Pacific Online Limited — Proxy Solicitation & Information Statement 2005

Dec 23, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Prosperity Investment Holdings Limited , you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker 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 disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 310)

VERY SUBSTANTIAL DISPOSAL RELATING TO DISPOSAL OF THE SALE SHARES AND THE SALE LOAN OF DRAGON FORTUNE LTD.

Financial adviser to the Company

A notice convening a special general meeting of the Company to be held at World Trade Centre Club Hong Kong at 38th Floor, World Trade Centre, 280 Gloucester Road, Causeway Bay, Hong Kong on Tuesday, 10 January 2006 at 10:30 a.m. is set out on page 86 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed therein to the share registrar of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong (with effect from 3 January 2006, the address of Secretaries Limited will be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wan Chai, Hong Kong) as soon as practicable but in any event not later than 48 hours before the time appointed for the holding of the meeting or the adjourned meeting (as the case may be). Completion and return of the form of proxy will not prelude you from attending and voting at the meeting or any adjourned meeting thereof (as the case may be) should you so desire.

23 December 2005

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Sale and Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Information on the parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Financial Information of Dragon Fortune . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Transfer of Corporate Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Financial Effects of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Procedure for demanding a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
APPENDIX I — FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . .	13
APPENDIX II — PRO FORMA FINANCIAL INFORMATION
OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	73
APPENDIX III — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	81
NOTICE OF SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	86

— i —

DEFINITIONS

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

“associate(s)”	has the meaning ascribed under the Listing Rules
“Board”	the board of Directors of the Company
“Business Day”	any day (other than Saturday) on which licensed banks in
	Hong Kong are generally open for business throughout their
	normal business hours
“City Court”	City Court Properties Limited, an investment holding
	company incorporated in the British Virgin Islands with
	limited liability and an indirect wholly-owned subsidiary of
	GRD
“Company”	Prosperity Investment Holdings Limited, a company
	incorporated in Bermuda with limited liability and the Shares
	of which are listed on the Stock Exchange
“Completion”	completion of the Sale and Purchase Agreement in
	accordance with its terms and conditions
“Completion Date”	the third Business Day after all the conditions of the Sale
	and Purchase Agreement are fulfilled
“connected person(s)”	has the meaning ascribed under the Listing Rules
“Consideration”	HK$72 million of the Disposal payable by GRD to Rich
	Profits pursuant to the Sale and Purchase Agreement
“Corporate Guarantees”	corporate guarantees amounted to approximately HK$29.25
	million given by the Company on four banking facilities
	granted to Dragon Fortune Group
“Directors”	the directors (including the independent non-executive
	directors) of the Company
“Disposal”	the disposal of the Sale Shares and the Sale Loan by Rich
	Profits pursuant to the Sale and Purchase Agreement and
	the transfer of Corporate Guarantees by the Company to
	GRD

— 1 —

DEFINITIONS

“Dragon Fortune”	Dragon Fortune Ltd., a company incorporated in the British
	Virgin Islands with limited liability
“Dragon Fortune Group”	Dragon Fortune and its subsidiaries
“GRD”	Golden Resources Development International Limited, a
	company incorporated in Bermuda with limited liability and
	the shares of which are listed on the Stock Exchange
“GRD Board”	the board of directors of GRD
“GRD Group”	GRD and its subsidiaries
“Group”	The Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	The Hong Kong and Special Administrative Region of the
	PRC
“Independent Third Party(ies)”	a person or a company which is/are third party(ies)
	independent of the Company or GRD, and independent of
	the connected person(s) of the Company or GRD
“Latest Practicable Date”	20 December 2005, being the latest practicable date prior to
	the printing of this circular for the purpose of ascertaining
	certain information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“PRC”	the People’s Republic of China
“Rich Profits”	Rich Profits Int’l Limited, an investment holding company
	incorporated in the British Virgin Islands with limited
	liability and an indirect wholly-owned subsidiary of the
	Company
“RMB”	Renminbi, the lawful currency of the PRC

— 2 —

DEFINITIONS

“Sale and Purchase Agreement”	the conditional sale and purchase agreement dated 28
	November 2005 entered into between Rich Profits and City
	Court in respect of the sale and purchase of the Sale Shares
	and the Sale Loan
“Sale Loan”	the sum of HK$48,139,674.25 due and owing by Dragon
	Fortune to Rich Profits which is unsecured and interest-free
	and will be sold and assigned to City Court under the terms
	of the Sale and Purchase Agreement
“Sale Shares”	the 10,421 shares of US$1.00 each in the issued share capital
	of Dragon Fortune, representing approximately 18% of the
	issued share capital of Dragon Fortune under the Sale and
	Purchase Agreement
“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
	and held on Tuesday, 10 January 2006 to consider and, if
	thought fit, approve the Disposal
“Share(s)”	share(s) of a nominal value of HK$0.10 each in the share
	capital of the Company
“Shareholders”	the holder(s) of the Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“US$”	United States dollars, the lawful currency of United States
	of America
“%”	per cent.

— 3 —

LETTER FROM THE BOARD

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 310)

Executive Directors: LAM Wo (Chairman) CHEUK Yuk Lung WONG Kwok Bui, George

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent Non-Executive Directors:

CHAN Siu Wing, Raymond YAN Mou Keung, Ronald CHAN Fai Yue, Leo

Head Office and Principal Place

of Business in Hong Kong: Room A, 11th Floor Fortune House 61 Connaught Road Central Central Hong Kong

23 December 2005

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL RELATING TO DISPOSAL OF THE SALE SHARES AND THE SALE LOAN OF DRAGON FORTUNE LTD.

INTRODUCTION

On 6 December 2005, the Company and GRD jointly announced that Rich Profits, an indirect wholly-owned subsidiary of the Company, and City Court, an indirect wholly-owned subsidiary of GRD, entered into the Sale and Purchase Agreement on 28 November 2005 whereby Rich Profits has agreed to sell and City Court has agreed to acquire (i) the Sale Shares and (ii) the Sale Loan. The Consideration of HK$72 million is payable in cash which comprises the consideration for the Sale Shares of approximately HK$23.86 million and the consideration

— 4 —

LETTER FROM THE BOARD

for the Sale Loan of approximately HK$48.14 million. The Consideration is determined after arm’s length negotiations with reference to the unaudited net assets value of Dragon Fortune according to the unaudited consolidated management accounts of Dragon Fortune as at 30 June 2005 prepared under Hong Kong generally accepted accounting principles and adjusted with the properties revaluation. Such Consideration represents approximately 40.56% discount to the aggregate value of (i) approximately HK$72.98 million, being the attributable interest of approximately 18% of the unaudited consolidated net assets value (net of minority interests) of Dragon Fortune of approximately HK$405.43 million as at 30 June 2005; and (ii) the face value of the Sale Loan of approximately HK$48.14 million. Pursuant to the Sale and Purchase Agreement, the Corporate Guarantees given by the Company will be transferred to GRD upon Completion.

Pursuant to the terms of the Sale and Purchase Agreement, completion of the Disposal is conditional on, amongst other things, the approval by Shareholders at the SGM pursuant to Rule 14.49 of the Listing Rules which will be taken by way of poll. As the GRD Group is a party to the Disposal, GRD and its associate will be abstained from voting in the SGM voluntarily.

The terms of the Sale and Purchase Agreement were determined after arm’s length negotiations and were concluded on normal commercial terms by the Board and the GRD Board respectively. The Board considers that the Disposal and the Consideration (including the terms of the Sale and Purchase Agreement) are fair and reasonable and the Disposal is in the interests of the Company and Shareholders as a whole.

The Disposal constitutes a very substantial disposal of the Company pursuant to Chapter 14 of the Listing Rules. The purpose of this circular is to provide you with further information on the Disposal.

THE SALE AND PURCHASE AGREEMENT

Date: 28 November 2005 Vendor: Rich Profits Purchaser: City Court

Save as the Company holds approximately 5.28% issued share capital of GRD and GRD holds approximately 0.44% issued share capital of the Company, to the best of the knowledge, information and belief of the Board and GRD Board, having made all reasonable enquiries, City Court and their respective associates, together with their ultimate beneficial owners, are third parties independent of the Company and the connected persons of the Company.

— 5 —

LETTER FROM THE BOARD

Sale Shares and Sale Loan

• Sale Shares: the 10,421 shares of US$1.00 each in the issued share capital of Dragon Fortune, representing approximately 18% of the issued share capital of Dragon Fortune

• Sale Loan: the unsecured and interest-free loan of approximately HK$48.14 million advanced by Rich Profits to Dragon Fortune

Consideration

The Consideration is HK$72 million which comprises the consideration for the Sale Shares of approximately HK$23.86 million and the consideration for the Sale Loan of approximately HK$48.14 million. The Consideration is determined after arm’s length negotiations with reference to the unaudited consolidated net assets value of Dragon Fortune according to the unaudited consolidated management accounts of Dragon Fortune as at 30 June 2005 prepared under Hong Kong generally accepted accounting principles and adjusted with the properties revaluation. Such Consideration represents approximately 40.56% discount to the aggregate value of (i) approximately HK$72.98 million, being the attributable interest of approximately 18% of the unaudited consolidated net assets value (net of minority interests) of Dragon Fortune of approximately HK$405.43 million as at 30 June 2005; and (ii) the face value of the Sale Loan of approximately HK$48.14 million. The Consideration and the corresponding discount were determined with reference to the minority stake of only 18% equity interest in Dragon Fortune as represented by the Sale Shares.

Upon Completion, GRD’s shareholding interest in Dragon Fortune will only be aggregate to 28% only. It is not uncommon for a sale of minority stake of a private company at discount since the buyer does not possess the controlling stake in such investment after the acquisition. The terms of the Sale and Purchase Agreement were determined after arm’s length negotiations and were concluded on normal commercial terms by the Board and the GRD Board respectively.

Payment terms

The Consideration will be settled in cash and will be funded by internal resources of GRD. An initial consideration of HK$10 million shall be paid to Rich Profits upon signing of the Sale and Purchase Agreement and the remaining balance of HK$62 million will be payable to Rich Profits within 7 days after the Completion Date. As at the Latest Practicable Date, the initial consideration of HK$10 million has been received by Rich Profits.

— 6 —

LETTER FROM THE BOARD

Conditions

Completion is conditional upon, among others, fulfillment of the below conditions:

• (i) the requisite resolutions being passed by the Shareholders at the SGM in compliance with Rule 14.49 of the Listing Rules which will be taken by way of poll;

• (ii) the transfer of the Sale Shares and the Sale Loan as stated in the Sale and Purchase Agreement have been duly approved in the board meeting of the Company and GRD in compliance with the Listing Rules and/or other relevant rules and/or laws; and

• (iii) all consents of the directors and/or the shareholders of Dragon Fortune and/or Rich Profits and all the procedural requirements which are required for the entering into or the completion of the Sale and Purchase Agreement by Rich Profits or for the performance of its obligations in compliance with the shareholders’ agreement signed between the shareholders of Dragon Fortune have been duly obtained and/or fulfilled.

In the event that any of the conditions will not have been fulfilled within two months after the signing of the Sale and Purchase Agreement (i.e. 27 January 2006), the Sale and Purchase Agreement will be terminated and cease to be of no further effect (other than the costs and expenses incidental to the preparation and execution of the Sale and Purchase Agreement) except that Rich Profits shall within three Business Days refund the sum of HK$10 million to City Court without interest. City Court shall not be obliged to proceed with the Completion until the above conditions are fulfilled. As the GRD Group is a party to the Disposal, GRD and its associate will be abstained from voting in the SGM voluntarily.

Completion

Completion is expected to take place on the third Business Day after all the conditions of the Sale and Purchase Agreement are fulfilled.

Upon completion of the Sale and Purchase Agreement, Dragon Fortune will cease to become an investee company of the Company. Prior to Completion, the Company recorded Dragon Fortune at historical investment cost.

— 7 —

LETTER FROM THE BOARD

INFORMATION ON THE PARTIES

GRD is an investment holding company. Its subsidiaries are principally engaged in sourcing, importing, wholesaling, processing, packaging, marketing, and distribution of rice, as well as warehouse operations, securities investment, property investment and investment holding.

Dragon Fortune is a limited liability company incorporated in the British Virgin Islands on 28 February 1992 with its principal activity as investment holding. The subsidiaries of Dragon Fortune are principally engaged in the operation of a golf club resort in the PRC, namely “Palm Island”, and the development of golf course and real estate in the Palm Island. Set out below is the shareholding structure of Dragon Fortune before and after the Disposal:

Before the Disposal:

==> picture [358 x 123] intentionally omitted <==

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

Independent
City Court Rich Profits
Third Parties
10% 18% 72%
Dragon Fortune
----- End of picture text -----

After the Disposal:

==> picture [239 x 123] intentionally omitted <==

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

Independent
City Court
Third Parties
28% 72%
Dragon Fortune
----- End of picture text -----

Save as Rich Profits and City Court, there are seven shareholders in Dragon Fortune as at the Latest Practicable Date. To the best of the knowledge, information and belief of the Board and the GRD Board, and having made all reasonable enquiries, such shareholders that hold the balance of approximately 72% interests of Dragon Fortune are Independent Third Parties. Disposal of any interests in Dragon Fortune, is subject to among others, all consents of the directors and/or the shareholders of Dragon Fortune or for the performance of the vendors’ obligations in compliance with the shareholders’ agreement signed between the shareholders of Dragon Fortune have been duly obtained and/or fulfilled.

— 8 —

LETTER FROM THE BOARD

FINANCIAL INFORMATION OF DRAGON FORTUNE

According to the unaudited consolidated management accounts of Dragon Fortune as at 30 June 2005, profit before taxation of Dragon Fortune for the year ended 30 June 2005 was approximately HK$6,997,000 (2004: HK$27,637,600) and the net loss after taxation for the year ended 30 June 2005 was approximately HK$273,134 (2004: net profit after taxation of approximately HK$12,619,216). The unaudited consolidated management accounts of Dragon Fortune as at 30 June 2005 were adjusted with the properties revaluation performed by an independent valuer as at 30 June 2005 in order to reflect the fair value of the financial positions of Dragon Fortune. The properties held by Dragon Fortune was stated at historical cost in the financial statements prior to such revaluation. Based on the unaudited consolidated management accounts of Dragon Fortune as at 30 June 2005, the net loss and net assets value (net of minority interests) attributed to the 18% equity interest in Dragon Fortune were approximately HK$49,164 and HK$72.98 million respectively (2004: net profit after taxation of approximately HK$2.27 million and net liability (net of minority interests) of approximately HK$1.83 million).

The following table summarized the financial information of Dragon Fortune and its subsidiaries in the Company:

			The investment of
		18% equity	Dragon Fortune
		interest of	and the Sale Loan
	Dragon Fortune	Dragon Fortune	in the Company
For the year
ended 30 June 2005
Revenue	HK$53.43 million	HK$9.62 million	Nil*
Net loss	HK$273,134	HK$49,164.12	Nil*
As at 30 June 2005
Total assets	HK$1,011.84 million	HK$182.13 million	HK$51.84 million
Net assets value	HK$405.43 million	HK$72.98 million	HK$51.84 million
(net of minority interests)

• The investment in Dragon Fortune is accounted by the Company using the historical cost method.

REASONS FOR THE DISPOSAL

The principal activity of the Company is an investment holding which in turn holds equity or equity-related investments and engages in the provision of management services to the investee companies through its subsidiaries. As at 31 December 2004, the audited consolidated net assets value of the Company was approximately HK$234.62 million (2003: HK$236.93 million).

— 9 —

LETTER FROM THE BOARD

The loss attributable to the Shareholders for the year ended 31 December 2004 was approximately HK$3.78 million (2003: HK$24.78 million). As at 30 June 2005, the audited consolidated net assets value of the Company was approximately HK$243.26 million, the cash and bank balances of the Company were approximately HK$36.17 million and the loss attributable to the Shareholders for the six months ended 30 June 2005 was approximately HK$1.15 million.

The Board considers that the Disposal provide an excellent way to realise the gain in the Sale Shares and to retain a substantial amount of cash for investing in more profitable, highyielding investments which would provide the greatest value to the Shareholders. The Board expects the estimated net proceeds from the Disposal to be approximately HK$71.50 million. The carrying value of approximately 18% interest in Dragon Fortune and the Sale Loan were approximately HK$51.84 million (which represented the historical cost of such investment) and based on the Consideration of HK$72 million, the disposal of Sale Shares and the Sale Loan constitutes a gain of approximately HK$20.16 million from such investment. The Group’s investment objective and policy is to achieve long-term capital appreciation of its assets primarily through equity and equity-related investments, particularly on investments with good growth potential, strong future profitability and good prospects, relative competitive advantage in domestic or international markets, and good management track record. As at the Latest Practicable Date, there is no concrete plans to utilise the net proceeds from the Disposal but it is the intention of the Company to use approximately HK$30 million to HK$60 million to invest in Asian real estate fund or Real Estate Investment Trust Fund. Prior to the identification of any investment opportunities in accordance with the Company’s investment policy, the Company will place the net proceeds on deposit for interest return with financial institutions in Hong Kong.

Based on the audited consolidated financial statements of the Group as at 30 June 2005 in Appendix I of this circular, the Sale Shares with carrying value of approximately HK$3.70 million and the Sale Loan of approximately HK$48.14 million in aggregate are represented approximately 20.19% of the total assets of the Group as at 30 June 2005. No profit or revenue has been attributed to the Group from Dragon Fortune prior to Completion. The Company, being an investment company listed under Chapter 21 of the Listing Rules which is still holding many other investments after the Disposal, shall maintain a sufficient level of operations or have tangible assets of sufficient value and/or intangible assets to warrant the continued listing of the Shares under Rule 13.24 of the Listing Rules.

The Board considers the Disposal is in the interests of the Company and Shareholders as a whole and considers the terms of the Sale and Purchase Agreement and the Consideration are fair and reasonable and in the interests of the Shareholders as a whole.

