agrees to sell to Smartford, the entire issued share capital of and certain loans due by Bright Able Developments Limited to Poly at an aggregate consideration of HK$ 319,970,502 (subject to adjustment, if any) and the transactions contemplated thereunder, be and are hereby generally and unconditionally approved in all respects and
(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 Zhoutouzui 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, 17 May 2007

Principal place of business in Hong Kong:

2502B, Tower 1 Admiralty Centre 18 Harcourt Road

Hong Kong

* For identification purposes only

— 42 —

NOTICE OF THE SGM

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.

— 43 —

AI assistant

Greenheart Group Limited — Proxy Solicitation & Information Statement 2007

48939_rns_2007-05-17_a4ee888e-55ea-4ee0-a5de-ef6c752478cb.pdf

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS LIMITED

INTRODUCTION

LETTER FROM THE BOARD

The Zhoutouzui Agreement

Date

Parties

Assets to be acquired or assigned

LETTER FROM THE BOARD

The Consideration

Adjustments to consideration

LETTER FROM THE BOARD

Conditions precedent

Completion

LETTER FROM THE BOARD

Undertakings

Information on Loyal Way

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Shareholding structure of Bright Able and Loyal Way

Existing structure

Upon completion of the Zhoutouzui Acquisition

LETTER FROM THE BOARD

Reasons for and benefits of the Zhoutouzui Acquisition

GENERAL

THE SGM

PROCEDURES BY WHICH A POLL MAY BE DEMANDED

RECOMMENDATION

FURTHER INFORMATION

Skyfame Realty (Holdings) Limited YU Pan

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS LIMITED

Shenyin Wanguo Capital (H.K.) Limited

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF 100% SHAREHOLDING IN AND SHAREHOLDER’S LOAN DUE BY BRIGHT ABLE DEVELOPMENTS LIMITED

INTRODUCTION

LETTER FROM SHENYIN WANGUO CAPITAL

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

i. Background

ii. Information on Bright Able

iii. Information on Loyal Way

iv. Information on the PRC Company

v. Reasons for the Zhoutouzui Acquisition

A. Business and strategy of the Group

LETTER FROM SHENYIN WANGUO CAPITAL

B. The Land and the Zhoutouzui Project

(a) The Land

(b) The Zhoutouzui Project

LETTER FROM SHENYIN WANGUO CAPITAL

C. Luxury residential property and serviced apartment markets in Guangzhou

(b) Residential property market of Guangzhou

D. Tourism and hotel industry in Guangzhou

vi. Consideration

A. Consideration and terms of payment

B. Adjustments to the Consideration

C. Evaluation of the Consideration

LETTER FROM SHENYIN WANGUO CAPITAL

vii. Project cost of the Zhoutouzui Project

viii. Financial effects of completion of the Zhoutouzui Acquisition

A. Net asset value

B. Earnings

C. Working capital

LETTER FROM SHENYIN WANGUO 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

Consolidated Income Statement

Consolidated Balance Sheet

Greenheart Group Limited Proxy Solicitation & Information Statement 2007