THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect about this circular or as to the action to be taken, you should consult your licensed securities dealer, registered institution 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 (the “Company”) , you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or the transferee or to the bank, licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

This circular is addressed to the shareholders of the Company in connection with the special general meeting of the Company (the “SGM”) to be held on Tuesday, 26 February 2008. This circular does not constitute an offer for, nor is it intended to invite offers for, shares in, or other securities of the Company.

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

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 310)

PROPOSED SHARE CONSOLIDATION AND PROPOSED OPEN OFFER OF 34,896,400 OFFER SHARES AT HK$1.00 PER OFFER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO CONSOLIDATED SHARES HELD ON THE RECORD DATE

Financial Adviser to the Company

Underwriter Favor Hero Investments Limited

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

Shareholders should note that the Underwriting Agreement (as defined herein) contains provisions entitling the Underwriter (as defined herein) to terminate its obligations thereunder in writing if at any time prior to 4:00 p.m. on the Settlement Date (as defined herein):

(i) there occurs:
(a) an introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof); or
(b) any local, national or international event or change (whether or not forming part of series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or currency (including a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America) or other nature (whether or not ejusdem generis with any of the foregoing) or of the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting the local securities market;

and in the reasonable opinion of the Underwriter, such change would have a material and adverse effect on the business, financial or trading position or prospects of the Group (as defined herein) as a whole or the success of the Open Offer (as defined herein) or make it inadvisable or inexpedient to proceed with the Open Offer.

(ii) the Company commits any material breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission will have a material and adverse effect on its business, financial or trading position; or
(iii) the Underwriter shall receive notification pursuant to the Underwriting Agreement of, or shall otherwise become aware of, the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate, and the Underwriter shall, in its reasonable opinion, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Open Offer; or
(iv) the Company shall, after any matter or event referred to in the Underwriting Agreement has occurred or come to the Underwriter’s attention, fail promptly to send out any announcement or circular (after the despatch of the Circular (as defined herein) or the Prospectus Documents (as defined herein)), in such manner (and as appropriate with such contents) as the Underwriter may reasonably request for the purpose of preventing the creation of a false market in the securities of the Company.

Shareholders (as defined herein) should note that the Existing Shares (as defined herein) will be dealt in on an ex-entitlement basis commencing from Tuesday, 19 February 2008 and that dealings in the Existing Shares (or the Consolidated Shares (as defined herein) upon the Share Consolidation (as defined herein) becoming effective) will take place while the conditions to which the Underwriting Agreement is subject to remain unfulfilled. Any Shareholder or other person dealing in the Existing Shares (or the Consolidated Shares upon the Share Consolidation becoming effective) up to the date on which all conditions to which the Open Offer is subject to are fulfilled (which is expected to be on Friday, 14 March 2008), will accordingly bear the risk that the Open Offer may not become unconditional and may not proceed. Shareholders and potential investors of the Company should therefore exercise extreme caution when dealing in the Existing Shares (or the Consolidated Shares upon the Share Consolidation becoming effective), and if they are in any doubt about their positions, they should consult their professional advisers.

A notice convening the SGM (as defined herein) to be held at World Trade Centre Club Hong Kong at 38th Floor, World Trade Centre, 280 Gloucester Road, Causeway Bay, Hong Kong at 11:00 a.m. on Tuesday, 26 February 2008 is set out on pages 110 to 113 of this circular. A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time for holding the SGM or any adjourned meeting thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof (as the case may be) should you so wish.

* For identification purpose only

6 February 2008

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Termination of the Underwriting Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Proposed Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Proposed Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Underwriting arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Warning of the risk of dealings in the Existing Shares . . . . . . . . . . . . . . . . . . . . . .	22
Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Reasons for the Open Offer and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Fund raising activities of the Company in the last twelve months . . . . . . . . . . . . .	24
Adjustments in relation to the CIF Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Procedures for demanding a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Letter from Nuada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
Appendix I — Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . .	43
Appendix II — Unaudited pro forma financial information of the Group . . . . . .	96
Appendix III — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	101
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	110
*Accompanying: Form of proxy*