TRANSFER OF CORPORATE GUARANTEES

Subsequent to the joint announcement dated 6 December 2005, the Company severally provided corporate guarantees for two banking facilities granted to Dragon Fortune Group on 16 December 2005 up to a principal amount of HK$30 million for the purpose of financing the working capital requirements.

— 10 —

LETTER FROM THE BOARD

As at the Latest Practicable Date, four banking facilities of Dragon Fortune Group are severally guaranteed by its shareholders that aggregated to HK$150 million and approximately HK$97 million has been utilised as at the Latest Practicable Date. The proportion of corporate guarantees given by GRD and the Company on the four banking facilities granted to Dragon Fortune Group are approximately HK$16.25 million and HK$29.25 million respectively. Pursuant to the Sale and Purchase Agreement, the Corporate Guarantees given by the Company to Dragon Fortune Group will be transferred to GRD upon Completion and the aggregate amount of corporate guarantees given by GRD on the four banking facilities granted to Dragon Fortune Group would then be approximately HK$45.50 million.

FINANCIAL EFFECTS OF THE DISPOSAL

Based on the “Unaudited pro forma financial information of the Group” in the Appendix II of this circular, upon Completion, the Group would record a gain on Disposal of approximately HK$20.16 million assuming the Disposal had taken place on 1 January 2005. The unaudited pro forma consolidated profit attributable to Shareholders after the Disposal would be approximately HK$19.01 million, assuming the Disposal had taken place on 1 January 2005.

The audited consolidated net assets value of the Group as at 30 June 2005 was approximately HK$243.26 million. Based on the “Unaudited pro forma financial information of the Group” in the Appendix II of this circular, assuming the Disposal had taken place on 30 June 2005, the Group’s unaudited consolidated net assets value upon Completion would be increased to approximately HK$263.42 million, representing an increase of approximately 8.29%, owing to the gain on the Disposal.

Based on the fact that no profit or revenue has been attributed to the Group from Dragon Fortune prior to Completion, and there will be an one-off gain on disposal of approximately HK$20.16 million and an increase of approximately 8.29% on the Group’s consolidate net assets value upon Completion, the Directors believe that the financial effects of the Disposal are positive and the Disposal are in the best interests of the Group and the Shareholders. Based on the above, the Directors consider that the Disposal is fair and reasonable and is in the best interest of the Company and Shareholders.

GENERAL

The Disposal constitutes a very substantial disposal of the Company under Chapter 14 of the Listing Rules.

SGM

A notice convening a SGM to be held at World Trade Centre Club Hong Kong at 38th Floor, World Trade Centre, 280 Gloucester Road, Causeway Bay, Hong Kong on Tuesday, 10 January 2006 at 10:30 a.m. is set out on page 86 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed therein to the share registrar of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre,

— 11 —

LETTER FROM THE BOARD

56 Gloucester Road, Wan Chai, Hong Kong (with effect from 3 January 2006, the address of Secretaries Limited will be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wan Chai, Hong Kong) as soon as practicable but in any event not later than 48 hours before the time appointed for the holding of the meeting or the adjourned meeting (as the case may be). Completion and return of the form of proxy will not prelude you from attending and voting at the meeting or any adjourned meeting thereof (as the case may be) should you so desire.

PROCEDURE FOR DEMANDING A POLL

Pursuant to the Bye-laws of the Company, at any general meeting of Shareholders, a resolution shall be decided on a show of hands unless a poll is demanded by any of the following persons before or on the declaration of the result of a show of hands:

• (1) the chairman of the meeting;

• (2) at least three Shareholders present in person or by proxy and entitled to vote;

• (3) one or more Shareholders in person (or in the case of corporation, by its duly authorised representatives) or by proxy and representing in aggregate not less than one-tenth of the total voting rights of all Shareholders having the right to attend and vote at the meeting; or

• (4) one or more Shareholders (or in the case of corporation, by its duly authorised representatives) or by proxy and holding Shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

RECOMMENDATION

The Board considers that the terms of the Sale and Purchase Agreement are fair and reasonable to the Company and the Disposal is in the interests of the Shareholders as a whole. The purpose of this circular is to give you further information regarding the Sale and Purchase Agreement and to give you notice to convene the SGM to consider and, if thought fit, to approve the Sale and Purchase Agreement. The Board recommends that the Shareholders vote in favour of the ordinary resolution to be proposed at the SGM to approve the Disposal.

FURTHER INFORMATION

Your attention is drawn to the appendices to this circular which contain additional information in relation to the Company.

By order of the Board

PROSPERITY INVESTMENT HOLDINGS LIMITED LAM Wo

Chairman

— 12 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(A) ACCOUNTANTS’ REPORT

The following is the text of the accountants’ report, prepared for the sole purpose of inclusion in this circular from the reporting accountants of the Company, RSM Nelson Wheeler, Certified Public Accountants, Hong Kong.

==> picture [154 x 55] intentionally omitted <==

23 December 2005

The Directors Prosperity Investment Holdings Limited Room A, 11th Floor, Fortune House 61 Connaught Road Central Central Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding Prosperity Investment Holdings Limited (formerly known as “GR Investment International Limited”) (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2002, 2003 and 2004, and the six months ended 30 June 2005 (the “Relevant Periods”) and the comparative financial information of the Group for the six months ended 30 June 2004, for inclusion in the circular of the Company dated 23 December 2005 in connection with the proposed disposal of 18% issued share capital of Dragon Fortune Ltd. (the “Circular”).

The Company was incorporated in Bermuda with limited liability on 15 June 2001 as an exempted Company under the Company Act (1981) of Bermuda and is engaged in investment holding. As at the date of this report, the Company had direct and indirect interests in the principal subsidiaries set out in note 13 below.

All companies comprising the Group have adopted 31 December as their financial year end date.

We have acted as auditors of the Company and all the companies comprising the Group for the two years ended 31 December 2003 and 2004, and the six months ended 30 June 2005 and audited the financial statements in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The auditors of the Group for the year ended 31 December 2002 were HLM & Co., Certified Public Accountants.

— 13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of this report, we have examined the audited consolidated financial statements of the Group for the Relevant Periods 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 consolidated results, cash flows and statements of changes in equity of the Group for the Relevant Periods and the balance sheets and consolidated balance sheets of the Company and the Group, respectively, as at 31 December 2002, 2003, 2004 and 30 June 2005 together with the notes thereon set out in this report (collectively the “Financial Information”) have been prepared based on the consolidated financial statements of the Group in accordance with the accounting principles generally accepted in Hong Kong. The directors of the Company are responsible for preparing the consolidated financial statements of the Group for the Relevant Periods, which give a true and fair view. In preparing the consolidated financial statements for the Relevant Periods, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors of the Company are responsible for the Financial Information. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion.

In our opinion, the Financial Information prepared on the basis as explained above gives, for the purpose of this report, a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2002, 2003, 2004 and 30 June 2005 and of the Group’s results and cash flows for the Relevant Periods.

The comparative income statement, statement of changes in equity and cash flow statement for the six months ended 30 June 2004, together with the notes thereon have been extracted from the unaudited financial information of the Group for the same period (the “Comparative Financial Information”) which was prepared by directors of the Company. We have reviewed the Comparative Financial Information in accordance with Statement of Auditing Standards 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consisted principally of making enquiries of management of the Group and applying analytical procedures to the Comparative Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as test of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the Comparative Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the Comparative Financial Information.

— 14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Income Statements

Note Turnover 5 Other revenue 5 Investment management fees Staff costs Depreciation Bad debts written off Other operating expenses Total operating expenses (Loss)/profit from operations 6 Finance costs 7 Share of net (losses)/profits of associates Share of net (losses)/profits of jointly controlled entities Loss on disposal of a subsidiary Gain on disposal of a jointly controlled entity Gain on disposal of an associate Loss before taxation Taxation 9 Loss attributable to shareholders 10, 29 Loss per share 11	2002 HK$ 3,944,254 1,106,796 5,051,050 (3,499,604) (1,101,614) (87,359) (46,485) (2,280,540) (7,015,602) (1,964,552) (23,331) (5,478,519) (6,115,690) — — — (13,582,092) (1,768,802) (15,350,894) (17.06) cents	Year ended 31 December 2003 2004 HK$ HK$ 2,491,274 2,679,393 1,151,592 2,192,999 3,642,866 4,872,392 (3,549,588) (3,633,413) (964,209) (880,685) (89,210) (77,475) — — (35,614,275) (9,918,956) (40,217,282) (14,510,529) (36,574,416) (9,638,137) (11,593) (1,080,711) 3,171,032 1,765,702 2,554,436 2,924,093 — — 5,583,473 3,050,344 1,719,702 — (23,557,366) (2,978,709) (1,224,499) (805,385) (24,781,865) (3,784,094) (9.00) cents (0.88) cent	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) 1,245,423 1,280,936 523,924 2,752,802 1,769,347 4,033,738 (1,836,796) (1,751,010) (418,568) (231,255) (44,587) — — — (3,302,873) (1,643,610) (5,602,824) (3,625,875) (3,833,477) 407,863 (959,582) (38,169) 1,765,702 — 1,132,963 575,386 — (1,943,920) — — — — (1,894,394) (998,840) (305,900) (155,354) (2,200,294) (1,154,194) (0.51) cent (0.27) cent

— 15 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheets

Note Non-current assets Property, plant and equipment 12 Interests in associates 14 Interests in jointly controlled entities 15 Available-for-sale financial assets 17 Investment securities 18 Held-to-maturity debt securities 19 Other investments 20 Other asset 21 Current assets Available-for-sale financial assets 17 Held-to-maturity debt securities 19 Financial assets at fair value through profit or loss 16 Other investments 20 Other receivables 22 Due from Sinox Fund Management Limited 25 Cash with brokers Cash and bank balances 23, 36 _Less:_Current liabilities Other payables 24 Due to Sinox Fund Management Limited 25 Other borrowing 26 Provision for taxation Net current assets NET ASSETS Capital and reserves Share capital 28 Reserves 29 SHAREHOLDERS’ FUNDS Net asset value per share 31	2002 HK$ 198,797 19,962,530 58,421,732 — 84,978,712 5,040,000 — 150,000 168,751,771 — — — — 35,325,358 — 4,556 42,494,118 77,824,032 13,175,784 2,463,061 — 13,390,053 29,028,898 48,795,134 217,546,905 8,999,000 208,547,905 217,546,905 242 cents	At 31 December 2003 2004 HK$ HK$ 123,904 57,399 19,032,227 17,562,305 31,568,928 27,656,219 — — 98,222,947 84,770,859 — — — 7,800,000 150,000 150,000 149,098,006 137,996,782 — — 5,040,000 — — — — 27,473,668 20,741,917 20,005,238 2,547,897 885,724 190,138 767,841 97,544,558 66,861,770 126,064,510 115,994,241 24,839,426 525,784 — — — 5,460,000 13,390,053 13,390,053 38,229,479 19,375,837 87,835,031 96,618,404 236,933,037 234,615,186 43,195,200 43,195,200 193,737,837 191,419,986 236,933,037 234,615,186 55 cents 54 cents	At 30 June 2005 HK$ — 17,562,305 2,773,428 76,120,501 — — — 150,000
			96,606,234 3,698,235 — 27,298,036 — 92,713,485 236,743 6,867,159 29,304,762
			160,118,420
			74,000 — — 13,390,053
			13,464,053
			146,654,367
			243,260,601
			43,195,200 200,065,401
			243,260,601
			56 cents

— 16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance sheets

Note Non-current assets Interests in subsidiaries 13 Available-for-sale financial assets 17 Investment securities 18 Current assets Financial assets at fair value through profit or loss 16 Other investments 20 Other receivables 22 Due from Sinox Fund Management Limited 25 Bank balances 36 _Less:_Current liabilities Other payables 24 Due to Sinox Fund Management Limited 25 Due to a subsidiary 27 Net current (liabilities)/assets NET ASSETS Capital and reserves Share capital 28 Reserves 29 SHAREHOLDERS’ FUNDS	2002 HK$ 89,990,000 — — 89,990,000 — — 244,237 — — 244,237 68,617 2,463,061 1,726,207 4,257,885 (4,013,648) 85,976,352 8,999,000 76,977,352 85,976,352	At 31 December 2003 2004 HK$ HK$ 89,993,900 89,997,800 — — 13,487,442 11,747,442 103,481,342 101,745,242 — — — 1,740,000 203,737 217,891 2,547,897 885,724 24,217,510 18,419,981 26,969,144 21,263,596 1,050,360 227,000 — — 6,356,310 5,281,319 7,406,670 5,508,319 19,562,474 15,755,277 123,043,816 117,500,519 43,195,200 43,195,200 79,848,616 74,305,319 123,043,816 117,500,519	At 30 June 2005 HK$ 89,997,800 12,666,486 —
			102,664,286 2,700,000 — 74,448 236,743 26,609,137
			29,620,328
			74,000 — 14,878,053
			14,952,053
			14,668,275
			117,332,561
			43,195,200 74,137,361
			117,332,561

— 17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statements of Changes in Equity

Note At 1 January 2002 Loss for the year At 31 December 2002 Shares issued during the year 28 Realisation of exchange fluctuation reserve on disposal of a jointly controlled entity Loss for the year At 31 December 2003 Realisation of exchange fluctuation reserve on disposal of a jointly controlled entity Loss for the year At 31 December 2004 Effect for the adoption of HKFRS 3 2 Effect for the adoption of HKAS 39 2 At 1 January 2005, as restated Realisation of exchange fluctuation reserve on disposal of a subsidiary Increase in fair value of available-for-sale financial assets Loss for the period At 30 June 2005 At 1 January 2004 Loss for the period (unaudited) At 30 June 2004 (unaudited)	Share capital HK$ 8,999,000 — 8,999,000 34,196,200 — — 43,195,200 — — 43,195,200 — — 43,195,200 — — — 43,195,200 43,195,200 — 43,195,200	Share premium HK$ 166,327,220 — 166,327,220 3,237,490 — — 169,564,710 — — 169,564,710 — — 169,564,710 — — — 169,564,710 169,564,710 — 169,564,710		Reserves	Reserves			Total HK$ 232,897,799 (15,350,894) 217,546,905 43,195,200 972,797 (24,781,865) 236,933,037 1,466,243 (3,784,094 ) 234,615,186 — 2,875,205 237,490,391 1,887,093 5,037,311 (1,154,194 ) 243,260,601 236,933,037 (2,200,294 ) 234,732,743
			Capital reserve on consolidation HK$ 468,163 — 468,163 — — — 468,163 — — 468,163 (468,163 ) — — — — — — 468,163 — 468,163	Contributed surplus HK$ 80,991,000 — 80,991,000 5,761,510 — — 86,752,510 — — 86,752,510 — — 86,752,510 — — — 86,752,510 86,752,510 — 86,752,510	Exchange fluctuation reserve HK$ (4,194,214) — (4,194,214) — 972,797 — (3,221,417) 1,466,243 — (1,755,174) — — (1,755,174) 1,887,093 — — 131,919 (3,221,417) — (3,221,417)	Changes in fair value of available- for-sale financial assets HK$ — — — — — — — — — — — 2,280,083 2,280,083 — 5,037,311 — 7,317,394 — — —	Accumulated losses HK$ (19,693,370) (15,350,894) (35,044,264) — — (24,781,865) (59,826,129) — (3,784,094 ) (63,610,223) 468,163 595,122 (62,546,938) — — (1,154,194 ) (63,701,132) (59,826,129) (2,200,294 ) (62,026,423)

— 18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statements

		Year ended 31 December	Year ended 31 December	Year ended 31 December		Six months	ended 30 June
		2002	2003		2004	2004	2005
	Note	HK$	HK$		HK$	HK$	HK$
						(Unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Loss before taxation		(13,582,092)	(23,557,366)	(2,978,709)		(1,894,394)	(998,840)
Adjustments for:
Amortisation of goodwill		365,977	91,494		—	—	—
Depreciation		87,359	89,210	77,475		44,587	—
Dividend income from
investment securities and
other investments/
financial assets		(2,453,015)	(1,970,538)	(2,163,409)		(1,031,592)	(1,163,012)
Gain on disposal of a jointly
controlled entity		—	(5,583,473)	(3,050,344)		—	—
Gain on disposal of an associate		—	(1,719,702)		—	—	—
Loss on disposal of a subsidiary		—	—		—	—	1,943,920
Gain on disposal of investment
securities and other
investments/financial assets		—	(117,749)	(371,389)		(56,997)	(1,091,310)
Interest expenses		—	—	1,066,688		955,689	33,854
Interests in associates written off		—	—	1,407,961		1,407,961	—
Interest income		(548,796)	(615,689)	(1,412,622)		(76,980)	(1,008,560)
Investment income from
held-to-maturity debt securities		(378,000)	(378,000)		—	—	—
Other payable written back		—	(3,817,960)		—	—	—
Property, plant and equipment
written off		966	—		—	—	—
Provision for impairment in
investment securities		—	—	1,470,130		—	—
Provision for impairment of
interests in jointly controlled
entities		—	—	3,600,000		—	223,671
Provision for non-recovery of
amount due from a jointly
controlled entity		—	—	1,199,313		1,199,313	—
Provision for non-recovery
of other loan		—	4,230,135		—	—	—
Provision for non-recovery
of receivable arising from
disposal of interest in a
jointly controlled entity		—	30,680,100		—	—	—
Unrealised losses on financial
assets at fair value through
profit or loss		—	—		—	—	428,514
Share of net losses/(profits)
of associates		5,478,519	(3,171,032)	(1,765,702)		(1,765,702)	—
Share of net losses/(profits)
of jointly controlled entities		6,115,690	(2,554,436)	(2,924,093)		(1,132,963)	(575,386)

— 19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Operating loss before working capital changes (Increase)/decrease in other receivables Decrease/(increase) in amount due from Sinox Fund Management Limited Decrease in amounts due from jointly controlled entities (Increase)/decrease in amounts due from associates (Decrease)/increase in other payables Net cash used in operations Hong Kong tax paid Overseas tax paid Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from jointly controlled entities Dividends received from investment securities and other investments/ financial assets Investment income received from held-to-maturity debt securities Interest received Additions of property, plant and equipment Acquisition of associates Acquisition of investment securities and other investments Acquisition of financial assets at fair value through profit or loss Acquisition of available-for-sale financial assets Loan to an investee company Disposal of a subsidiary 30 Proceeds from sale of interest in an associate Proceeds from sale of interest in a jointly controlled entity Proceeds from sale of investment securities and other investments Proceeds from sale of financial assets at fair value through profit or loss Interest paid Proceeds from redemption of held-to-maturity debt securities	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (4,913,392) (8,395,006) (5,844,701) (4,145,726) (20,326,794) 2,776,679 1,445,850 (5,010,958) 1,662,173 1,710,182 2,403,909 648,519 (1,889,588) (310,168) 1,925,163 (843,834) 15,481,602 (24,313,642) (8,636,508) (16,157,415) (23,145,809) (125,782) — — (192,805) (4,692,348) — (8,955,095) (20,849,763) (23,145,809) 856,269 — 583,585 2,453,015 1,970,538 2,163,409 378,000 378,000 — 548,796 615,689 1,412,622 (2,789) (14,317) (10,970) (135,002) — (97,500) — (13,918,611) (42,937,008) — — — — — — (9,000,000) — — — — — — 5,693,221 — — 37,373,940 4,516,587 — 792,125 20,016,687 — — — — — (1,066,688) — — 3,000,000	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) (2,351,078) (2,207,149) 94,226 443,848 1,107,794 648,981 555,549 — 5,925,163 — (24,708,851) 1,041,972 (19,377,197) (72,348) — — — — (19,377,197) (72,348) 583,585 — 1,031,592 1,163,012 — — 76,980 1,008,560 (10,970) — (97,500) — (25,992,508) — — (15,600,000) — (16,469,156) — — — (1,426,454) — — — — 202,050 — — 5,432,550 (955,689) (33,854) 3,000,000 —

— 20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note Net cash (used in)/generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Other borrowing obtained Repayments of other borrowings Proceeds from issue of shares Net cash generated from/ (used in) financing activities NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT 1 JANUARY CASH AND CASH EQUIVALENTS AT 31 DECEMBER/30 JUNE ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash with brokers Cash and bank balances	Year ended 31 December 2002 2003 2004 HK$ HK$ HK$ (4,901,711) 32,890,585 (12,419,276) — — 16,060,000 — — (10,600,000) — 43,195,200 — — 43,195,200 5,460,000 (13,856,806) 55,236,022 (30,105,085) 56,355,480 42,498,674 97,734,696 42,498,674 97,734,696 67,629,611 4,556 190,138 767,841 42,494,118 97,544,558 66,861,770 42,498,674 97,734,696 67,629,611	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) (22,162,460) (25,925,342) 16,060,000 — — (5,460,000) — — 16,060,000 (5,460,000) (25,479,657) (31,457,690) 97,734,696 67,629,611 72,255,039 36,171,921 214,336 6,867,159 72,040,703 29,304,762 72,255,039 36,171,921

— 21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements

1. General Information

Prosperity Investment Holdings Limited (“The Company”) was incorporated in Bermuda with limited liability on 15 June 2001 as an exempted company under the name of GR Investment International Limited under the Companies Act (1981) of Bermuda. Pursuant to the Company’s special resolution passed on 15 March 2005, the name of the Company was changed to Prosperity Investment Holdings Limited with effect from 15 March 2005. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

The principal activity of the Company is investment holding. The principal activities of its subsidiaries are the holding of equity or equity-related investments and the provision of management services to the investee companies.

2. Basis of Preparation of Financial Statements

The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (the “HKFRSs”, which includes all applicable Hong Kong Accounting Standards (“HKAS”), Statements of Standard Accounting Practice (“SSAP”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and generally accepted accounting principles in Hong Kong.

The financial statements are prepared under the historical cost convention as modified by the revaluation of financial assets at fair value through profit or loss and certain available-for-sale financial assets as further explained in note 3(g).

The adoption of new/revised HKFRSs

In 2005, the Group adopted the new/revised standards and interpretations of HKFRSs below, which are relevant to its operations. The financial information for the years ended 31 December 2002, 2003 and 2004 and for the six months ended 30 June 2004 has been amended as required, in accordance with the relevant requirements.

HKAS 1	Presentation of Financial Statements
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 31	Investments in Joint Ventures
HKAS 32	Financial Instruments: Disclosures and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKFRS 3	Business Combinations

— 22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The adoption of new/revised HKAS 1, 7, 8, 10, 12, 14, 16, 18, 19, 21, 24, 27, 28, 31, 33, 36, 37 and 38 did not result in substantial changes to the Group’s accounting policies. In summary:

• HKAS 1, 8, 28 and 31 has affected certain presentation and disclosures in the financial statements.

• HKAS 7, 10, 12, 14, 16, 18, 19, 27, 33, 36, 37 and 38 had no material effect on the Group’s policies.

• HKAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as the presentation currency for respective entity financial statements.

• HKAS 24 has affected the identification of related parties and some other related-party disclosures.

The adoption of HKAS 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value. The adoption of HKAS 39 resulted in an increase in reserves at 1 January 2005 by HK$2,875,205 and the details of the adjustments to the consolidated balance sheet at 30 June 2005 are as follows:

	At 30 June 2005
	HK$
Increase in available-for-sale financial assets	79,818,736
Decrease in investment securities	101,240,016
Increase in financial assets at fair value through profit or loss	27,298,036
Decrease in other investments	46,797,388
Increase in other receivables	48,139,674
Decrease in accumulated losses	98,352
Increase in changes in fair value of available-for-sale financial assets	7,317,394

The adoption of HKAS 39 resulted in an increase in loss before taxation by HK$428,514 and basic loss per share by 0.10 Hong Kong cent.

The adoption of HKFRS 3 results in a change in the accounting policy for negative goodwill included in capital reserve on consolidation. Until 31 December 2004, negative goodwill was included in the Group’s capital reserve on consolidation. In accordance with the provisions of HKFRS 3 such reserve was derecognised on 1 January 2005, with a corresponding adjustment to the accumulated losses as at 1 January 2005. The adoption of HKFRS 3 resulted in a decrease in accumulated losses and a decrease in capital reserve on consolidation at 1 January 2005 by HK$468,163. There was no impact on the income statement and basic loss per share from the adoption of HKFRS 3.

All changes in the accounting policies have been made in accordance with the transition provisions in the respective standards, wherever applicable. All standards adopted by the Group require retrospective application other than:

• HKAS 39 — does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. The Group applied SSAP 24 “Accounting for investments in securities” to investments in securities and other investments for the years ended 31 December 2002, 2003 and 2004 and the six moths ended 30 June 2004. The adjustments required for the accounting differences between SSAP 24 and HKAS 39 are determined and recognised at 1 January 2005.

— 23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

—

HKAS 16, 21 and HKFRS 3 — prospectively after 1 January 2005.

No early adoption of the following new Standards or Interpretations that have been issued but are not yet effective. The adoption of such Standards or Interpretations will not result in substantial changes to the Group’s accounting policies.

HKAS 1 (Amendment) Presentation of Financial Statements HKAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures HKAS 39 (Amendment) Financial Instruments: Recognition and Measurement HKFRS 4 Insurance Contracts HKFRS 6 Exploration for and Evaluation of Mineral Resources HKFRS 7 Financial Instruments Disclosures HKFRS-Int 4 Determining whether an Arrangement contains a Lease HKFRS-Int 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds HK-Int 4 Leases — Determination of the Length of Lease Term in respect of Hong Kong Land leases

3. Principal Accounting Policies

(a) Revenue recognition

Management fee income is recognised when service is rendered.

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

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December 2002, 2003, 2004 and 30 June 2004 and 2005 respectively. Subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

(c) Subsidiaries

A subsidiary is an entity controlled by the Company. Control exists when the Company has the power, directly or indirectly, 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 or convertible are taken into account.

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

— 24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) Associates

An associate is a company which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control.

The Group’s interests in associates include the Group’s share of the net assets of the associates. The Group’s share of post-acquisition profits or losses of associates is included in the consolidated income statement. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised in the consolidated income statement.

(e) Jointly controlled entities

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

A jointly controlled entities is a corporation, partnership, or other entity in which two or more venturers have an interest, under a contractual arrangement that establishes joint control over the entity. The Group’s interests in jointly controlled entities are accounted for by the equity method. The Group’s interests in jointly controlled entities include the Group’s share of the net assets of the jointly controlled entities. The Group’s share of post-acquisition profits or losses of jointly controlled entities is included in the consolidated income statement.

Unrealised profits and losses resulting from transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entity, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised in the consolidated income statement.

(f) Capital reserve or goodwill on consolidation

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of an acquired subsidiary, associate, or jointly controlled entity at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates or jointly controlled entities is included in interests in associates or jointly controlled entities.

Negative goodwill arising on acquisition of subsidiaries, associates or jointly-controlled entities represents the excess of the Group’s share of the fair values of the net identifiable assets acquired as at the date of acquisition, over the cost of the acquisition.

From 1 January 2002 to 31 December 2004:

Goodwill arising on acquisition is amortised over twenty years from initial recognition in order to reflect the best estimate of the period during which future economic benefits are expected to flow to the Group. The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. Negative goodwill arising on acquisition is credited to capital reserve on consolidation in the year of acquisition and is not recognised in the consolidated income statement until disposal or impairment of the acquired business.

— 25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

On disposal of subsidiaries, jointly controlled entities or associates, the gain or loss on disposal is calculated by reference to the net assets or share of net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised, negative goodwill which has not been recognised in the consolidated income statement and any relevant consolidated reserves as appropriate.

From 1 January 2005 onwards:

Goodwill arising on acquisition is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Negative goodwill is recognised directly in the consolidated income statement at the date of acquisition.

(g) Investments

From 1 January 2002 to 31 December 2004:

The Group classified its investments in securities, other than subsidiaries, associates and jointly controlled entities, as investment securities and other investments.

(i) Investment securities

Held-to-maturity debt securities are stated at amortised costs less any impairment loss recognised to reflect irrecoverable amounts.

Investment securities include the Group’s equity interest in companies in which the Group has no significant influence on their financial and operating decisions and which are intended to be held on a continuing basis for an identified long-term purpose. Investment securities are stated at cost less impairment losses, if any.

The carrying amounts of individual investment securities are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such investment securities is reduced to its fair value. The amount of reduction is recognised as an expense in the consolidated income statement. The reduction is written back to consolidated income statement when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

• (ii) Other investments

Securities not classified as held-to-maturity debt securities nor as investment securities are classified as other investments. Other investments are carried at fair value. At each balance sheet date the net unrealised gains or losses arising from the changes in fair value of other investments are recognised in the consolidated income statement. Profits or losses on disposal of other investments, representing the difference between the net sales proceeds and the carrying amounts are recognised in the consolidated income statement as they arise.

Other investments which are intended to be held on a long term basis are classified as non-current assets while those which are held for trading purposes are classified as current assets.

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

From 1 January 2005 onwards:

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.

(i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in other receivables in the balance sheet (note 22) .

(iii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date, or without specific plan and schedule of disposal.

Purchases and sales of investments are recognised on settlement date — the date that an asset is delivered to or by the Group. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets with reliably measured fair value and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Available-for-sale financial assets which are unquoted equity securities are stated at cost. Realised and unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are included in the consolidated income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of quoted securities classified as

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the consolidated income statement as gains or losses from investments securities.

The fair values of quoted investments are based on published closing prices at balance sheet dates. The fair value of embedded derivatives are based on the prices reported by the counter party who issued the embedded derivatives.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the consolidated income statement — is removed from equity and recognised in the consolidated income statement. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

(h) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any.

Property, plant and equipment are depreciated at rates sufficient to write off their costs over their estimated useful lives on a straight line basis. The principal annual rates are as follows:

Office equipment	20%
Computer equipment	20%
Motor vehicle	20%

Major costs incurred in restoring property, plant and equipment to their normal working condition are charged to the consolidated income statement. Improvements are capitalised and depreciated over their expected useful lives to the Group.

The gain or loss on disposal or retirement of a property, plant and equipment recognised in the consolidated income statement is the difference between the net sales proceeds and the carrying amount of the relevant asset.

(i) Club membership

Club membership is stated at cost less impairment losses, if any. The carrying amount of individual club membership is reviewed at each balance sheet date to assess whether the fair value has declined below the carrying amount. When a decline other than temporary has occurred, the carrying amount of such club membership is reduced to its fair value. The amount of the reduction is recognised as an expense in the consolidated income statement.

(j)

Cash and cash equivalents

Cash and cash equivalents represent cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term highly liquid investments which are readily convertible into known amounts of cash and subject to an insignificant risk of change in value, having been within three months of maturity, at acquisition. For the purpose of the

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

consolidated cash flow statement, bank overdrafts, if any, which are repayable on demand and form an integral part of an enterprise’s cash management are also included as a component of cash and cash equivalents.

(k) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals applicable to such operating leases are charged to the consolidated income statement on a straight line basis over the lease term.

(l) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the consolidated income statement.

(m) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

(ii) Transactions and balances

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

Translation differences on non-monetary items, such as equity instruments held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation difference on non-monetary items, such as equity instruments classified as available-for-sale financial assets, are included as reserve in equity.

(iii) Group companies

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

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

—

• income and expenses for each consolidated income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• all resulting exchange differences are recognised as a separate component of equity.

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

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

(n) Employee benefits

Obligations for contributions to defined contribution retirement plans, including contributions payable under the Hong Kong Mandatory Provident Fund Schemes Ordinance, are recognised as expenses in the consolidated income statement as incurred.

Pursuant to the People’s Republic of China (“PRC”) laws and regulations, contributions to the retirement benefit scheme for the staff of the Company’s subsidiary operating in the PRC are to be made monthly to a government agency at a certain percentage of the basic salaries of the employees. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The contributions are charged to the consolidated income statement as they become payable.

(o) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

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 is remote. Possible obligations, whose existence 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 is remote.

(p) Taxation

The charge for taxation is based on the results for the year/period as adjusted for items which are non-assessable or disallowable. Hong Kong profits tax is provided at the rate prevailing for the year/period based on the assessable profit for the year/period less allowable losses, if any, brought forward.

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred taxation is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred taxation is provided on temporary differences arising on investments in subsidiaries, associates and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred taxation is charged or credited to the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

(q) Borrowing costs

All borrowing costs are charged to the consolidated income statement in the year/period in which they are incurred.

(r) Events after the balance sheet date

Post-year-end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate are adjusting events and are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.

(s)

Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

— 31 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Segmental Information

In accordance with the Group’s financial reporting, the Group has determined that the business segments be presented as the primary reporting format and geographical segments as the secondary reporting format.

An analysis of the Group’s turnover and operating (loss)/profit by business segment and turnover and capital expenditure by geographical segment for the Relevant Periods is as follows:

By business segment: Management fees from jointly controlled entities Dividend income from investment securities and other investments/ financial assets Finance costs Share of net (losses)/ profits of associates Share of net (losses)/profits of jointly controlled entities Loss on disposal of a subsidiary Gain on disposal of a jointly controlled entity Gain on disposal of an associate Loss before taxation Total assets (unallocated) Total liabilities (unallocated) Other segment information: Capital expenditure Depreciation Amortisation of goodwill Provision for doubtful debts Provision for impairment loss Interests in associates written off Property, plant and equipment written off	2002 HK$ 1,491,239 2,453,015	Turnover Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 520,736 515,984 213,831 117,924 1,970,538 2,163,409 1,031,592 1,163,012 2,491,274 2,679,393 1,245,423 1,280,936	Turnover Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 520,736 515,984 213,831 117,924 1,970,538 2,163,409 1,031,592 1,163,012 2,491,274 2,679,393 1,245,423 1,280,936	Turnover Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 520,736 515,984 213,831 117,924 1,970,538 2,163,409 1,031,592 1,163,012 2,491,274 2,679,393 1,245,423 1,280,936	Turnover Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 520,736 515,984 213,831 117,924 1,970,538 2,163,409 1,031,592 1,163,012 2,491,274 2,679,393 1,245,423 1,280,936	Operating (loss)/profit Year ended Six months ended 31 December 30 June 2002 2003 2004 2004 2005 HK$ HK$ HK$ HK$ HK$ (Unaudited) (4,417,567 ) (38,544,954 ) (11,801,546 ) (4,865,069 ) (755,149 ) 2,453,015 1,970,538 2,163,409 1,031,592 1,163,012 (1,964,552 ) (36,574,416 ) (9,638,137 ) (3,833,477 ) 407,863 (23,331 ) (11,593 ) (1,080,711 ) (959,582 ) (38,169 ) (5,478,519 ) 3,171,032 1,765,702 1,765,702 — (6,115,690 ) 2,554,436 2,924,093 1,132,963 575,386 — — — — (1,943,920 ) — 5,583,473 3,050,344 — — — 1,719,702 — — — (13,582,092 ) (23,557,366 ) (2,978,709 ) (1,894,394 ) (998,840 ) 246,575,803 275,162,516 253,991,023 256,724,654 29,028,898 38,229,479 19,375,837 13,464,053 2,789 14,317 10,970 10,970 — 87,359 89,210 77,475 44,587 — 365,977 91,494 — — — — 34,910,235 1,199,313 1,199,313 — — — 5,070,130 — 223,671 — — 1,407,961 1,407,961 — 966 — — — —	Operating (loss)/profit Year ended Six months ended 31 December 30 June 2002 2003 2004 2004 2005 HK$ HK$ HK$ HK$ HK$ (Unaudited) (4,417,567 ) (38,544,954 ) (11,801,546 ) (4,865,069 ) (755,149 ) 2,453,015 1,970,538 2,163,409 1,031,592 1,163,012 (1,964,552 ) (36,574,416 ) (9,638,137 ) (3,833,477 ) 407,863 (23,331 ) (11,593 ) (1,080,711 ) (959,582 ) (38,169 ) (5,478,519 ) 3,171,032 1,765,702 1,765,702 — (6,115,690 ) 2,554,436 2,924,093 1,132,963 575,386 — — — — (1,943,920 ) — 5,583,473 3,050,344 — — — 1,719,702 — — — (13,582,092 ) (23,557,366 ) (2,978,709 ) (1,894,394 ) (998,840 ) 246,575,803 275,162,516 253,991,023 256,724,654 29,028,898 38,229,479 19,375,837 13,464,053 2,789 14,317 10,970 10,970 — 87,359 89,210 77,475 44,587 — 365,977 91,494 — — — — 34,910,235 1,199,313 1,199,313 — — — 5,070,130 — 223,671 — — 1,407,961 1,407,961 — 966 — — — —	Operating (loss)/profit Year ended Six months ended 31 December 30 June 2002 2003 2004 2004 2005 HK$ HK$ HK$ HK$ HK$ (Unaudited) (4,417,567 ) (38,544,954 ) (11,801,546 ) (4,865,069 ) (755,149 ) 2,453,015 1,970,538 2,163,409 1,031,592 1,163,012 (1,964,552 ) (36,574,416 ) (9,638,137 ) (3,833,477 ) 407,863 (23,331 ) (11,593 ) (1,080,711 ) (959,582 ) (38,169 ) (5,478,519 ) 3,171,032 1,765,702 1,765,702 — (6,115,690 ) 2,554,436 2,924,093 1,132,963 575,386 — — — — (1,943,920 ) — 5,583,473 3,050,344 — — — 1,719,702 — — — (13,582,092 ) (23,557,366 ) (2,978,709 ) (1,894,394 ) (998,840 ) 246,575,803 275,162,516 253,991,023 256,724,654 29,028,898 38,229,479 19,375,837 13,464,053 2,789 14,317 10,970 10,970 — 87,359 89,210 77,475 44,587 — 365,977 91,494 — — — — 34,910,235 1,199,313 1,199,313 — — — 5,070,130 — 223,671 — — 1,407,961 1,407,961 — 966 — — — —	Operating (loss)/profit Year ended Six months ended 31 December 30 June 2002 2003 2004 2004 2005 HK$ HK$ HK$ HK$ HK$ (Unaudited) (4,417,567 ) (38,544,954 ) (11,801,546 ) (4,865,069 ) (755,149 ) 2,453,015 1,970,538 2,163,409 1,031,592 1,163,012 (1,964,552 ) (36,574,416 ) (9,638,137 ) (3,833,477 ) 407,863 (23,331 ) (11,593 ) (1,080,711 ) (959,582 ) (38,169 ) (5,478,519 ) 3,171,032 1,765,702 1,765,702 — (6,115,690 ) 2,554,436 2,924,093 1,132,963 575,386 — — — — (1,943,920 ) — 5,583,473 3,050,344 — — — 1,719,702 — — — (13,582,092 ) (23,557,366 ) (2,978,709 ) (1,894,394 ) (998,840 ) 246,575,803 275,162,516 253,991,023 256,724,654 29,028,898 38,229,479 19,375,837 13,464,053 2,789 14,317 10,970 10,970 — 87,359 89,210 77,475 44,587 — 365,977 91,494 — — — — 34,910,235 1,199,313 1,199,313 — — — 5,070,130 — 223,671 — — 1,407,961 1,407,961 — 966 — — — —
	3,944,254	2,491,274	2,679,393	1,245,423	1,280,936
						246,575,803	275,162,516	253,991,023	10,970
						29,028,898	38,229,479	19,375,837
						2,789	14,317	10,970
						87,359	89,210	77,475	44,587
						365,977	91,494	—	—
						—	34,910,235	1,199,313	1,199,313
						—	—	5,070,130	—
						—	—	1,407,961	1,407,961
						966	—	—	—

— 32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Given the nature of the Group’s operations is investment holding, segment assets and segment liabilities are unallocated.

By geographical segment: Hong Kong The PRC The PRC	2002 HK$ 2,453,015 1,491,239 3,944,254 2002 HK$ 2,789	Turnover Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 1,970,538 2,163,409 1,031,592 1,163,012 520,736 515,984 213,831 117,924 2,491,274 2,679,393 1,245,423 1,280,936 Capital expenditure Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 14,317 10,970 10,970 —

Given the nature of the Group’s operations is investment holding and the way in which costs are allocated, it is not considered meaningful to provide geographical analysis of operating loss and segment assets.

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Turnover and other Revenue

Turnover Management fees from jointly controlled entities Dividend income from investment securities and other investments/ financial assets Other revenue Interest on bank deposits Investment income from held-to-maturity debt securities Gain on disposal of investment securities and other investments/ financial assets Other income Total revenue	2002 HK$ 1,491,239 2,453,015 3,944,254 548,796 378,000 — 180,000 1,106,796 5,051,050	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 520,736 515,984 213,831 117,924 1,970,538 2,163,409 1,031,592 1,163,012 2,491,274 2,679,393 1,245,423 1,280,936 615,689 1,412,622 76,980 1,008,560 378,000 — — — 117,749 371,389 56,997 1,091,310 40,154 408,988 389,947 652,932 1,151,592 2,192,999 523,924 2,752,802 3,642,866 4,872,392 1,769,347 4,033,738	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 520,736 515,984 213,831 117,924 1,970,538 2,163,409 1,031,592 1,163,012 2,491,274 2,679,393 1,245,423 1,280,936 615,689 1,412,622 76,980 1,008,560 378,000 — — — 117,749 371,389 56,997 1,091,310 40,154 408,988 389,947 652,932 1,151,592 2,192,999 523,924 2,752,802 3,642,866 4,872,392 1,769,347 4,033,738
			1,280,936
			1,008,560 — 1,091,310 652,932
			2,752,802
			4,033,738

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. (Loss)/Profit from Operations

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

Amortisation of goodwill Auditors’ remuneration Depreciation Operating lease payments on land and buildings Property, plant and equipment written off Provision for non-recovery of other loan Provision for non-recovery of amount due from a jointly controlled entity Interests in associates written off Provision for non-recovery of receivable arising from disposal of interest in a jointly controlled entity Provision for impairment of interests in jointly controlled entities Provision for impairment in investment securities Unrealised losses on financial assets at fair value through profit or loss Exchange losses/(gains), net Retirement benefit cost 7. Finance Costs Bank charges Interest on other borrowing wholly repayable within five years Interest on amount due to a related company	2002 HK$ 365,977 180,000 87,359 258,101 966 — — — — — — — — 133,595 2002 HK$ 23,331 — — 23,331	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 91,494 — — — 180,000 180,000 10,091 200,000 89,210 77,475 44,587 — 246,816 281,479 7,035 2,250 — — — — 4,230,135 — — — — 1,199,313 1,199,313 — — 1,407,961 1,407,961 — 30,680,100 — — — — 3,600,000 — 223,671 — 1,470,130 — — — — — 428,514 16,215 (443,024) (365,297) (19,056) 114,807 83,631 45,354 14,161 Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) 11,593 14,023 3,893 4,315 — 138,189 27,190 33,854 — 928,499 928,499 — 11,593 1,080,711 959,582 38,169

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Directors’ and Senior Management’s Emoluments

(a) Directors’ emoluments

The aggregate amounts of fees payable to directors of the Company during the Relevant Periods are as follows:

Fees: Executive directors Non-executive directors Other emoluments Retirement benefits scheme contributions: Executive directors Non-executive directors	2002 HK$ 320,000 100,000 — — — 420,000	Year ended 31 December 2003 2004 HK$ HK$ 160,000 140,000 100,000 115,000 — — — 1,500 — — 260,000 256,500	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) 80,000 60,000 50,000 80,000 — — — 3,000 — — 130,000 143,000

Emoluments breakdown of each of the directors for the year ended 31 December 2002:

Executive directors Lam Sai Ho, Anthony Leung Chi Keung Lo Wai Mei Non-executive directors Yan Mou Keung, Ronald Chan Fai Yue, Leo	Retirement benefits Directors’ scheme fees contributions HK$ HK$ 240,000 — 40,000 — 40,000 — 320,000 — 60,000 — 40,000 — 100,000 — 420,000 —	Total HK$ 240,000 40,000 40,000
		320,000
		60,000 40,000
		100,000
		420,000

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Emoluments breakdown of each of the directors for the year ended 31 December 2003:

Executive directors Lam Sai Ho, Anthony Lam Wo Leung Chi Keung Lo Wai Mei Non-executive directors Yan Mou Keung, Ronald Chan Fai Yue, Leo	Retirement benefits Directors’ scheme fees contributions HK$ HK$ 120,000 — 40,000 — — — — — 160,000 — 60,000 — 40,000 — 100,000 — 260,000 —	Total HK$ 120,000 40,000 — —
		160,000
		60,000 40,000
		100,000
		260,000

Emoluments breakdown of each of the directors for the year ended 31 December 2004:

Executive directors Lam Sai Ho, Anthony Lam Wo Cheuk Yuk Lung Non-executive directors Yan Mou Keung, Ronald Chan Siu Wing, Raymond Chan Fai Yue, Leo	Retirement benefits Directors’ scheme fees contributions HK$ HK$ 30,000 — 55,000 750 55,000 750 140,000 1,500 60,000 — 15,000 — 40,000 — 115,000 — 255,000 1,500	Total HK$ 30,000 55,750 55,750
		141,500
		60,000 15,000 40,000
		115,000
		256,500

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Emoluments breakdown of each of the directors for the six months ended 30 June 2004 (unaudited):

Executive directors Lam Sai Ho, Anthony Lam Wo Cheuk Yuk Lung Non-executive directors Yan Mou Keung, Ronald Chan Fai Yue, Leo	Retirement benefits Directors’ scheme fees contributions HK$ HK$ 30,000 — 25,000 — 25,000 — 80,000 — 30,000 — 20,000 — 50,000 — 130,000 —	Total HK$ 30,000 25,000 25,000
		80,000
		30,000 20,000
		50,000
		130,000

Emoluments breakdown of each of the directors for the six months ended 30 June 2005:

Executive directors Lam Wo Cheuk Yuk Lung Non-executive directors Yan Mou Keung, Ronald Chan Siu Wing, Raymond Chan Fai Yue, Leo	Retirement benefits Directors’ scheme fees contributions HK$ HK$ 30,000 1,500 30,000 1,500 60,000 3,000 30,000 — 30,000 — 20,000 — 80,000 — 140,000 3,000	Total HK$ 31,500 31,500
		63,000
		30,000 30,000 20,000
		80,000
		143,000

There was no arrangement under which a director of the Company waived or agreed to waive any emoluments during the Relevant Periods.

During the Relevant Periods, no share option was granted to the directors.

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Five highest paid individuals

The five individuals with the highest emoluments in the Group for the Relevant Periods include:

		Year ended		Six months ended	Six months ended
		31 December		30 June
	2002	2003	2004	2004	2005
	HK$	HK$	HK$	HK$	HK$
				(Unaudited)
Number of directors	2	2	3	3	4
Number of employees	3	3	2	2	1

Details of the directors’ emoluments are presented above.

The aggregate of the emoluments in respect of the remaining highest paid non-director individuals are as follows:

Fees, basic salaries and other benefits in kind Retirement benefits scheme contributions	2002 HK$ 427,195 — 427,195	Year ended 31 December 2003 2004 HK$ HK$ 427,704 307,016 — — 427,704 307,016	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) 141,767 49,530 — — 141,767 49,530	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) 141,767 49,530 — — 141,767 49,530
				49,530

The emoluments paid to each highest paid non-director individual during the Relevant Periods fall within the band of HK$Nil - HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the Group to the directors of the Company or any of the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Taxation

Company and subsidiaries — Hong Kong profits tax — Overseas income tax Share of taxation attributable to associates Share of taxation attributable to jointly controlled entities	2002 HK$ — 192,805 — 1,575,997 1,768,802	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) — — — — 208,295 — — — 437,984 — — — 578,220 805,385 305,900 155,354 1,224,499 805,385 305,900 155,354	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) — — — — 208,295 — — — 437,984 — — — 578,220 805,385 305,900 155,354 1,224,499 805,385 305,900 155,354
			155,354

Hong Kong profits tax has not been provided as the individual companies comprising the Group do not have assessable profit arising in Hong Kong for the Relevant Periods.

Taxation for other jurisdiction is calculated at the rates prevailing in the relevant jurisdictions.

Reconciliation between taxation and tax at the applicable rate:

Loss before taxation Tax at the applicable tax rate Tax effect of income that is not taxable in determining taxable profit Tax effect of expenses that are not deductible in determining taxable profit Tax effect of utilisation of tax losses not previously recognised Tax effect of temporary differences not recognised Tax effect of unused tax losses not recognised Underprovision in prior year Taxation charge	2002 HK$ (13,582,092) (3,233,843) (511,047) 2,975,157 — — 1,737,687 800,848 1,768,802	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) (23,557,366) (2,978,709) (1,894,394) (998,840 (5,885,512) (715,792) (532,885) (120,135 (10,577,692) (1,891,127) (299,662) (744,213 16,229,622 2,349,553 1,138,885 903,764 (8,955) (360) (3,236) (5,419 — — — 121,357 1,258,741 1,063,111 2,798 — 208,295 — — — 1,224,499 805,385 305,900 155,354	Group Year ended Six months ended 31 December 30 June 2003 2004 2004 2005 HK$ HK$ HK$ HK$ (Unaudited) (23,557,366) (2,978,709) (1,894,394) (998,840 (5,885,512) (715,792) (532,885) (120,135 (10,577,692) (1,891,127) (299,662) (744,213 16,229,622 2,349,553 1,138,885 903,764 (8,955) (360) (3,236) (5,419 — — — 121,357 1,258,741 1,063,111 2,798 — 208,295 — — — 1,224,499 805,385 305,900 155,354
			(120,135 (744,213 903,764 (5,419 121,357 — —
			155,354

The applicable tax rate represents the weighted average of the rates of taxation prevailing in the relevant jurisdictions in which the Group operates.

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Loss Attributable to Shareholders

The loss attributable to shareholders is dealt with in the financial statements of the Company to the extent of HK$3,925,844, HK$6,127,736 and HK$5,543,297 for the years ended 31 December 2002, 2003 and 2004 respectively, and of HK$3,173,234 (unaudited) and HK$1,957,002 for the six months ended 30 June 2004 and 2005 respectively.

11. Loss Per Share

The calculation of loss per share is based on:

Loss attributable to shareholders Weighted average number of ordinary shares	2002 HK$ (15,350,894) 89,990,000	Group Year ended 31 December 2003 2004 HK$ HK$ (24,781,865) (3,784,094) 275,295,436 431,952,000	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) (2,200,294) (1,154,194) 431,952,000 431,952,000

For the purpose of calculation of the loss per share for the year ended 31 December 2002, the number of ordinary shares was adjusted to reflect the share consolidation detailed in note 28(b) to this report as if it had occurred as at 1 January 2002.

12. Property, Plant and Equipment

Cost At 1 January 2002 Additions Disposals/write-off At 31 December 2002 Additions At 31 December 2003 Additions At 31 December 2004 Disposal of a subsidiary At 30 June 2005	Office equipment HK$ 82,401 2,789 (4,370) 80,820 14,317 95,137 — 95,137 (95,137) —	Group Computer Motor equipment vehicle HK$ HK$ 33,931 253,084 — — (11,156) — 22,775 253,084 — — 22,775 253,084 10,970 — 33,745 253,084 (33,745) (253,084) — —	Total HK$ 369,416 2,789 (15,526) 356,679 14,317 370,996 10,970 381,966 (381,966) —

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Accumulated depreciation At 1 January 2002 Charge for the year Disposals/write back At 31 December 2002 Charge for the year At 31 December 2003 Charge for the year At 31 December 2004 Disposal of a subsidiary At 30 June 2005 Net book value At 31 December 2002 At 31 December 2003 At 31 December 2004 At 30 June 2005 13. Interests in Subsidiaries	Office equipment HK$ 5,518 14,415 (3,933) 16,000 19,018 35,018 17,125 52,143 (52,143) — 64,820 60,119 42,994 —	Group Computer Motor equipment vehicle HK$ HK$ 11,193 68,372 7,307 65,637 (10,627) — 7,873 134,009 4,555 65,637 12,428 199,646 6,912 53,438 19,340 253,084 (19,340) (253,084) — — 14,902 119,075 10,347 53,438 14,405 — — —	Total HK$ 85,083 87,359 (14,560
			157,882 89,210
			247,092 77,475
			324,567 (324,567
			—
			198,797
			123,904
			57,399
			—

Unlisted shares, at cost Due from a subsidiary	2002 HK$ 780 89,989,220 89,990,000	Company At 31 December 2003 2004 HK$ HK$ 780 780 89,993,120 89,997,020 89,993,900 89,997,800	At 30 June 2005 HK$ 780 89,997,020
			89,997,800

The amount due from a subsidiary is unsecured, interest free and not repayable within the next twelve months.