— i —

DEFINITIONS

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

“Announcement”	the announcement of the Company dated 17 January 2008
	in relation to, among others, the proposed Share
	Consolidation and the Open Offer
“Announcement Date”	17 January 2008, being the date of the Announcement
“Application Form”	the form of application for the Offer Shares by Qualifying
	Shareholders in respect of the Open Offer proposed to
	be issued to the Qualifying Shareholders, being in such
	form as may be prescribed by the Company
“associate(s)”	has the meaning ascribed thereto under the Listing Rules
“Baron Capital”	Baron Capital Limited, a corporation licensed to carry
	on Type 1 (dealing in securities) and Type 6 (advising
	on corporate finance) regulated activities under the SFO
“Board”	board of Directors
“Business Day”	a day on which banks are open for business in Hong
	Kong other than a Saturday, Sunday or public holiday
“Capital Builder”	Capital Builder Investments Limited, a company
	incorporated in the British Virgin Islands and is wholly
	owned by Madam Mak, the spouse of Mr. Wan, who is
	the beneficial owner of Baron Capital
“CCASS”	the Central Clearing and Settlement System established
	and operated by HKSCC
“CIF”	China Investment Fund Company Limited, a company
	incorporated in the Cayman Islands with limited liability,
	the shares of which are listed on the main board of the
	Stock Exchange (stock code: 612)

— 1 —

DEFINITIONS

“CIF Option”	the option granted by the Company which entitles CIF
	to subscribe for a maximum of 86,000,000 Existing
	Shares pursuant to the terms of the agreement dated 17
	August 2007 entered into between the Company and CIF
	in respect of, among other things, the granting of the
	CIF Option by the Company to CIF and as at the Latest
	Practicable Date, the CIF Option has been exercised to
	the extent of 50,000,000 Existing Shares
“CIF Undertaking Letter”	the irrevocable undertaking dated 17 January 2008
	executed by CIF pursuant to the Supplemental Agreement
“Circular”	this circular despatched to the Shareholders together with
	a notice convening the SGM and proxy forms containing,
	inter alia, details of the Share Consolidation and the Open
	Offer
“Company”	Prosperity Investment Holdings Limited, a company
	incorporated in Bermuda with limited liability, the issued
	Shares of which are listed on the main board of the
	Stock Exchange
“Companies Act”	the Companies Act 1981 of Bermuda, as amended
“Companies Ordinance”	the Companies Ordinance, Chapter 32 of the Laws of
	Hong Kong (as amended from time to time)
“Consolidated Share(s)”	consolidated ordinary share(s) of HK$0.10 each in the
	issued and unissued share capital of the Company upon
	the Share Consolidation becoming effective
“Controlling Shareholder”	has the meaning ascribed thereto under the Listing Rules
“Director(s)”	director(s) of the Company
“Excluded Shareholder(s)”	those Overseas Shareholder(s) to whom the Company
	considers it necessary or expedient not to offer the Offer
	Shares based on the enquiry made by the Company
	regarding the legal restrictions, if any, under the laws of
	the relevant place and the requirements of the relevant
	regulatory body or stock exchange in the place where
	the Overseas Shareholder(s) reside

— 2 —

DEFINITIONS

“Existing Share(s)”	existing ordinary share(s) of HK$0.01 each in the issued
	and unissued share capital of the Company, before the
	implementation of the Share Consolidation
“Group”	the Company and its subsidiaries
“HKSCC”	Hong Kong Securities Clearing Company Limited
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Independent Board Committee”	an independent committee of the Board, comprising Mr.
	Chan Fai Yue, Leo, Mr. Yan Mou Keung, Ronald and
	Mr. Chan Siu Wing, Raymond, all being independent
	non-executive Directors, established to advise the
	Independent Shareholders on the fairness and
	reasonableness of the terms of the Open Offer
“Independent Shareholders”	Shareholders other than the Underwriter, Mr. Lam and
	their respective associates and those other Shareholders
	who are required to abstain from voting on the respective
	resolution(s) at the SGM
“International Securities”	International Securities Investments Limited, a company
	incorporated in Samoa with limited liability, which is a
	wholly owned subsidiary of Capital Builder
“Last Trading Day”	15 January 2008, being the last trading day prior to the
	suspension of trading in the Existing Shares pending the
	release of the Announcement
“Latest Practicable Date”	1 February 2008, being the latest practicable date for
	ascertaining certain information for inclusion in this
	circular
“Latest Time for Acceptance”	4:00 p.m. on 12 March 2008 or such other time or date
	as the Underwriter may agree in writing with the
	Company as the latest time for acceptance of, and
	payment for, the Offer Shares
“Listing Committee”	the Listing Committee of the Stock Exchange
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange

— 3 —

DEFINITIONS

“Madam Mak”	Madam Mak Wai Chun, the spouse of Mr. Wan
“Mr. Lam”	Mr. Lam Kwing Wai, Alvin
“Mr. Wan”	Mr. Wan Chuen Chung, Joseph, the spouse of Madam
	Mak
“Nuada”	Nuada Limited, a corporation licensed to carry on Type
	6 (advising on corporate finance) regulated activity under
	the SFO, and the independent financial adviser to the
	Independent Board Committee and the Independent
	Shareholders in respect of the Open Offer
“Offer Shares”	34,896,400 Consolidated Shares to be offered to the
	Qualifying Shareholders for subscription pursuant to the
	Open Offer
“Open Offer”	the proposed offer by way of open offer of the Offer
	Shares at the Subscription Price on the basis of an assured
	allotment for the Qualifying Shareholders of one Offer
	Share for every two Consolidated Shares held on the
	Record Date on the terms and subject to the conditions
	to be set out in the Prospectus Documents and the
	Underwriting Agreement and as summarised in this
	circular
“Overseas Letter”	a letter from the Company to the Excluded Shareholders
	explaining the circumstances in which the Excluded
	Shareholders are not eligible to participate in the Open
	Offer
“Overseas Shareholders”	the Shareholders whose addresses as shown on the
	register of members of the Company as at 4:00 p.m. on
	the Record Date are outside Hong Kong
“Ping An Securities”	Ping An Securities Limited, a corporation licensed to
	carry on Type 1 (dealing in securities), Type 4 (advising
	on securities), Type 6 (advising on corporate finance)
	and Type 9 (asset management) regulated activities under
	the SFO
“Posting Date”	27 February 2008, or such other date as the Underwriter
	may agree in writing with the Company for the despatch
	of the Prospectus Documents

— 4 —

DEFINITIONS

“PRC”	the People’s Republic of China (which, for the purpose
	of this circular excludes Hong Kong, the Macau Special
	Administrative Region of the PRC and Taiwan)
“Prospectus”	the prospectus containing details of the Open Offer to
	be despatched to the Qualifying Shareholders in
	connection to the Open Offer and, for information only,
	to the Overseas Shareholders on the Posting Date in such
	form as may be agreed between the Company and the
	Underwriter
“Prospectus Documents”	the Prospectus and the Application Form
“Qualifying Shareholders”	the Shareholders, other than the Excluded Shareholders,
	whose names appear on the register of members of the
	Company as at 4:00 p.m. on the Record Date
“Record Date”	26 February 2008, or such other date the Underwriter
	may agree in writing with the Company and is the date
	used for determining the eligibility of the Shareholders
	to the Open Offer
“Registrar”	Tricor Secretaries Limited, the branch share registrar of
	the Company in Hong Kong whose address is at 26th
	Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai,
	Hong Kong
“Settlement Date”	the second Business Day following the Latest Time for
	Acceptance or such other date as the Underwriter may
	agree in writing with the Company, which is expected to
	be on or around 14 March 2008
“SFC”	the Securities and Futures Commission
“SFO”	Securities and Futures Ordinance, Chapter 571 of the
	Laws of Hong Kong
“SGM”	the special general meeting of the Company to be
	convened at 11:00 a.m. on Tuesday, 26 February 2008
	at World Trade Centre Club Hong Kong at 38th Floor,
	World Trade Centre, 280 Gloucester Road, Causeway
	Bay, Hong Kong for the purpose of approving, among
	other things, the Share Consolidation and the Open Offer

— 5 —

DEFINITIONS

“Share Consolidation”	the consolidation of every ten issued and unissued
	Existing Shares into one Consolidated Share
“Shareholder(s)”	holder(s) of Existing Shares or Consolidated Shares (as
	the case may be)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription Price”	the subscription price of HK$1.00 per Offer Share
	pursuant to the Open Offer
“Supplemental Agreement”	the supplemental agreement dated 17 January 2008
	entered into between the Underwriter and the Company
	to amend certain terms of the Underwriting Agreement
“Underwriter”	Favor Hero Investments Limited, a company incorporated
	in the British Virgin Islands with limited liability and a
	Controlling Shareholder of the Company holding
	approximately 50.72% of the issued share capital of the
	Company as at the Latest Practicable Date. Favor Hero
	Investments Limited is beneficially wholly owned by Mr.
	Lam, who is an executive Director
“Underwriting Agreement”	the underwriting agreement dated 15 January 2008
	entered into between the Underwriter and the Company
	in relation to the underwriting of the Open Offer (as
	amended by the Supplemental Agreement)
“%”	per cent.