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the principal subsidiaries are as follows:

		Particulars	Percentage	Percentage
		of issued		of issued
		share		share
	Place of	capital/		capital/
	incorporation/	registered		registered	Principal
Name	operation	capital	capital held		activities
Directly held by the Company:
Accufocus Investments Limited	British Virgin	100 shares of		100%	Investment
	Islands	US$1 each			holding
	(“BVI”)/
	Hong Kong
Indirectly held by the Company:
Attentive Investments Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
B2C E-Commerce Group Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Best Policy Management Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Chief Success Management Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Ever Honest Investments Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Founder China Industrial	Hong Kong	2 ordinary		100%	Investment
Investments Company Limited		shares of			holding
		HK$1 each			and provision
					of management
					services
Founder Industrial Investments	Hong Kong	10,000,000		100%	Investment
(Holdings) Company Limited		ordinary shares			holding
		of HK$1 each
GR Investment Holdings Limited	Hong Kong	899,900,000		100%	Investment
		ordinary shares			holding
		of HK$0.1 each
Glorious Bright Limited	Hong Kong	2 ordinary shares		100%	Money lending
		of HK$1 each
Genius Choice Investments Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Particulars		Percentag
		of issued		of issued
		share		share
	Place of	capital/		capital/
	incorporation/	registered		registered	Principal
Name	operation	capital	capital held		activities
Home Growth Assets Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
GR Investment International	Hong Kong	2 ordinary shares		100%	Dormant
Limited (formerly known as		of HK$1 each
“Prosperity Investment
Holdings Limited”)
Rich Concept Investments Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Rich Profits Int’l Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Market Court Resources Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Target Plus Holdings Limited	BVI/	1 share of		100%	Investment
	Hong Kong	US$1 each			holding
Sun Kai Yip (Shanghai) Industrial	The PRC	US$10,000,000		100%	Investment
Investments Limited *					holding and
					provision of
					management
					and advisory
					services

• On 18 March 2005, the Group disposed its entire equity interest in Sun Kai Yip (Shanghai) Industrial Investments Limited (“Sun Kai Yip”) to a subsidiary of a then substantial shareholder at a consideration of approximately HK$65 million. The loss attributable to shareholders and net assets of Sun Kai Yip (after taking into account the effect of equity accounting for the interests in jointly controlled entities) for the year ended 31 December 2004 and as at 31 December 2004 amounted to approximately HK$512,000 and HK$66 million respectively. The loss on disposal of the subsidiary recognised in the consolidated income statement for the six months ended 30 June 2005 amounted to HK$1,943,920.

The above summary lists only the principal subsidiaries of the Group which, in the opinion of the Company’s directors, principally affected the results or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Interests in Associates

Share of net assets Due from associates	2002 HK$ 771,144 19,191,386 19,962,530	Group At 31 December 2003 2004 HK$ HK$ — — 19,032,227 17,562,305 19,032,227 17,562,305	At 30 June 2005 HK$ — 17,562,305
			17,562,305

The amounts due from associates are unsecured, interest free and not repayable within the next twelve months.

Details of the principal associates and those of which the carrying amounts of interests exceeded 5% of total assets of the Group are as follows:

					Dividend
					income
		Proportion	Cost		received		Net assets		Principal
	of	associates’	and		during		**attributable **	Accumulated	activities/
	Place of	capital	advances	Directors’	the year/	Dividend	to the	unrealised	place of
Name	incorporation	owned	thereto	valuation*	period	cover	investment	loss	operation
			HK$	HK$	HK$		HK$	HK$
			million	million	million		million	million
At 31 December 2002
Luck Point Investments	BVI	35%	5	3	—	—	3	(2)	Investment
Limited									holding/
									Hong Kong
Happy Online Group Limited	BVI	33.75%	2	2	—	—	2	—	Investment
									holding/
									Hong Kong
Market Choice Investments	BVI	20%	13	10	—	—	10	(3)	Investment
Limited									holding/
									Hong Kong
Victory Faith Investment	Hong Kong	25%	4	4	—	—	4	—	Land
Limited									development/
									Hong Kong
At 31 December 2003
Luck Point Investments	BVI	35%	5	3	—	—	3	(2)	Investment
Limited									holding/
									Hong Kong
Happy Online Group Limited	BVI	33.75%	2	2	—	—	2	—	Investment
									holding/
									Hong Kong
Market Choice Investments	BVI	20%	14	13	—	—	13	(1)	Investment
Limited									holding/
									Hong Kong
At 31 December 2004
Luck Point Investments	BVI	35%	5	3	—	—	3	(2)	Investment
Limited									holding/
									Hong Kong
Happy Online Group Limited	BVI	33.75%	2	2	—	—	2	—	Investment
									holding/
									Hong Kong
Bright Honest Limited	BVI	25%	12	12	—	—	12	—	Investment
									holding/
									Hong Kong
At 30 June 2005
Luck Point Investments	BVI	35%	5	3	—	—	3	(2)	Investment
Limited									holding/
									Hong Kong
Happy Online Group Limited	BVI	33.75%	2	2	—	—	2	—	Investment
									holding/
									Hong Kong
Bright Honest Limited	BVI	25%	12	12	—	—	12	—	Investment
									holding/
									Hong Kong

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• Directors’ valuation represents the aggregate of the cost of investment, post-acquisition results and loan to associates. The directors consider that the carrying values of the interests in the associates approximate their fair values.

The above summary lists only the principal associates of the Group which, in the opinion of the Company’s directors, principally affected the results or formed a substantial portion of the net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

The summarised financial information of the Group’s share of assets, liabilities, income and results of the associates based on the unaudited management accounts of the associates are as follows:

		At 31 December	At 31 December	At 30 June
	2002	2003	2004	2005
	HK$	HK$	HK$	HK$
Assets	25,912,696	21,710,159	16,708,740	16,701,679
Liabilities	(29,645,666)	(22,666,121)	(17,095,378)	(17,090,378)
Income	6,068	5,553,593	3,776,549	—
(Loss)/profit	(5,481,869)	2,730,547	1,763,141	(2,061)

15. Interests in Jointly Controlled Entities

• (a) The balances represent:

Share of net assets other than goodwill Less: Impairment Goodwill on acquisition of a jointly controlled entity Due from jointly controlled entities Less: Allowance for doubtful debt	2002 HK$ 70,109,463 (19,568,741) 3,629,269 54,169,991 4,251,741 — 4,251,741 58,421,732	Group At 31 December 2003 2004 HK$ HK$ 44,806,841 46,341,964 (15,085,745) (18,685,745) — — 29,721,096 27,656,219 1,847,832 1,199,313 — (1,199,313) 1,847,832 — 31,568,928 27,656,219	At 30 June 2005 HK$ 5,097,099 (2,323,671) — 2,773,428 — — — 2,773,428

The amounts due from jointly controlled entities are unsecured, interest free and not repayable within the next twelve months. Dividends declared by the jointly controlled entities amounted to HK$856,269, HK$Nil and HK$2,006,026 for the years ended 31 December 2002, 2003 and 2004 respectively, and HK$Nil (unaudited) and HK$Nil for the six months ended 30 June 2004 and 2005 respectively.

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Details of the principal jointly controlled entities and those of which the carrying amounts of interests exceeded 5% of total assets of the Group are as follows:

						Dividend
		Proportion				income
		of				received		Net assets			Principal
		investee’s	Cost and			during		attributable		Accumulated	activities/
	Place of	capital	advances		Directors’	the year/	Dividend	to the		unrealised	place of
Name	incorporation	owned	thereto		valuation*	period	cover	investment		profit/(loss)	operation
				HK$	HK$	HK$			HK$	HK$
			million		million	million		million		million
At 31 December 2002
Shanghai Sine	The PRC	30%		32	28	—	—		28	(2)	Manufacture
Pharmaceutical											and distribution
Corporation Limited											of pharmaceutical
											products/The PRC
Shanghai Yong An Dairy	The PRC	25%		5	5	0.6	13%		5	—	Production and
Company Limited											distribution of
											dairy products/
											The PRC
Shanghai Tian An Bearing	The PRC	30%		29	24	0.2	0.77%		29	(5)	Manufacture
Company Limited											and distribution
											of bearing
											products/The PRC
At 31 December 2003
Shanghai Yong An Dairy	The PRC	25%		5	6	—	—		6	1	Production and
Company Limited											distribution of
											dairy products/
											The PRC
Shanghai Tian An Bearing	The PRC	30%		29	25	—	—		30	(4)	Manufacture
Company Limited											and distribution
											of bearing
											products/The PRC
At 31 December 2004
Shanghai Yong An Dairy	The PRC	25%		5	3	0.6	12%		5	(2)	Production and
Company Limited											distribution of
											dairy products/
											The PRC
Shanghai Tian An Bearing	The PRC	30%		29	25	1.4	4.8%		31	(4)	Manufacture
Company Limited											and distribution
											of bearing
											products/The PRC
At 30 June 2005
Shanghai Yong An Dairy	The PRC	25%		5	3	—	—		5	(2)	Production
Company Limited											and distribution
											of dairy products/
											The PRC

• Directors’ valuation represents the aggregate of the cost of investment, postacquisition results and loan to jointly controlled entities less impairment loss, if any. The directors consider that the carrying values of the interests in the jointly controlled entities approximate their fair values.

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Particulars of impairment in interests in jointly controlled entities are as follows:

	Share of net
	assets and
	advances	Impairment	Directors’	Reason for
Name	thereto	loss	valuation	impairment
	HK$	HK$	HK$
	million	million	million
At 31 December 2002
Shanghai Sine Pharmaceutical	32	4	28	Decrease in
Corporation Limited				share of
				net assets
Shanghai Evergood Textile	9	8	1	Decrease in
Co., Ltd.				share of
				net assets
Shanghai Foodstuffs Co., Ltd.	2	2	—	Decrease in
				share of
				net assets
Shanghai Tian An Bearing	29	5	24	Decrease in
Company Limited				share of
				net assets
At 31 December 2003
Shanghai Evergood Textile	9	8	1	Decrease in
Co., Ltd.				share of
				net assets
Shanghai Foodstuffs Co., Ltd.	2	2	—	Decrease in
				share of
				net assets
Shanghai Tian An Bearing	30	5	25	Decrease in
Company Limited				share of
				net assets
At 31 December 2004
Shanghai Evergood Textile	9	9	—	Decrease in
Co., Ltd.				share of
				net assets
Shanghai Yong An Dairy	5	2	3	Decrease in
Company Limited				share of
				net assets
Shanghai Tian An Bearing	32	7	25	Decrease in
Company Limited				share of
				net assets
At 30 June 2005
Shanghai Yong An Dairy	5	2	3	Decrease in
Company Limited				share of
				net assets

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to an agreement dated 29 December 2004, the Group has committed to dispose its 25% equity interests in Shanghai Yong An Dairy Company Limited to a third party for a consideration of RMB2.8 million (approximately HK$2.6 million). The completion of the disposal is subject to the approval of the relevant government bodies. As at the date of this report, the approval of the relevant agreement bodies has not yet been obtained.

Shanghai Tian An Bearing Company Limited was a jointly controlled entity of Sun Kai Yip. This jointly controlled entity was disposed following the disposal of Sun Kai Yip.

The above summary lists only the principal jointly controlled entities of the Group which, in the opinion of the Company’s directors, principally affected the results or formed a substantial portion of the net assets of the Group. To give details of other jointly controlled entities would, in the opinion of the directors, result in particulars of excessive length.

The tenure of the above companies can be extended by agreements with the joint venture partners after obtaining the necessary approval from the relevant government bodies.

• (c) Pursuant to the terms of the joint venture agreements for the above jointly controlled entities, the Group is entitled to receive its attributable share of the net assets upon liquidation of the jointly controlled entities.

The following amounts represent the Group’s share of the assets and liabilities, and sales and results of the joint ventures:

Assets: Non-current assets Current assets Liabilities: Long-term liabilities Current liabilities Net assets Income Expenses (Loss)/profit after income tax	2002 HK$ 81,592,361 161,694,675 243,287,036 478,092 165,011,710 165,489,802 77,797,234 169,897,676 (170,061,764) (164,088)	At 31 December 2003 2004 HK$ HK$ 38,424,866 28,908,488 53,139,095 47,244,271 91,563,961 76,152,759 652,927 3,455,286 55,763,074 44,925,577 56,416,001 48,380,863 35,147,960 27,771,896 82,795,458 52,787,498 (98,964,055) (58,696,608) (16,168,597) (5,909,110)	At 30 June 2005 HK$ 4,108,427 4,563,760 8,672,187 119,909 3,106,868 3,226,777 5,445,410 6,601,785 (6,181,753) 420,032

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Financial Assets at Fair Value Through Profit or Loss

Held for trading: Equity securities, at fair value — listed in Hong Kong — listed outside Hong Kong (note a) Derivative financial instruments, at fair value — warrants_(note b) Embedded derivatives, at fair value — market linked deposits with embedded derivatives(note c) — equity index linked capital protected note(note d)_	2002 HK$ — — — — — — — —	Group At 31 December 2003 2004 HK$ HK$ — — — — — — — — — — — — — — — —	At 30 June 2005 HK$ 362,500 1,634,100 1,996,600 2,700,000 7,222,488 15,378,948 22,601,436 27,298,036	Company At 31 December 2002 2003 2004 HK$ HK$ HK$ — — — — — — — — — — — — — — — — — — — — — — — —	At 30 June 2005 HK$ — —
					—
					2,700,000
					— —
					—
					2,700,000

Notes:

• (a) The equity securities listed outside Hong Kong are denominated in US dollars.

• (b) The warrants expired on 2 December 2005 and were disposed by the Group before the expiry date.

• (c) The market linked deposits with embedded derivatives are denominated in US dollars and will be matured on 15 February 2007.

• (d) The equity index linked capital protected note was denominated in US dollars with original maturity date on 6 April 2006. It was expired on 4 October 2005 upon the occurrence of certain event as stipulated in the terms and conditions of the note and settled by cash.

Following the adoption of HKAS 39 in 2005, certain financial assets were redesignated as financial assets at fair value through profit or loss on 1 January 2005. There was no such redesignation prior to 1 January 2005 as retrospective application of HKAS 39 is not permitted.

Changes in fair values of financial assets at fair value through profit or loss are recognised as unrealised losses of financial assets in the income statement.

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amounts of interests in the following financial assets at fair value through profit or loss exceeded 5% of total assets of the Group:

					Dividend
		Proportion		Directors’	income		Net assets	Unrealised	Principal
		of investee’s	Cost and	valuation/	received		attributable	loss taken	activities/
	Place of	capital	advances	market	during	Dividend	to the	in the	place of
Name	incorporation	owned	thereto	value	the period	cover	investment	accounts	operation
			HK$	HK$	HK$		HK$	HK$
			million	million	million		million	million
At 30 June 2005
1 year USD Capital	—	—	15.6	15.4	—	—	—	0.2	N/A/—
Protected Note
3 Year 95% Principal	—	—	7.8	7.2	—	—	—	0.6	N/A/—
Protected Market
Linked deposits

17. Available-For-Sale Financial Assets

Non-current assets Overseas unlisted equity securities, at cost Less: Impairment Hong Kong listed equity securities, at fair value Current assets Overseas unlisted equity securities, at cost	2002 HK$ — — — — — —	At 31 Decem 2003 HK$ — — — — — —	Group ber 2004 HK$ — — — — — —	At 30 June 2005 HK$ 25,626,167 (9,179,532) 16,446,635 59,673,866 76,120,501 3,698,235	2002 HK$ — — — — — —	At 31 Dece 2003 HK$ — — — — — —	Company mber 2004 HK$ — — — — — —	At 30 June 2005 HK$ — —
								— 12,666,486
								12,666,486
								—

The fair value of the unlisted equity securities cannot be measured reliably as there is no active market for the trading of the securities at arm’s length.

Following the adoption of HKAS 39 in 2005, certain financial assets were redesignated as availablefor-sale financial assets on 1 January 2005. There was no such redesignation prior to 1 January 2005 as retrospective application of HKAS 39 is not permitted.

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying amounts of interests in the following available-for-sale financial assets exceeded 5% of total assets of the Group and the Company respectively:

					Dividend
		Proportion		Directors’	income		Net assets	Unrealised
	of investee’s		Cost and	valuation/	received		attributable	gain taken	Principal
	Place of	capital	advances	market	during	Dividend	to the	in the	activities/place
Name	incorporation	owned	thereto	value	the period	cover	investment	accounts	of operation
			HK$	HK$	HK$		HK$	HK$
			million	million	million		million	million
At 30 June 2005
Cosmopolitan International	Cayman Islands	10%	12	13	—	—	9	1	Investment
Holdings Limited									holding/
									Hong Kong
Dragon Fortune Ltd.	BVI	18%	52	52	—	—	46	—	Investment
									holding/
									Hong Kong
EVI Education Asia Limited	Cayman Islands	1.6%	5	8	—	—	2	3	Investment
									holding/
									Hong Kong
Golden Resources Development	Bermuda	5%	21	22	0.8	3.7%	44	1	Investment
International Limited									holding/
									Hong Kong
Tracker Fund of Hong Kong	Hong Kong	—	14	16	0.2	1.3%	—	2	Unit trust/
									Hong Kong

18. Investment Securities

Overseas unlisted equity securities, at cost Less: Impairment Loans to an investee company Listed equity securities, at cost Listed in Hong Kong Total investment securities Market value of listed equity securities	2002 HK$ 12,855,246 (7,709,402) 5,145,844 48,139,674 31,693,194 84,978,712 27,115,505	At 31 Decem 2003 HK$ 12,855,246 (7,709,402) 5,145,844 48,139,674 44,937,429 98,222,947 52,940,775	Group ber 2004 HK$ 12,855,246 (9,179,532) 3,675,714 48,139,674 32,955,471 84,770,859 33,508,555	At 30 June 2005 HK$ — — — — — — —	2002 HK$ — — — — — — —	At 31 Dece 2003 HK$ — — — — 13,487,442 13,487,442 13,327,635	Company mber 2004 HK$ — — — — 11,747,442 11,747,442 13,693,175	At 30 June 2005 HK$ — —
								— — —
								—
								—

Loans to an investee company are unsecured, interest free and not repayable within the next twelve months for the years ended 31 December 2002, 2003 and 2004. The Group proposed to dispose the loans to an investee company during the six months ended 30 June 2005 and reclassified the loans as current assets under other receivables (note 22) .

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In accordance with HKAS 39, investment securities were redesignated on 1 January 2005 as various categories, details as set out below:

• Overseas unlisted equity securities were redesignated as available-for-sale financial assets and stated at cost (note 17) .

• Loans to an investee company were redesignated as loans and receivables and included under other receivables (note 22) in the balance sheet.

• Listed equity securities were redesignated as available-for-sale financial assets and stated at fair value (note 17) .