— 6 —

TERMINATION OF THE UNDERWRITING AGREEMENT

Shareholders should note that the Underwriting Agreement contains provisions entitling the Underwriter to terminate its obligations thereunder in writing if at any time prior to 4:00 p.m. on the Settlement Date:

(i) there occurs:

(a) an introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof); or
(b) any local, national or international event or change (whether or not forming part of series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or currency (including a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America) or other nature (whether or not ejusdem generis with any of the foregoing) or of the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting the local securities market;

and in the reasonable opinion of the Underwriter, such change would have a material and adverse effect on the business, financial or trading position or prospects of the Group as a whole or the success of the Open Offer or make it inadvisable or inexpedient to proceed with the Open Offer.

(ii) the Company commits any material breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission will have a material and adverse effect on its business, financial or trading position; or
(iii) the Underwriter shall receive notification pursuant to the Underwriting Agreement of, or shall otherwise become aware of, the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate, and the Underwriter shall, in its reasonable opinion, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Open Offer; or
(iv) the Company shall, after any matter or event referred to in the Underwriting Agreement has occurred or come to the Underwriter’s attention, fail promptly to send out any announcement or circular (after the despatch of the Circular or the Prospectus Documents), in such manner (and as appropriate with such contents) as the Underwriter may reasonably request for the purpose of preventing the creation of a false market in the securities of the Company.

— 7 —

EXPECTED TIMETABLE

Set out below is an indicative timetable for the implementation of the Share Consolidation and the Open Offer:

2008
(Note 1)
Last day of dealings in the Existing Shares on
a cum-entitlement basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 18 February
Commencement of dealings in the Existing Shares on
an ex-entitlement basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 19 February
Latest time for lodging transfers of the Existing Shares
accompanied by the relevant share certificate in order to 4:00 p.m. on Wednesday,
qualify for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 February
Latest time for lodging forms of proxy for the SGM . . . . . . . . . . . . . . . . 11:00 a.m. on Sunday,
24 February
Register of members closes (both dates inclusive) . . . . . . . . . . . . . . Thursday, 21 February to
Tuesday, 26 February
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on Tuesday, 26 February
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 26 February
Announcement of the results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 26 February
Effective date of the Share Consolidation . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 27 February
Despatch of the Prospectus Documents to the Qualifying
Shareholders and the Overseas Letter together with
the Prospectus, for information only, to the Excluded
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 27 February
Dealings in the Consolidated Shares commence . . . . . . . . . . . . . . . . . Wednesday, 27 February
Original counter for trading in the Existing Shares
in board lots of 20,000 Existing Shares
temporarily closes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9:30 a.m. on Wednesday, 27 February
Temporary counter for trading in the Consolidated Shares
(represented by existing certificates for the Existing Shares)
in board lots of 2,000 Consolidated Shares opens . . . . . . . . . . . . . .9:30 a.m. on Wednesday,
27 February

— 8 —

EXPECTED TIMETABLE

First day of free exchange of existing certificates for the Existing Shares for new certificates for the Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 27 February Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 27 February Original counter for trading in the Consolidated Shares (represented by new certificates for the Consolidated Shares) in board lots of 20,000 Consolidated Shares reopens . . . . . . . . . . .9:30 a.m. on Wednesday, 12 March Parallel trading in the Consolidated Shares (represented by both existing and new share certificates) commences . . . . . . . . . . . . . . .9:30 a.m. on Wednesday, 12 March Designated broker starts to stand in the market to provide matching service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 12 March Latest time for the payment for and acceptance of the Offer Shares (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 12 March Latest time and date for the Open Offer to become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Friday, 14 March Announcement of the results of the Open Offer . . . . . . . . . . . . . . . . . . . . . . . Monday, 17 March Despatch of share certificates for the Offer Shares . . . . . . . . . . . . . . . . . . . . Tuesday, 18 March Dealings in the Offer Shares commence . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 20 March Temporary counter for trading in the Consolidated Shares (represented by existing certificates for the Existing Shares) in board lots of 2,000 Consolidated Shares closes . . . . . . . . . 4:00 p.m. on Monday, 7 April Parallel trading in the Consolidated Shares (represented by both existing and new certificates) ends . . . . . . . . . . . . . . . . . 4:00 p.m. on Monday, 7 April Designated broker ceases to stand in the market to provide matching service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 7 April Last day of free exchange of existing certificates for the Existing Shares for new certificates for the Consolidated Shares . . . . . . . . . . . . . . . . Friday, 11 April

— 9 —

EXPECTED TIMETABLE

Notes:

All times and dates refer to Hong Kong local times and dates.
The Latest Time for Acceptance will not take place if there is:
a tropical cyclone warning signal number 8 or above, or
a “black” rainstorm warning
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on 12 March 2008. Instead the Latest Time for Acceptance will be extended to 5:00 p.m. on the same Business Day;
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on 12 March 2008. Instead the Latest Time for Acceptance will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m..

If the Latest Time for Acceptance does not take place on 12 March 2008, the dates mentioned in the section headed “Expected timetable” in this circular may be affected. An announcement will be made by the Company in such event advising the revised dates.

Dates or deadlines specified in this circular for events in the timetable for (or otherwise in relation to) the Share Consolidation and the Open Offer are indicative only and may be extended or varied by agreement between the Company and the Underwriter and in accordance with the applicable rules and regulations. Any consequential changes to the expected timetable for the Share Consolidation and the Open Offer will be published by way of an announcement.

— 10 —

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: Mr. Lam Kwing Wai, Alvin Mr. Cheuk Yuk Lung Ms. Tsui Yee Ni

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

Independent non-executive Directors:

Mr. Chan Siu Wing, Raymond Mr. Yan Mou Keung, Ronald Mr. Chan Fai Yue, Leo

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

6 February 2008

To the Shareholders

Dear Sir or Madam,

INTRODUCTION

On 17 January 2008, the Company announced that the Board proposed to implement the Share Consolidation pursuant to which every ten Existing Shares of HK$0.01 each will be consolidated into one Consolidated Share of HK$0.10. Subject to the Share Consolidation becoming effective, the Board proposes to raise approximately HK$34.90 million before expenses by issuing 34,896,400 Offer Shares at the subscription price of HK$1.00 per Offer Share by way of the Open Offer, payable in full on application, on the basis of one Offer Share for every two Consolidated Shares held by the Qualifying Shareholders on the Record Date. The Open Offer is not available to the Excluded Shareholders. Qualifying Shareholders are not entitled to apply for any Offer Shares which are in excess of their assured allotments.

* For identification purpose only

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LETTER FROM THE BOARD

The Share Consolidation is conditional upon the approval of Shareholders at the SGM. As the Open Offer, when aggregated with the open offer of the Company as announced by the Company on 14 May 2007, will increase the issued share capital of the Company by more than 50% within the 12 months period immediately preceding the date of the Announcement, the Open Offer is subject to the approval by the Independent Shareholders at the SGM by way of poll pursuant to Rules 7.24(5) and 13.39(4) of the Listing Rules. In addition, since no excess application for the Offer Shares is available and the Underwriter is an associate of Mr. Lam, an executive Director, the absence of arrangements for excess application for the Offer Shares is conditional on approval by the Independent Shareholders at the SGM by way of poll in accordance with Rules 7.26A(2) and 13.39(4) of the Listing Rules. In this respect, the Underwriter, Mr. Lam and their respective associates, who held in aggregate 354,010,656 Existing Shares, representing approximately 50.72% of the issued share capital of the Company as at the Latest Practicable Date, will be required to abstain from voting in favour of the relevant resolution to approve the Open Offer at the SGM. The Underwriter, Mr. Lam and their respective associates will also be required to abstain from voting on the relevant resolution to approve the absence of arrangements for excess application for the Offer Shares at the SGM. In addition, International Securities, being a corporation controlled by an associate of Mr. Wan, the owner of Baron Capital, which is the financial adviser to the Company in respect of the Share Consolidation and the Open Offer, and its associates, who held in aggregate 31,961,016 Existing Shares, representing approximately 4.58% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting on the resolutions to approve the Share Consolidation and the Open Offer at the SGM.

Nuada has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares.

The purpose of this circular is to provide you with further information, among other things, on the Share Consolidation and the Open Offer, the recommendation of the Independent Board Committee, the advice of Nuada to the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares and the notice of SGM.

PROPOSED SHARE CONSOLIDATION

The Board proposes to implement the Share Consolidation pursuant to which every ten Existing Shares of HK$0.01 each will be consolidated into one Consolidated Share of HK$0.10.

Effects of the Share Consolidation

Assuming no further Existing Shares are issued or repurchased after the Latest Practicable Date, upon the Share Consolidation becoming effective,

(i) the authorised share capital of the Company will remain unchanged at HK$30,000,000;

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LETTER FROM THE BOARD

(ii) the authorised share capital of the Company of HK$30,000,000 will be divided into 300,000,000 Consolidated Shares, of which 230,207,200 Consolidated Shares will remain unissued; and
(iii) the issued share capital of the Company will be HK$6,979,280 divided into 69,792,800 Consolidated Shares.