The carrying amounts of interests in the following investment securities exceeded 5% of total assets of the Group and the Company respectively:

						Dividend
		Proportion of			Directors’	income		Net assets	Unrealised
Name of investee		investee’s		Cost and	valuation/	received		attributable	gain/loss
company/	Place of		capital	advances	market	during	Dividend	to the	taken in the	Principal
listed equity securities	incorporation		owned	thereto	value	the year	cover	investment	accounts	activities
				HK$	HK$	HK$		HK$	HK$
				million	million	million		million	million
At 31 December 2002
Dragon Fortune Ltd.	BVI		18%	52	52	—	—	45	—	Investment
										holding
Golden Resources Development	Bermuda		5%	21	19	2	9.5%	46	—	Wholesaling
International Limited										and distribution
										of consumer
										goods
EVI Education Asia Limited	Cayman Islands		3%	5	4	—	—	1	—	Providing internet
										education
										services
At 31 December 2003
Dragon Fortune Ltd.	BVI		18%	52	52	—	—	46	—	Investment
										holding
Golden Resources Development	Bermuda		5%	21	23	2	9%	46	—	Wholesaling
International Limited										and distribution
										of consumer
										goods
At 31 December 2004
Dragon Fortune Ltd.	BVI		18%	52	52	—	—	48	—	Investment
										holding
Golden Resources Development	Bermuda		5%	21	22	2	7.8%	43	—	Wholesaling
International Limited										and distribution
										of consumer
										goods
Cosmopolitan International	Cayman Islands		10%	12	11	—	—	10	—	Investment
Holdings Limited										holding

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Particulars of impairment in investment securities at 31 December 2002, 2003 and 2004 are as follows:

		Impairment	Impairment	Share of	Share of	Reason for
	Name	Cost	loss	net assets		impairment
		HK$	HK$		HK$
		million	million	million
	At 31 December 2002
	Beijing Tian An Stevio Sugar	5	3		1	Decrease in
	Product Company Limited					share of
						net assets
	Anhui Washing Plastics Company	4	4		—	Decrease in
	Limited					share of
						net assets
	At 31 December 2003
	Beijing Tian An Stevio Sugar	5	3		1	Decrease in
	Product Company Limited					share of
						net assets
	Anhui Wanhong Plastics	4	4		—	Decrease in
	Company Limited					share of
						net assets
	At 31 December 2004
	Beijing Tian An Stevio Sugar	5	5		—	Decrease in
	Product Company Limited					share of
						net assets
	Anhui Wanhong Plastics	4	4		—	Decrease in
	Company Limited					share of
						net assets
19.	Held-To-Maturity Debt Securities
				Group
			At 31 December			At 30 June
		2002	2003		2004	2005
		HK$	HK$		HK$	HK$
	Convertible redeemable note maturing in
	July 2004	5,040,000	5,040,000		—	—

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. Other Investments

Non-current assets Market linked deposits Current assets Listed equity securities, at market value Listed in Hong Kong Listed outside Hong Kong	2002 HK$ — — — —	Group At 31 December 2003 2004 HK$ HK$ — 7,800,000 — 25,999,780 — 1,473,888 — 27,473,668	At 30 June 2005 HK$ — — — —	Company At 31 December 2002 2003 2004 HK$ HK$ HK$ — — — — — 1,740,000 — — — — — 1,740,000	At 30 June 2005 HK$ —
					— —
					—

In accordance with HKAS 39, all other investments were redesignated as financial assets at fair value through profit or loss (note 16) or available-for-sale financial assets (note 17) and are stated at fair value.

The carrying amounts of interests in the following other investment exceeded 5% of total assets of the Group:

						Dividend
			Proportion			income		Net assets		Principal
			of investee’s	Cost and		received		**attributable **	**Accumulated **	activities/
		Place of	capital	advances	Market	during	Dividend	to the	**unrealised **	place of
	Name	incorporation	owned	thereto	value	the year	cover	investment	**gain/(loss) **	operation
				HK$	HK$	HK$		HK$	HK$
				million	million	million		million	million
	At 31 December	2004
	Tracker Fund of	Hong Kong	—	14	16	0.47	3.26%	—	—	Unit trust/
	Hong Kong									Hong Kong
21.	Other Asset

				Group
	At	31	December		At	30 June
	2002		2003	2004		2005
	HK$		HK$	HK$		HK$
Golf club membership, at cost	150,000		150,000	150,000		150,000

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. Other Receivables

Prepayments and deposits (note (a)) Receivables arising from disposal of interest in a jointly controlled entity, an associate and a subsidiary_(note (b)) Loan to an investee company (note (b) & note 18) Other loans (notes (b) and (c))_ Others	2002 HK$ 336,223 30,680,100 — 4,230,135 78,900 35,325,358	Group At 31 December 2003 2004 HK$ HK$ 2,794,796 4,153,593 1,924,743 — — — 16,000,000 13,811,645 22,378 2,040,000 20,741,917 20,005,238	At 30 June 2005 HK$ 350,440 25,123,371 48,139,674 5,600,000 13,500,000 92,713,485	Company At 31 December 2002 2003 2004 HK$ HK$ HK$ 244,237 203,737 217,891 — — — — — — — — — — — — 244,237 203,737 217,891	At 30 June 2005 HK$ 74,448 — — — —
					74,448

Notes:

• (a) Included in the Group’s prepayments and deposits is an amount of HK$2,734,200 and HK$3,648,156 advanced to an independent non-executive director (who had resigned on 15 January 2005) of a then substantial shareholder of the Company as at 31 December 2003 and 2004 respectively.

• (b) The ageing analysis of the receivables other than the prepayments and deposits and others was as follows:

Within 3 months 3 to 6 months 6 to 12 months Over 1 year	Group At 31 December 2002 2003 2004 HK$ HK$ HK$ 4,230,135 1,924,743 500,000 — — — — 16,000,000 — 30,680,100 — 13,311,645 34,910,235 17,924,743 13,811,645	At 30 June 2005 HK$ 25,623,371 — — 53,239,674 78,863,045	Company At 31 December 2002 2003 2004 HK$ HK$ HK$ — — — — — — — — — — — — — — —	At 30 June 2005 HK$ — — — —
				—

• (c) The Group advanced a loan of HK$16,000,000 to a related company on 10 March 2003. An amount of HK$2,688,355 and HK$8,211,645 were repaid by the related company during the year ended 31 December 2004 and for the six months ended 30 June 2005 respectively. The outstanding amount due from the related company was HK$13,311,645 and HK$5,100,000 as at 31 December 2004 and 30 June 2005 respectively. The loan is unsecured, interest bearing at prime rate, and was repaid on 9 September 2005.

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Also included in other loans as at 31 December 2004 was a loan of HK$500,000 advanced to a third party. This loan was guaranteed by a personal guarantee, interest bearing at 16% per annum and was repaid on 24 March 2005. Another loan of the same amount was advanced to the same party on 12 April 2005. This loan was guaranteed by a personal guarantee, interest bearing at 16% and was repaid on 12 September 2005.

23. Cash and Bank Balances

The cash and bank balances of the Group denominated in Renminbi (“RMB”) amounted to approximately HK$37,846,000, HK$70,741,000, HK$41,512,000 and HK$1,260,124 as at 31 December 2002, 2003, 2004 and 30 June 2005 respectively. RMB is not freely convertible into foreign currencies. Subject to the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for foreign currencies through banks authorised to conduct foreign exchange business.

24. Other Payables

Accruals Due to related companies (note (a)) Other payables_(note (b))_	Group At 31 December 2002 2003 2004 HK$ HK$ HK$ 735,504 1,789,426 525,784 8,622,320 23,050,000 — 3,817,960 — — 13,175,784 24,839,426 525,784	At 30 June 2005 HK$ 74,000 — — 74,000	At 2002 HK$ 68,617 — — 68,617	Company 31 December 2003 2004 HK$ HK$ 1,050,360 227,000 — — — — 1,050,360 227,000	At 30 June 2005 HK$ 74,000 — —
					74,000

Notes:

• (a) The amounts due to related companies are unsecured, interest free and have no fixed terms of repayment except for an amount of HK$16,000,000 as at 31 December 2003 which was interest bearing at prime rate.

• (b) The ageing analysis of the other payables was as follows:

Within 3 months 3 to 6 months 6 to 12 months Over 1 year	Group At 31 December 2002 2003 2004 HK$ HK$ HK$ — — — — — — — — — 3,817,960 — — 3,817,960 — —	At 30 June 2005 HK$ — — — — —	Company At 31 December 2002 2003 2004 HK$ HK$ HK$ — — — — — — — — — — — — — — —	At 30 June 2005 HK$ — — — —
				—

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Due From/(To) Sinox Fund Management Limited

The amount due from Sinox Fund Management Limited (“SINOX”) represents investment management fees prepaid at the year end/period end. The amount due to SINOX represents investment management fees payable at the year end/period end. The amount due is unsecured, interest free and repayable on demand.

Mr. Lam Sai Ho, Anthony, an ex-director of the Company who resigned on 22 March 2004, had an indirect equity interest of approximately 66.7% in SINOX.

SINOX is the Investment Manager of the Group and provides administrative and investment management services to the Group in relation to the investment of the Group’s assets (note 35(a)) .

26. Other Borrowing

Other borrowing is secured, interest bearing at 2.01% per annum and was repaid during the six months ended 30 June 2005.

27. Due to a Subsidiary

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

28. Share Capital

Note Shares of HK$0.01 each as at 31 December 2002, shares of HK$0.10 each as at 31 December 2003, 2004 and 30 June 2005 Authorised: Issued and fully paid: At 1 January Issue of shares (a) Consolidation of shares (b) Issue of consolidated shares (b) At 31 December/30 June	2002 30,000,000,000 899,900,000 — — — 899,900,000	Number of shares At 31 December 2003 2004 3,000,000,000 3,000,000,000 899,900,000 431,952,000 179,980,000 — (971,892,000) — 323,964,000 — 431,952,000 431,952,000	At 30 June 2005 3,000,000,000 431,952,000 — — — 431,952,000	2002 HK$ 300,000,000 8,999,000 — — — 8,999,000	Share capital At 31 December 2003 2004 HK$ HK$ 300,000,000 300,000,000 8,999,000 43,195,200 1,799,800 — — — 32,396,400 — 43,195,200 43,195,200	At 30 June 2005 HK$ 300,000,000
						43,195,200 — — —
						43,195,200

Notes:

• (a) On 26 March 2003, a subscription agreement was entered into between Cosmopolitan International Holdings Limited (“Cosmopolitan”), Baron Asset Management Limited (“Baron”) and the Company pursuant to which the Company agreed to issue a total of 179,980,000 shares of par value of HK$0.01 each and Cosmopolitan and Baron agreed to subscribe for 115,230,210 and 64,749,790 shares respectively at HK$0.06 per share, amounting to HK$6,913,813 and HK$3,884,987 respectively. The transaction was completed on 29 April 2003.

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) Pursuant to the ordinary resolutions passed at the special general meeting held on 17 June 2003, every ten ordinary shares of HK$0.01 each in the entire share capital of the Company were consolidated into one share of HK$0.10 each (“consolidated share”) with effect from 18 June 2003 and that 323,964,000 consolidated shares of HK$0.10 each in the share capital of the Company were issued on 16 July 2003 by way of an Open Offer to qualifying shareholders on the basis of three offer shares for every one consolidated share held.

• (c) The Company adopted an Employee Share Option Scheme under which the Board may grant to eligible employees, including the executive directors, the officers and the full or parttime employees of the Company or its subsidiaries, options to subscribe for shares in the Company.

The exercise price is set at not less than the highest of:

• (i) the closing prices of the shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant;

• (ii) the average of the closing prices of the shares as stated in the daily quotations sheet of the Stock Exchange for the 5 business days immediately preceding the date of grant; and

• (iii) the nominal value of a share.

During the Relevant Periods, no option was granted.

29. Reserves

Group 1 January 2002 Loss for the year 31 December 2002 Retained by: Company and subsidiaries Associates Jointly controlled entities Company 1 January 2002 Loss for the year 31 December 2002	Capital Share reserve on premium consolidation HK$ HK$ 166,327,220 468,163 — — 166,327,220 468,163 166,327,220 468,163 — — — — 166,327,220 468,163 — — — — — —	Contributed surplus HK$ 80,991,000 — 80,991,000 80,991,000 — — 80,991,000 80,991,000 — 80,991,000	Exchange fluctuation Accumulated reserve losses HK$ HK$ (4,194,214) (19,693,370) — (15,350,894) (4,194,214) (35,044,264) (4,194,214) (3,441,802) — (5,119,560) — (26,482,902) (4,194,214) (35,044,264) — (87,804) — (3,925,844) — (4,013,648)	Total HK$ 223,898,799 (15,350,894) 208,547,905 240,150,367 (5,119,560) (26,482,902) 208,547,905 80,903,196 (3,925,844) 76,977,352

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Share reserve on premium consolidation HK$ HK$ Group 1 January 2003 166,327,220 468,163 Shares issued during the year 3,237,490 — Realisation of exchange fluctuation reserve on disposal of a jointly controlled entity — — Loss for the year — — 31 December 2003 169,564,710 468,163 Retained by: Company and subsidiaries 169,564,710 468,163 Associates — — Jointly controlled entities — — 169,564,710 468,163 Company 1 January 2003 — — Shares issued during the year 3,237,490 — Loss for the year — — 31 December 2003 3,237,490 —	Contributed surplus HK$ 80,991,000 5,761,510 — — 86,752,510 86,752,510 — — 86,752,510 80,991,000 5,761,510 — 86,752,510	Exchange fluctuation Accumulated reserve losses HK$ HK$ (4,194,214) (35,044,264) — — 972,797 — — (24,781,865) (3,221,417) (59,826,129) (3,221,417) (33,949,135) — (1,948,528) — (23,928,466) (3,221,417) (59,826,129) — (4,013,648) — — — (6,127,736) — (10,141,384)	Total HK$ 208,547,905 8,999,000 972,797 (24,781,865) 193,737,837 219,614,831 (1,948,528) (23,928,466) 193,737,837 76,977,352 8,999,000 (6,127,736) 79,848,616

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Share reserve on premium consolidation HK$ HK$ Group 1 January 2004 169,564,710 468,163 Realisation of exchange fluctuation reserve on disposal of a jointly controlled entity — — Loss for the year — — 31 December 2004 169,564,710 468,163 Retained by: Company and subsidiaries 169,564,710 468,163 Associates — — Jointly controlled entities — — 169,564,710 468,163 Company 1 January 2004 3,237,490 — Loss for the year — — 31 December 2004 3,237,490 —	Contributed surplus HK$ 86,752,510 — — 86,752,510 86,752,510 — — 86,752,510 86,752,510 — 86,752,510	Exchange fluctuation Accumulated reserve losses HK$ HK$ (3,221,417) (59,826,129) 1,466,243 — — (3,784,094) (1,755,174) (63,610,223) (1,755,174) (41,617,639) — (182,826) — (21,809,758) (1,755,174) (63,610,223) — (10,141,384) — (5,543,297) — (15,684,681)	Total HK$ 193,737,837 1,466,243 (3,784,094) 191,419,986 213,412,570 (182,826) (21,809,758) 191,419,986 79,848,616 (5,543,297) 74,305,319

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Share reserve on premium consolidation HK$ HK$ Group 1 January 2005 169,564,710 468,163 Effect for the adoption of HKFRS 3_(note 2) — (468,163) Effect for the adoption of HKAS 39(note 2)_ — — 1 January 2005, as restated 169,564,710 — Realisation of exchange fluctuation reserve on disposal of a subsidiary — — Increase in fair value of available-for-sale financial assets — — Loss for the period — — 30 June 2005 169,564,710 — Retained by: Company and subsidiaries 169,564,710 — Associates — — Jointly controlled entities — — 169,564,710 — Company 1 January 2005 3,237,490 — Effect for the adoption of HKAS 39 — — 1 January 2005, as restated 3,237,490 — Increase in fair value of available-for-sale financial assets — — Loss for the period — — 30 June 2005 3,237,490 —	Contributed surplus HK$ 86,752,510 — — 86,752,510 — — — 86,752,510 86,752,510 — — 86,752,510 86,752,510 — 86,752,510 — — 86,752,510	Exchange fluctuation reserve HK$ (1,755,174) — — (1,755,174) 1,887,093 — — 131,919 131,919 — — 131,919 — — — — — —	Changes in fair value of available- for-sale financial assets HK$ — — 2,280,083 2,280,083 — 5,037,311 — 7,317,394 7,317,394 — — 7,317,394 — (664,267) (664,267) 1,583,311 — 919,044	Accumulated losses HK$ (63,610,223) 468,163 595,122 (62,546,938) — — (1,154,194) (63,701,132) (62,312,088) (1,522,786) 133,742 (63,701,132) (15,684,681) 870,000 (14,814,681) — (1,957,002) (16,771,683)	Total HK$ 191,419,986 — 2,875,205
					194,295,191 1,887,093 5,037,311 (1,154,194)
					200,065,401
					201,454,445 (1,522,786) 133,742
					200,065,401
					74,305,319 205,733
					74,511,052 1,583,311 (1,957,002)
					74,137,361

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The contributed surplus of the Group and the Company represents the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group’s reorganisation scheme completed on 12 December 2001 over the nominal value of the Company’s shares issued in exchange. Movement during the year ended 31 December 2003 represents an exchange of shares in which the value of the Company’s shares issued to a listed investee company exceeds the nominal value of the Company’s shares.

Under the Companies Act (1981) of Bermuda (as amended), the contributed surplus is distributable to the shareholders, provided that the Company is, after the payment of dividends out of the contributed surplus, able to pay its liabilities as they become due; or the realisable value of the Company’s assets would thereby not be less than the aggregate of its liabilities, issued share capital and reserves.