The Consolidated Shares will rank pari passu in all respects with the Existing Shares in issue prior to the Share Consolidation becoming effective (on the basis that every ten Existing Shares will be consolidated into one Consolidated Share) and there will be no change in the relative rights of the Shareholders. Fractional entitlements of the Consolidated Shares will not be issued to the Shareholders but will be aggregated and sold for the benefits of the Company. Board lot size for trading in the Consolidated Shares will remain at 20,000 after the Share Consolidation becoming effective. Based on the closing price of HK$1.85 per Consolidated Share (assuming the Share Consolidation becoming effective) on the Last Trading Day (based on the closing price of HK$0.185 per Existing Share as quoted on the Last Trading Day), the value of each board lot of 20,000 Consolidated Shares would be HK$37,000.

Other than the necessary expenses to be incurred by the Company in relation to the Share Consolidation, the implementation thereof will not, by itself, affect the underlying assets, business operations, management or financial position of the Group or the interests of the Shareholders as a whole (including the respective rights of the Shareholders).

Conditions of the Share Consolidation

The Share Consolidation is conditional upon the following conditions having been fulfilled:

(i) the passing of an ordinary resolution by the Shareholders at the SGM to approve the Share Consolidation; and
(ii) the Listing Committee granting the listing of, and permission to deal in, the Consolidated Shares in issue upon the Share Consolidation becoming effective.

The Company will apply to the Listing Committee for the listing of, and permission to deal in, the Consolidated Shares.

Reasons for the Share Consolidation

The proposed Share Consolidation will increase the nominal value of the shares in the Company from HK$0.01 per Existing Share to HK$0.10 per Consolidated Share and their trading price per board lot, and hence reducing the overall transaction and handling costs for dealings in the Consolidated Shares. Accordingly, the Directors are of the view that the Share Consolidation is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Arrangement for odd lot trading

In order to facilitate the trading of odd lots (if any) of the Consolidated Shares arising from the Share Consolidation, the Company has appointed Ping An Securities to match the purchase and sale of odd lots of the Consolidated Shares at the relevant market price per Consolidated Share for the period from Wednesday, 12 March 2008 to Monday, 7 April 2008 (both dates inclusive). Holders of odd lots of the Consolidated Shares who wish to take advantage of this facility either to dispose of their odd lots of the Consolidated Shares or to top up to a full board lot may, directly or through their brokers, contact Mr. Huton Lee/Mr. Eddy Lam (Tel.: (852) 2522-0330 and Fax: (852) 2545-3000) of Ping An Securities during this period. Holders of odd lots of the Consolidated Shares should note that successful matching of the sale and purchase of odd lots of the Consolidated Shares is not guaranteed. Any Shareholder, who is in any doubt about the odd lot facility, is recommended to consult his/her/its own professional advisers.

Trading arrangements for the Consolidated Shares

Subject to the Share Consolidation becoming unconditional, the arrangements proposed for dealings in the Consolidated Shares are expected to be as follows:

(i) From Wednesday, 27 February 2008, the original counter for trading in the Existing Shares in board lots of 20,000 Existing Shares will be temporarily closed and a temporary counter for trading in the Consolidated Shares (represented by existing certificates for the Existing Shares) in board lots of 2,000 Consolidated Shares will be set up.
(ii) With effect from Wednesday, 12 March 2008, the original counter for trading in the Consolidated Shares will be reopened for trading in the Consolidated Shares (represented by new certificates for the Consolidated Shares) in board lots of 20,000 Consolidated Shares.
(iii) During Wednesday, 12 March 2008 to Monday, 7 April 2008 (both dates inclusive), there will be parallel trading at the above two counters.
(iv) The temporary counter for trading in the Consolidated Shares (represented by existing certificates for the Existing Shares) in board lots of 2,000 Consolidated Shares will be removed after the close of trading on Monday, 7 April 2008. Thereafter, trading will be in board lots of 20,000 Consolidated Shares (represented by new certificates for the Consolidated Shares) only and the existing certificates for the Existing Shares will cease to be marketable and will not be acceptable for dealing and settlement purposes. However, such certificates will remain effective as documents of title on the basis of ten Existing Shares for one Consolidated Share.