30. Notes to The Consolidated Cash Flow Statement

Disposal of a subsidiary

Net assets disposed of: Interests in jointly controlled entities Fixed assets Cash and bank balances Other receivables Other payables Realisation of exchange fluctuation reserve Sales proceeds Loss on disposal	2002 HK$ — — — — — — — — — —	Group Year ended 31 December 2003 2004 HK$ HK$ — — — — — — — — — — — — — — — — — — — —	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) — 25,079,151 — 57,399 — 41,426,454 — 110,950 — (1,493,756) — 65,180,198 — 1,887,093 — 67,067,291 — (65,123,371) — 1,943,920

Sales proceeds in respect of the disposal of the subsidiary amounted to HK$65,123,371 of which HK$40,000,000 was received by the Group during the six months ended 30 June 2005. The balance of HK$25,123,371 included in other receivables (note 22) was settled on 1 August 2005.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of the subsidiary is as follows:

Sales proceeds Proceeds receivables Proceeds received Cash and bank balances of the disposed subsidiary Net outflow of cash and cash equivalents in respect of the disposal of the subsidiary	2002 HK$ — — — — —	Group Year ended 31 December 2003 2004 HK$ HK$ — — — — — — — — — —	Six months ended 30 June 2004 2005 HK$ HK$ (Unaudited) — 65,123,371 — (25,123,371) — 40,000,000 — (41,426,454) — (1,426,454)

31. Net Asset Value Per Share

Net asset value per share is computed based on:

Net assets Number of ordinary shares	Group At 31 December 2002 2003 2004 HK$ HK$ HK$ 217,546,905 236,933,037 234,615,186 89,990,000 431,952,000 431,952,000	At 30 June 2005 HK$ 243,260,601
		431,952,000

For the purpose of calculation of the net asset value per share as at 31 December 2002, the number of ordinary shares was adjusted to reflect the share consolidation detailed in note 28(b) to this report as if it had occurred as at 31 December 2002.

32. Deferred Taxation

No provision for deferred taxation has been made in the financial statements as the tax effect of temporary differences is immaterial to the Group.

33. Employee Benefits

The contributions to the retirement benefit scheme for the staff of the Company and a subsidiary operating in the PRC are charged to the consolidated income statement as they become payable. The only obligation of the Group with respect to the scheme is to make the specified contributions.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. Operating Lease Commitments

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

								Group	Group	Group
				At		31	December				At 30	June
				2002			2003			2004		2005
				HK$			HK$			HK$		HK$
Within one year				162,680			125,147			156,533		—
In the second to fifth year inclusive				112,596			—			—		—
				275,276			125,147			156,533		—
Related Party Transactions
(a)							Group
				Year ended						Six months ended
				31 December						30	June
		2002		2003			2004			2004		2005
		HK$		HK$			HK$			HK$		HK$
									(Unaudited)
Investment management
fees paid and payable
to SINOX_(note)_		3,499,604		3,549,588			957,713			957,713		—
Management fees
received from jointly
controlled entities		1,491,239		520,736			515,984			213,831	117,924
Interest paid to
a related company		—		—			928,499			928,499		—
								Group
						At	31 December				At 30	June
				2002			2003			2004		2005
				HK$			HK$			HK$		HK$
Advance to an independent
non-executive director		(who had
resigned on 15 January		2005) of
a then substantial shareholder of
the Company_(note 22(a))_				—		2,734,200				3,648,156		—
Due from a related company
(note 22(c))				—		16,000,000				13,311,645	5,100,000
Due to related companies
(note 24(a))				8,622,320		23,050,000				—		—

35. Related Party Transactions

Note: Investment management fees paid and payable to SINOX for administrative and investment management services were calculated at 1.5% per annum on the net asset value of the Group calculated on a quarterly basis. Mr. Lam Sai Ho, Anthony, an ex-director of the Company who resigned on 22 March 2004, had an indirect equity interest of approximately 66.67% in SINOX.

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) Details of guarantees issued by the Company in favour of banks to the indirect subsidiaries of an investee company and a direct subsidiary of an associate are set out in note 37.

36. Banking Facilities

The Group had banking facilities totalling HK$10 million, HK$10 million and HK$10 million as at 31 December 2003, 2004 and 30 June 2005 respectively. These banking facilities were secured by a floating charge over the Company’s fixed deposits of HK$10 million, HK$10 million and HK$10 million as at 31 December 2003, 2004 and 30 June 2005 respectively.

37. Contingent Liabilities

There were contingent liabilities in respect of letters of guarantee issued by the Company, as guarantor, in favour of a bank in respect of banking facilities granted by the bank to the indirect subsidiaries of an investee company and the direct subsidiary of an associate. The banking facilities granted to the investee company’s indirect subsidiaries are also secured by the mortgage of the investment properties of the investee company’s indirect subsidiaries. The banking facilities granted to the associate’s direct subsidiary is also secured by the mortgage of the investment properties of the associate’s direct subsidiaries.

Indirect subsidiaries of an investee company: — Fortune Leader Overseas Chinese (Daiyawan) Real Estate Development Company Limited — Fortune Leader Overseas Chinese (Daiyawan) Investment Company Limited Direct subsidiary of an associate: — Great Fidelity Limited	Group At 31 December 2002 2003 2004 HK$ HK$ HK$ 5,913,000 13,573,000 13,573,000 — 9,855,000 9,855,000 — — 4,750,000 5,913,000 23,428,000 28,178,000	At 30 June 2005 HK$ 13,573,000 9,855,000 4,750,000
		28,178,000

38. Financial Risk Management

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest risk and price risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk

• (i) Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the HK dollar, US dollar and RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Since the exchange rate of RMB is subject to exchange control and HK dollar is pegged to US dollar, the directors consider that the Group’s foreign exchange risk is not significant.

• (ii) Price risk

The Group is exposed to price risk of equity securities, derivatives and embedded derivatives which are classified on the consolidated balance sheet either as availablefor-sale financial assets or as financial assets at fair value through profit or loss. The Group is not exposed to commodity price risk.

(b) Credit risk

The Group has no significant concentrations of credit risk. Derivative counterparties and cash transactions are limited to high-credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. The Group regards the maximum credit risk exposure limited to held-to-maturity debt securities, loans to an investee company, investment securities, other investments, available-for-sale financial assets, financial assets at fair value through profit or loss, other receivables, due from SINOX and cash with brokers.

(c) Liquidity risk

Management of the Group aims to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its investment commitments.

(d) Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s interest rate risk arises from other borrowing. The borrowing had interest at 2.01% per annum for the year ended 31 December 2004 and the six moths ended 30 June 2005. During the six months ended 30 June 2005, the borrowing was fully repaid.

39. Event After The Balance Sheet Date

On 28 November 2005, the Group entered into a sale and purchase agreement with City Court Properties Limited. Pursuant to the sale and purchase agreement, the Group has committed to dispose its entire equity interest in Dragon Fortune Ltd., representing approximately 18% of the issue share capital of Dragon Fortune Ltd., and a loan of approximately HK$48 million due from Dragon Fortune Ltd. for a consideration of HK$72 million. The principal activity of Dragon Fortune Ltd. is investment holding. The subsidiaries of Dragon Fortune Ltd. are principally engaged in the operation of golf club resort, and the development of golf course and real estate in the PRC. The sale and purchase agreement is conditional on, amongst other things, the approval by shareholders of the Company except Golden Resources Development International Limited, being shareholder of the purchaser. The shareholders’ meeting will be held on 10 January 2006. Upon completion of the sale, a gain of approximately HK$20.16 million will be recognised in the consolidated income statement.

Yours faithfully, RSM Nelson Wheeler

Certified Public Accountants

Hong Kong

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(B) INDEBTEDNESS

As at the close of business on 31 October 2005, being the latest practicable date for ascertaining information contained in this indebtedness statement prior to the printing of this circular, the Group had:

1. No outstanding borrowing from any financial institution and any party;

2. Contingent liabilities in respect of letters of guarantee issued by the Company, as guarantor, in favour of a bank in respect of banking facilities granted by the bank to the indirect subsidiaries of an investee company and a direct subsidiary of an associate. The banking facilities granted to the investee company’s indirect subsidiaries are also secured by the mortgage of the investment properties of the investee company’s indirect subsidiaries. The banking facilities granted to the associate’s direct subsidiary is also secured by the mortgage of the investment properties of the associate’s direct subsidiaries.

HK$

	HK$
Indirect subsidiaries of an investee company: — Fortune Leader Overseas Chinese (Daiyawan) Real Estate Development Company Limited — Fortune Leader Overseas Chinese (Daiyawan) Investment Company Limited Direct subsidiary of an associate: — Great Fidelity Limited	13,573,000 9,855,000 7,250,000
	30,678,000

Save as aforesaid or otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have, at the close of business on 31 October 2005, any outstanding mortgages, charges, debentures, bank loans and overdrafts, debt securities or loan notes or other similar indebtedness, loan capital issued or outstanding or agreed to be issued, finance leases, liabilities under acceptances or acceptance credits or any finance leases commitments, or any guarantees or other material contingent liabilities.

The Directors are not aware of any material adverse changes in the Group’s indebtedness position and contingent liabilities since 31 October 2005.

(C) MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

Set out below is the management discussion and analysis of the Group for the six months ended 30 June 2005:

For the six months ended 30 June 2005

Financial review

For the six months ended 30 June 2005, the Group’s turnover increased to approximately HK$1.28 million as compared to the unaudited consolidated results for the six months

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ended 30 June 2004 of approximately HK$1.25 million whereas the profit from operations was approximately HK$0.41million (2004: unaudited loss from operations of approximately HK$3.83 million). The six months ended 30 June 2005 resulted with a loss attributable to Shareholders of approximately HK$1.15 million (Same corresponding period in 2004: approximately HK$2.20 million). At 30 June 2005, the Group had a net cash balance of approximately HK$36.17 million and the total assets of the Group were approximately HK$256.72 million. The total shareholders’ fund of the Group as at 30 June 2005 is approximately HK$243.26 million and the net asset value per Share was 56 Hong Kong cents.

Business review

The Hong Kong capital market seems to be benefit from the stable economic growth in Hong Kong and the vigorous growth in the Mainland. However, increases in interest rates, macro economic measures adopted in the Mainland, fluctuation in the global oil prices and the currency markets will still be the factors that continuously influence the investor sentiment over the remaining part of 2005. Looking ahead, the Board believes that the business environment is going to improve and the Board will take a precaution measures before the identification of any investment opportunities which may benefit the prospects of the Group directly.

Subsequent to the disposal of its 25% interest in Shanghai Yong An Dairy Company Limited in December 2004 with an estimated loss on disposal of approximately HK$0.2 million and the disposal of the entire paid-up registered capital of Sun Kai Yip (Shanghai) Industrial Investments Limited on 18 March 2005 with a loss on disposal of approximately HK$1.9 million, the Group has continues to focus its efforts in rationalizing its investment portfolio. The Group will continue to identity and pursue any investment opportunities and manage the existing investments in accordance with the company’s investment objective and policy of achieving long-term capital appreciation and growth in profits.

As at the Latest Practicable Date, the Group held several significant investments, including (i) the investment in the properties development project in Hong Kong for residential or commercial purposes; (ii) investment in internet education business which focuses in interactive e-learning using multi-media technology platform; and (iii) investment in a wide variety of listed stocks and derivatives. The properties development project and internet education business is still under preliminary period and is expected to provide investment returns in the foreseeable future. The Board are of the view that the business operations and the performance of the Group will not have any effects after the Disposal.

The following is extracted from the past annual reports of the Company:

For the financial year ended 31 December 2004

Financial review

For the year ended 31 December 2004, the Group’s turnover increased to approximately HK$2.68 million as compared to the corresponding period for the year ended 31 December 2003 of approximately HK$2.49 million whereas the loss from operations

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

was approximately HK$9.64 million (2003: loss from operations of approximately HK$36.57 million). The year ended 31 December 2004 resulted with a loss attributable to Shareholders of approximately HK$3.78 million as compared to the same corresponding period in 2003 of approximately HK$24.78 million). At 31 December 2004, the Group had a net cash balance of approximately HK$67.63 million and the total assets of the Group were approximately HK$253.99 million. The total shareholders’ fund of the Group as at 31 December 2004 is approximately HK$234.62 million and the net asset value per Share was 54 Hong Kong cents.

Business review

The global and Hong Kong economies seem to be growing steadily in 2004. Result from the macro economic measures implemented for adjusting the Mainland economy begins to show and the likelihood of increasing in interest rates in the United States has also become obvious. These are the factors that have been putting much concern to investors over 2004. Looking ahead, the Board believes that the business environment is going to remain challenging and highly competitive and both the Global and Hong Kong economies will be blooming steadily.

The Group has continued to focus its efforts in rationalizing its investment portfolio. Pursuant to an agreement dated 11 September 2003, the Group committed to dispose its 35% equity interest in Shanghai Foodstuffs Factory Company Limited to a third party for a consideration of RMB4.8 million (approximately HK$4.5 million). Approval for the sale from relevant government authorities have been issued and the said consideration has been fully received in early September 2004.

On 9 September 2004, GR Investment Holdings Limited (“GRIHL”), an indirect whollyowned subsidiary of the Company, entered into a sale and purchase agreement with Citydragon Resources Limited, an indirect wholly-owned subsidiary of GRD which was a substantial shareholder of the Company incorporated in Bermuda and listed in Hong Kong, for the sale of the entire equity interest of the paid-up registered capital of Sun Kai Yip (Shanghai) Industrial Investments Limited (“SKY”), a wholly-owned subsidiary of GRIHL incorporated in the PRC, for a total consideration of approximately HK$65 million. The Board believes that the realization of its investment in SKY at a reasonable price is in the best interest of the Group and its shareholders.

During the year, the Group participated in the investment in the properties development project in Hong Kong for residential or commercial purposes and it is expected that this will provide significant investment returns to the Group in the foreseeable future under positive recovery of property market in Hong Kong.

With our strong cash flow and solid financial position, the Group will continue to evaluate potential investments with a view of gaining high investment returns and yields for the Shareholders.

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the financial year ended 31 December 2003

Financial review

For the year ended 31 December 2003, the Group’s turnover dropped to approximately HK$2.49 million as compared to the corresponding period for the year ended 31 December 2002 of approximately HK$3.94 million whereas the loss from operations was approximately HK$36.57 million (2002: loss from operations of approximately HK$1.96 million). The year ended 31 December 2003 resulted with a loss attributable to Shareholders of approximately HK$24.78 million (Same corresponding period in 2002: approximately HK$15.35 million). At 31 December 2003, the Group had a net cash balance of approximately HK$97.73 million and the total assets of the Group were approximately HK$275.16 million. The total shareholders’ fund of the Group as at 31 December 2003 is approximately HK$236.93 million and the net asset value per Share was 55 Hong Kong cents.

Business review

The Group has continued to focus its efforts in rationalizing the investment portfolio in both the PRC and Hong Kong. In April 2003, the Group entered into share transfer agreements with Sine Pharmaceutical Factory and Shanghai Medicine (Group) Company Limited respectively for the disposal of its entire equity interest of 30% of the paid-up registered capital of Shanghai Sine Pharmaceutical Corporation Limited (“Sine Pharm”) for a total consideration of RMB40.2 million (approximately HK$37.4 million). In December 2003, the entire equity interest of 25% of Victory Faith Investment Limited (“Victory Faith”) of the Group was disposed for a consideration of approximately HK$5.7 million. The Board considered that such disposal can lead the Group to have a strong position of cash flow.

The Board believes that the realization of its investments at reasonable prices is in the best interest of the Group and its shareholders. Investment projects with high value will be realized so as to provide resources to the Group for capturing better investment opportunities.

Pursuant to the ordinary resolutions passed at the special general meeting held on 17 June 2003, every ten ordinary shares of HK$0.01 each in the entire share capital of the Company were consolidated into one ordinary share of HK$0.10 each (“Consolidated Share”) (“Share Consolidation”) with effect from 18 June 2003 and that 323,964,000 Consolidated Shares of HK$0.10 each in the share capital of the Company were issued on 16 July 2003 by way of an open offer on the basis of three offer shares for every one Consolidated Share to qualifying shareholders (“Open Offer”).

The Board believes that the Share Consolidation will increase the nominal value of the shares and the trading price of the shares on the Stock Exchange, and should attract more institutional investors, thereby broadening the shareholder’s base. The Board further considers the Open Offer is an appropriate method to raise capital and it will not only enlarge the capital base of the Company but also allow the shareholders to participate in the growth of the Company. Both Share Consolidation and Open Offer are therefore in the interests of the Company and the Shareholders as a whole.

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

With our strong cash flow and solid financial position, the Group will continue to evaluate potential investments in both the PRC and Hong Kong with a view of gaining high investment returns and yields for our Shareholders.

(D) WORKING CAPITAL

The Directors are of the opinion that, taking into account the internal resources of the Group and the present available banking facilities, the Group will, immediately following the completion of the Disposal, have sufficient working capital for its present requirements.

(E) LIQUIDITY AND FINANCIAL RESOURCES

The operations of the Group are generally financed through its internal cash resources. As at 30 June 2005, cash and bank balances of the Group were approximately HK$36.17 million. Together with cash and other current assets of approximately HK$160.12 million as at 30 June 2005, the Group has sufficient cash resources to satisfy its commitments and working capital requirements. As at 30 June 2005, the current ratio of the Group was 11.89 and the gearing ratio of the Group was not applicable as there were no borrowings.

(F) EMPLOYEES

Total number of employees for the Group is 5. Remuneration policies are reviewed by the Group in accordance with the market situation and the performance of the employees from time to time. In addition to salary payment, other fringe benefits including retirement benefits scheme will be provided to the employees.

(G) FOREIGN EXCHANGE RISK

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the HK$, US$ and RMB. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

(H) CONTINGENT LIABILITIES

There were contingent liabilities in respect of letters of guarantee issued by the Company, as guarantor, in favour of a bank in respect of banking facilities granted by the bank to the indirect subsidiaries of an investee company and the direct subsidiary of an associate. The banking facilities granted to the investee company’s indirect subsidiaries are also secured by the mortgage of the investment properties of the investee company’s indirect subsidiaries. The banking facilities granted to the associate’s direct subsidiary is also secured by the mortgage of the investment properties of the associate’s direct subsidiaries.

As at 30 June 2005, the Company provided corporate guarantees for the banking facilities granted to indirect subsidiaries of an investee company, namely, Fortune Leader Overseas Chinese (Daiyawan) Real Estate Development Company Limited and Fortune Leader Overseas Chinese (Daiyawan) Investment Company Limited, for the amount of HK$13,573,000 and HK$9,855,000 respectively. The Company also provided corporate guarantees for the banking facilities granted to Great Fidelity Limited (a direct subsidiary of an associate) for an amount of HK$4,750,000.