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LETTER FROM THE BOARD

Free exchange of share certificates

Shareholders may exchange their share certificates for the Existing Shares for new certificates for the Consolidated Shares on or after Wednesday, 27 February 2008. This may be done free of charge by delivering the certificates for the Existing Shares to the Registrar, Tricor Secretaries Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, during the period from Wednesday, 27 February 2008 to Friday, 11 April 2008 (both dates inclusive). Thereafter, certificates for the Existing Shares will be accepted for exchange for certificates for the Consolidated Shares only on payment of a fee of HK$2.50 (or such higher amount as may be stipulated in the Listing Rules from time to time) for each new share certificate to be issued or each old share certificate submitted, whichever number of certificates is higher.

New share certificates for the Consolidated Shares will be blue in colour in order to distinguish them from share certificates for the Existing Shares which are pink in colour.

It is expected that new certificates for the Consolidated Shares will be available for collection on or after the tenth Business Day from the date of submission of the certificates for the Existing Shares to the Registrar at the above address for exchange. Unless otherwise instructed, new certificates for the Consolidated Shares will be issued in board lots of 20,000 Consolidated Shares.

PROPOSED OPEN OFFER

Issue statistics

Basis of the Open Offer : One Offer Share for every two Consolidated Shares held by the Qualifying Shareholders on the Record Date Subscription Price : HK$1.00 per Offer Share payable in full upon application Number of existing Shares in issue as : 697,928,000 Existing Shares at the Latest Practicable Date Number of Consolidated Shares in issue : 69,792,800 Consolidated Shares assuming the Share Consolidation becoming effective Number of Offer Shares : 34,896,400 Offer Shares

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LETTER FROM THE BOARD

The aggregate number of the Offer Shares to be issued pursuant to the terms of the Open Offer represents 50.00% of the Company’s issued share capital upon the Share Consolidation becoming effective and approximately 33.33% of the enlarged issued share capital of the Company immediately upon completion of the Open Offer.

As at the Latest Practicable Date, the subscription right attached to the CIF Option entitling CIF to subscribe for up to an aggregate of 36,000,000 Existing Shares (or 3,600,000 Consolidated Shares upon the Share Consolidation becoming effective) at a subscription price of HK$0.20 per Existing Share remains outstanding. CIF has executed the CIF Undertaking Letter in which it has irrevocably undertaken to the Company and the Underwriter that it will not exercise the remaining subscription right attached to the CIF Option on or before the Record Date.

Save for the remaining subscription right attached to the CIF Option mentioned above, there were no outstanding options, warrants, derivatives or convertible securities which may confer any right to the holder thereof to subscribe for, convert or exchange into new Existing Shares as at the Latest Practicable Date.

Qualifying Shareholders

The Open Offer is only available to the Qualifying Shareholders. The Company will send (i) the Prospectus Documents to the Qualifying Shareholders; and (ii) the Overseas Letter together with the Prospectus, for information only, to the Excluded Shareholders.

To qualify for the Open Offer, Shareholders must be registered as a member of the Company on the Record Date and must not be an Excluded Shareholder. In order to be registered as a member of the Company on the Record Date, any transfer of the Existing Shares (together with the relevant share certificates) must be lodged with the Registrar by 4:00 p.m. on Wednesday, 20 February 2008.

The invitation to subscribe for the Offer Shares to be made to the Qualifying Shareholders will not be transferable or capable of renunciation. There will not be any trading in nil-paid entitlements of the Offer Shares on the Stock Exchange and the Qualifying Shareholders will not be entitled to subscribe for any Offer Shares in excess of their respective assured entitlements. Any Offer Shares not taken up by the Qualifying Shareholders and the Offer Shares to which the Excluded Shareholders would otherwise have been entitled to under the Open Offer will be taken up by the Underwriter.

Closure of register of members

The register of members of the Company will be closed from Thursday, 21 February 2008 to Tuesday, 26 February 2008, both dates inclusive, to determine the eligibility of the Shareholders to the Open Offer. No transfer of the Existing Shares will be registered during this period.