— 72 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. LETTER FROM THE INDEPENDENT REPORTING ACCOUNTANTS

The following is the text of a report, prepared for the sole purpose of inclusion in this circular from the independent reporting accountants of the Company, RSM Nelson Wheeler, Certified Public Accountants, Hong Kong.

==> picture [154 x 55] intentionally omitted <==

23 December 2005

The Board of Directors Prosperity Investment Holdings Limited Room A, 11/F., Fortune House 61 Connaught Road Central Central Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the “Pro Forma Financial Information”) of Prosperity Investment Holdings Limited (formerly known as “GR Investment International Limited”) (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out in Appendix II of the circular of the Company dated 23 December 2005 (the “Circular”) in connection with the proposed disposal by the Group of 18% issued share capital of Dragon Fortune Ltd. (the “Disposal”). The Pro Forma Financial Information has been prepared by the directors of the Company, for illustrative purpose only, to provide information about how the Disposal might have affected the relevant information presented.

Responsibilities

It is the sole responsibility of the directors of the Company to prepare the Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the 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 Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

— 73 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Basis of opinion

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

Our work did not constitute an audit or a review in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants and, accordingly, we do not express any such assurance on the Pro Forma Financial Information.

The Pro Forma Financial Information has been compiled in accordance with the section headed “Basis of Preparation” set out in Appendix II of the Circular for illustrative purposes only and, because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

• (a) the financial position of the Group at 30 June 2005 or any future date had the Disposal been completed at 30 June 2005; or

• (b) the results and cash flows of the Group for the six months ended 30 June 2005 or any future period had the Disposal been completed at 1 January 2005.

Opinion

In our opinion:

• (a) the Pro Forma Financial Information has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustment is appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

RSM Nelson Wheeler

Certified Public Accountants

Hong Kong

— 74 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

I. Basis of Preparation

The unaudited pro forma financial information comprises unaudited pro forma consolidated balance sheet of the Group as at 30 June 2005, unaudited pro forma consolidated income statement and unaudited pro forma consolidated cash flow statement of the Group for the six months ended 30 June 2005 and the accompanying note (collectively referred to as the “Pro Forma Financial Information”).

For illustrative purposes only, the Pro Forma Financial Information prepared in accordance with paragraph 29 of Chapter 4 of the Listing Rules is set out below to illustrate the effect of the proposed disposal of the 18% issued share capital of Dragon Fortune Ltd. (the “Disposal”) by the Group on (i) the consolidated balance sheet of the Group as at 30 June 2005 as if the Disposal had taken place on 30 June 2005; and (ii) the consolidated income statement and consolidated cash flow statement of the Group for the six months ended 30 June 2005 as if the Disposal had taken place on 1 January 2005.

The Pro Forma Financial Information has been prepared based on the audited consolidated financial information of the Group for the six months ended 30 June 2005 as set out in the Accountants’ Report in Appendix I of this circular after giving effect to the pro forma adjustment described in the accompanying note.

The Pro Forma Financial Information has been prepared for illustrative purposes only and, because of its nature, may not give a true picture of the actual financial position, results of operations or cash flows of the Group that would have been attained had the Disposal actually occurred on the dates indicated herein. In addition, the Pro Forma Financial Information does not purport to predict the Group’s future financial position, results of operations or cash flows.

The Pro Forma Financial Information should be read in conjunction with the Accountants’ Report on the Group as set out in Appendix I and other financial information included elsewhere in this circular.

— 75 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

II. Unaudited Pro Forma Consolidated Balance Sheet of the Group As at 30 June 2005

Non-current assets Interests in associates Interests in jointly controlled entities Available-for-sale financial assets Other asset Current assets Available-for-sale financial assets Financial assets at fair value through profit or loss Other receivables Due from Sinox Fund Management Limited Cash with brokers Cash and bank balances _Less:_Current liabilities Other payables Provision for taxation Net current assets NET ASSETS Capital and reserves Share capital Reserves SHAREHOLDERS’ FUNDS	Audited consolidated balance sheet as at Pro Forma 30 June 2005 adjustments HK$ HK$ HK$ Note 1 Note 2 17,562,305 2,773,428 76,120,501 150,000 96,606,234 3,698,235 (3,698,235) 27,298,036 92,713,485 (48,139,675) 236,743 6,867,159 29,304,762 72,000,000 160,118,420 74,000 13,390,053 13,464,053 146,654,367 243,260,601 43,195,200 200,065,401 (51,837,910) 72,000,000 243,260,601	Unaudited pro forma consolidated balance sheet after the Disposal HK$ 17,562,305 2,773,428 76,120,501 150,000
		96,606,234 — 27,298,036 44,573,810 236,743 6,867,159 101,304,762
		180,280,510
		74,000 13,390,053
		13,464,053
		166,816,457
		263,422,691
		43,195,200 220,227,491
		263,422,691

— 76 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

III. Unaudited Pro Forma Consolidated Income Statement of the Group For the six months ended 30 June 2005

Turnover Other revenue Investment management fees Staff costs Other operating expenses Total operating expenses Profit from operations Finance costs Share of net profits of jointly controlled entities Loss on disposal of a subsidiary (Loss)/profit before taxation Taxation (Loss)/profit attributable to shareholders	Audited consolidated income statement for the six months ended Pro Forma 30 June 2005 adjustments HK$ HK$ HK$ Note 1 Note 2 1,280,936 2,752,802 (51,837,910) 72,000,000 4,033,738 (1,751,010) (231,255) (1,643,610) (3,625,875) 407,863 (38,169) 575,386 (1,943,920) (998,840) (155,354) (1,154,194)	Unaudited pro forma consolidated income statement after the Disposal HK$ 1,280,936 22,914,892 24,195,828 (1,751,010) (231,255) (1,643,610) (3,625,875) 20,569,953 (38,169) 575,386 (1,943,920) 19,163,250 (155,354) 19,007,896

— 77 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

IV. Unaudited Pro Forma Consolidated Cash Flow Statement of the Group For the six months ended 30 June 2005

Audited consolidated cash flow statement for the six months ended Pro Forma 30 June 2005 adjustments HK$ HK$ HK$ Note 1 Note 2 CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation (998,840) (51,837,910) 72,000,000 Adjustments for: Dividend income from investment securities and other investments/ financial assets (1,163,012) Loss on disposal of a subsidiary 1,943,920 Gain on disposal of investment securities and other investments/ financial assets (1,091,310) Interest expenses 33,854 Gain on disposal of available- for-sale financial assets — 51,837,910 (72,000,000) Interest income (1,008,560) Provision for impairment of interests in jointly controlled entities 223,671 Unrealised losses on financial assets at fair value through profit or loss 428,514 Share of net profits of jointly controlled entities (575,386) Operating loss before working capital changes (2,207,149) Decrease in other receivables 443,848 Decrease in amount due from Sinox Fund Management Limited 648,981 Increase in other payables 1,041,972 Net cash used in operating activities (72,348)

Unaudited pro forma consolidated cash flow statement after the Disposal HK$ 19,163,250 (1,163,012) 1,943,920 (1,091,310) 33,854 (20,162,090) (1,008,560) 223,671 428,514 (575,386) (2,207,149) 443,848 648,981 1,041,972 (72,348)

— 78 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Audited consolidated cash flow statement for the six months ended Pro Forma 30 June 2005 adjustments HK$ HK$ HK$ Note 1 Note 2 CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from investment securities and other investments/ financial assets 1,163,012 Interest received 1,008,560 Acquisition of financial assets at fair value through profit or loss (15,600,000) Acquisition of available-for-sale financial assets (16,469,156) Disposal of a subsidiary (1,426,454) Proceeds from sale of financial assets at fair value through profit or loss 5,432,550 Interest paid (33,854) Proceeds from sale of available- for-sale financial assets — 72,000,000 Net cash (used in)/generated from investing activities (25,925,342) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of other borrowings (5,460,000) NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS (31,457,690) CASH AND CASH EQUIVALENTS AT 1 JANUARY 67,629,611 CASH AND CASH EQUIVALENTS AT 30 JUNE 36,171,921 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash with brokers 6,867,159 Cash and bank balances 29,304,762 72,000,000 36,171,921

Unaudited pro forma consolidated cash flow statement after the Disposal HK$ 1,163,012 1,008,560 (15,600,000) (16,469,156) (1,426,454) 5,432,550 (33,854) 72,000,000 46,074,658 (5,460,000) 40,542,310 67,629,611 108,171,921 6,867,159 101,304,762 108,171,921

— 79 —

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

V. Notes to Unaudited Pro Forma Financial Information of the Group For the six months ended 30 June 2005

1. To reflect transfer out of the equity interests in Dragon Fortune Ltd. and the loan advanced to Dragon Fortune Ltd. as if the Disposal actually occurred on the dates indicated herein.

2. To reflect cash consideration of HK$72,000,000 received from the Disposal, and the resulting gain on disposal of HK$20,162,090.

— 80 —

GENERAL INFORMATION

APPENDIX III

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 facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

As at the Latest Practicable Date, none of the Directors nor any of their associates had any interest or short positions in the Shares or underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which would be required pursuant to section 352 of the SFO to be entered in the register referred to therein, or pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules, would be required to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following persons had interests and short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or would be interested in 5% 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 members of the Group.

— 81 —

GENERAL INFORMATION

APPENDIX III

Long positions in shares of the Company

					Percentage of
					issued share
	Personal*	Family +	Corporate #	Total	capital of the
Name	Interests	Interests	Interests	Interests	Company	Notes
Baron Strategic Holdings Limited	—	—	78,261,016	78,261,016	18.12%	1
Wan Chuen Chun, Joseph	—	—	78,261,016	78,261,016	18.12%	1
Aimstar Investments Limited	—	—	34,000,000	34,000,000	7.87%	2
Sze Sun Sun, Tony	—	—	34,000,000	34,000,000	7.87%	2
Cosmopolitan International	—	—	29,092,084	29,092,084	6.74%
Holdings Limited

• Beneficial owner

• • Interests of spouse

• Interests beneficially held by the company itself or through companies controlled by it

Notes:

1. International Securities Investments Limited held 78,261,016 shares and was a wholly-owned subsidiary of Baron Capital Limited. Baron Capital Limited was a wholly-owned subsidiary of Baron Strategic Holdings Limited which in turn was wholly-owned by Mr. Wan Chuen Chung, Joseph. Accordingly, Baron Capital Limited, Baron Strategic Holdings Limited and Mr. Wan Chuen Chung, Joseph were all deemed to be interested in the 78,261,016 shares held by International Securities Investments Limited.

2. Aimstar Investments Limited was wholly-owned by Mr. Sze Sun Sun, Tony. Mr. Sze Sun Sun, Tony was therefore deemed to be interested in the 34,000,000 shares held by Aimstar Investments Limited.

Save as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other person who had an interest or short position in the shares or underlying shares of the Company as recorded in the register that required to be kept by the Company pursuant to Section 336 of the SFO and/or were directly or indirectly interested in 5% or more of the nominal value of the share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group.

4. MATERIAL ADVERSE CHANGES

The Directors are not aware of any material adverse changes in the financial and trading position of the Group since 30 June 2005, the date to which the latest published audited consolidated accounts of the Group were made up.

— 82 —

GENERAL INFORMATION

APPENDIX III

5. LITIGATION

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

6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Company or its subsidiaries and are or may be material within the two years immediately preceding the issue of this circular:

1. the conditional sale and purchase agreement dated 9 September 2004 entered into between Citydragon Resources Limited (an indirect wholly-owned subsidiary of GRD) and GR Investment Holdings Limited (an indirect wholly-owned subsidiary of the Company) in respect of the sale and purchase of the entire paid-up registered capital of Sun Kai Yip (Shanghai) Industrial Investments Limited for a consideration of approximately HK$65.12 million;

2. the sale and purchase agreement dated 29 December 2004 entered into between Founder China Industrial Investments Company Limited (an indirect wholly-owned subsidiary of the Company) and an independent third party in respect of the disposal of 25% equity interests in Shanghai Yong An Dairy Company Limited for a consideration of RMB2.8 million (approximately HK$2.6 million); and

3. the Sale and Purchase Agreement.

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates had any interests in a business, which competed or may compete, either directly or indirectly, with the business of the Group.

8. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service agreement with any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

— 83 —

GENERAL INFORMATION

APPENDIX III

9. EXPERTS AND CONSENTS

• (a) The following is the qualification of the experts who have given an opinion or advice, which is contained or referred to in this circular:

Name

Qualification

RSM Nelson Wheeler Certified Public Accountants

• (b) RSM Nelson Wheeler does not have any shareholding, directly or indirectly, in any member of the Group or any rights (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) RSM Nelson Wheeler has given and has not withdrawn its written consent to the issue of this circular, with the inclusion of its letter or references to its name in the form and context in which they are included.

• (d) RSM Nelson Wheeler does not have any direct or indirect interest in any assets which have been, since 30 June 2005 (being the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

10. MISCELLANEOUS

• (a) Since 30 June 2005, being the date to which the latest published audited consolidated accounts of the Group were made up, none of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of by or leased to any member of the Group, or proposed to be acquired or disposed of by or leased to any member of the Group, or proposed to be acquired or disposed of by or leased to any member of the Group.

• (b) Save as disclosed herein, no material contracts have been entered into as of the Latest Practicable Date in which a Director is materially interested and which is significant in relation to the business of the Group.

• (c) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The head office and principal place of business of the Company in Hong Kong is located at Room A, 11th Floor, Fortune House, 61 Connaught Road Central, Central, Hong Kong.

• (d) The company secretary of the Company is Mr. LEE Yip Wah, Peter, Hong Kong lawyer.

— 84 —

GENERAL INFORMATION

APPENDIX III

• (e) The auditor of the Company is RSM Nelson Wheeler, the certified public accountants. The qualified accountant of the Company is Mr. CHEUK Yuk Lung, who is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.

• (f) The share registrars of the Company in Hong Kong is Secretaries Limited situated at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong (with effect from 3 January 2006, the address of Secretaries Limited will be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong).

• (g) The English text of this circular shall prevail over the Chinese version for the purposes of interpretation.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Hong Kong principal office of the Company at Room A, 11th Floor, Fortune House, 61 Connaught Road Central, Central, Hong Kong, up to and including the date of SGM:

• (a) the memorandum and articles of association of the Company;

• (b) the annual report of the Group for the three years ended 31 December 2004;

• (c) the accountant’ report of the Group, the text of which is set out in Appendix I to this circular;

• (d) the circular of the Company dated 18 February 2005 in relation to the very substantial disposal and connected transaction for disposal of Sun Kai Yip (Shanghai) Industrial Investments Limited;

• (e) the material contracts referred to in the paragraph headed “Material Contracts” in this appendix;

• (f) the letter from RSM Nelson Wheeler setting out their opinion on the adjustment made on the Pro Forma Financial Information of the Group as set out in Appendix II to this circular; and

• (g) the consent letter from RSM Nelson Wheeler referred to under the section headed “Experts and consents” in this appendix.

— 85 —

NOTICE OF SGM

PROSPERITY INVESTMENT HOLDINGS LIMITED 嘉進投資國際有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 310)

NOTICE IS HEREBY GIVEN THAT a special general meeting (the “SGM”) of Prosperity Investment Holdings Limited (the “Company”) will be held at World Trade Centre Club Hong Kong at 38th Floor, World Trade Centre, 280 Gloucester Road, Causeway Bay, Hong Kong on Tuesday, 10 January 2006 at 10:30 a.m. for the purpose of considering and, if thought fit, passing the following resolution, with or without modifications, as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT

• (a) the sale and purchase agreement (the “Sale and Purchase Agreement”) dated 28 November 2005 entered into between Rich Profits Int’l Limited (as “Vendor”), an indirect whollyowned subsidiary of the Company, and City Court Properties Limited (as “Purchaser”) (a copy of which is tabled at the meeting and marked “A” and initialed by the chairman of the meeting for identification purpose) in relation to the sale by the Vendor and purchase by the Purchaser of the 18% issued share capital of Dragon Fortune Ltd. (“Dragon Fortune”) and the sale loan of HK$48,139,674.25 due and owing by Dragon Fortune to Rich Profits which is unsecured and interest free and will be sold and assigned to the Purchaser, details of which are set out in the circular issued by the Company dated 23 December 2005 (a copy of which is tabled at the meeting and marked “B” and initialed by the chairman of the meeting for identification purpose), be and is hereby approved, ratified and confirmed;

• (b) all transactions contemplated under the Sale and Purchase Agreement and implementation thereof and are hereby approved, ratified and confirmed; and

— 86 —

NOTICE OF SGM

• (c) the director of the Company be and is hereby authorized to do all things and acts and sign all documents which they consider necessary, desirable or expedient in connection with the transactions contemplated under the Sale and Purchase Agreement.”

By order of the Board

PROSPERITY INVESTMENT HOLDINGS LIMITED LAM Wo

Chairman

Hong Kong, 23 December 2005

Notes:

1. A form of proxy for use at the meeting is enclosed herewith.

2. A shareholder entitled to attend and vote at the special general meeting is entitled to appoint one or more proxies to attend and vote instead of him/her. A proxy need not be a shareholder of the Company.

3. To be valid, a form of proxy, together with the power of attorney (if any) or other authority (if any) under which it is signed or a notarially certified copy of the power of attorney or authority, must be completed, signed and deposited with the share registrars of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong (with effect from 3 January 2006, the address of Secretaries Limited will be relocated to 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong) as soon as practicable but in any event not later than 48 hours before the time appointed for the holding of the meeting or the adjourned meeting (as the case may be).

4. Delivery of an instrument appointing a proxy shall not preclude a shareholder from attending and voting in person at the meeting or at any adjourned meeting therefore (as the case may be) should you so wish, and in such event, the instrument appointing a proxy shall be deemed to be revoked.

— 87 —