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LETTER FROM THE BOARD

Subscription Price

The Subscription Price for the Offer Shares is HK$1.00 per Offer Share, payable in full on application. The Subscription Price represents:

(i) a discount of approximately 45.95% to the closing price of HK$1.85 per Consolidated Share (based on the closing price of HK$0.185 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation);
(ii) a discount of approximately 51.08% to the average closing price of HK$2.044 per Consolidated Share (based on the average closing price of HK$0.2044 per Existing Share for the last ten trading days up to and including the Last Trading Day as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation);
(iii) a discount of approximately 36.18% to the theoretical ex-entitlement price of approximately HK$1.567 per Consolidated Share (based on the closing price of HK$0.185 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation);
(iv) a discount of approximately 30.07% to the closing price of HK$1.43 per Consolidated Share (based on the closing price of HK$0.143 per Existing Share as quoted on the Stock Exchange as at the Latest Practicable Date and adjusted for the effect of the Share Consolidation); and
(v) a discount of approximately 84.85% to the unaudited consolidated net asset value per Consolidated Share of approximately HK$6.60 as at 31 December 2007 (based on the unaudited consolidated net asset value per Existing Share of approximately HK$0.66 as at 31 December 2007 as announced by the Company on 14 January 2008 and adjusted for the effect of the Share Consolidation).

The Subscription Price was arrived at after arm’s length negotiations between the Company and the Underwriter and after having taken into account the recent price performance and the low liquidity of the Existing Shares. The Directors consider that the Subscription Price is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Status of the Open Offer Shares

The Offer Shares (when fully paid and issued) will rank pari passu in all respects with the Consolidated Shares in issue on the date of allotment and issue of the Offer Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which may be declared, made or paid on or after the date of allotment and issue of the Offer Shares.

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LETTER FROM THE BOARD

Fractions of the Offer Shares

Fractional entitlements to the Offer Shares will not be allotted to the Shareholders but will be aggregated and taken up by the Underwriter.

Certificates of the fully-paid Offer Shares

Subject to the fulfillment of the conditions of the Open Offer, share certificates for the Offer Shares are expected to be posted by Tuesday, 18 March 2008 to those Shareholders entitled thereto by ordinary post at their own risks.

Rights of Overseas Shareholders

If, at the close of business on the Record Date, a Shareholder’s address on the register of members of the Company is in a place outside Hong Kong, that Shareholder may not be eligible to take part in the Open Offer as the Prospectus Documents are not expected to be registered and/or filed under the applicable securities legislation of any jurisdictions other than Hong Kong and Bermuda. The Board will make enquiries as to whether the issue of the Offer Shares to the Overseas Shareholders may contravene the applicable securities legislation of the relevant overseas places or the requirements of the relevant regulatory bodies or stock exchanges pursuant to Rule 13.36(2)(a) of the Listing Rules. If, after making such enquiries, the Board is of the opinion that it would be necessary or expedient on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place not to offer the Offer Shares to such Overseas Shareholders, the Open Offer will not be available to such Overseas Shareholders. Accordingly, the Open Offer will not be extended to the Excluded Shareholders. The results of the enquiries and the basis of exclusion of the Overseas Shareholders will be included in the Prospectus.

The Company will send the Overseas Letter together with the Prospectus, for information only, to the Excluded Shareholders (if any) and will not send any Application Form in respect of the assured allotment of the Offer Shares to the Excluded Shareholders. However, so long as the Excluded Shareholders are Independent Shareholders, they are entitled to cast their votes on the resolution(s) in relation to the Open Offer at the SGM.

No application for excess Offer Shares

After arm’s length negotiation with the Underwriter, the Company decided that the Qualifying Shareholders are not entitled to apply for any Offer Shares which are in excess of their assured entitlements. The Company also considers that the related administration costs would be lowered in the absence of excess applications, in particular when considering the relatively small issue size of the Open Offer.

Any Offer Shares not taken up by the Qualifying Shareholders will be taken up by the Underwriter.

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LETTER FROM THE BOARD

Application for listing

The Company will apply to the Listing Committee for the listing of, and permission to deal in, the Offer Shares. The Offer Shares are expected to be traded in board lots of 20,000 Consolidated Shares. Dealings in the Offer Shares on the Stock Exchange will be subject to the payment of stamp duty in Hong Kong, Stock Exchange trading fee, SFC transaction levy and other applicable fees and charges in Hong Kong.

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

UNDERWRITING ARRANGEMENTS

Underwriting Agreement (as amended by the Supplemental Agreement)

Date : 15 January 2008 and 17 January 2008 Underwriter : Favor Hero Investments Limited Number of Offer Shares underwritten : 17,195,868 Offer Shares (being 34,896,400 Offer Shares less the 17,700,532 Offer Shares undertaken to be taken up by the Underwriter in the capacity of Shareholder as described under the paragraph headed “Undertaking” below) Commission : 1.50% of the aggregate Subscription Price in respect of the number of Offer Shares agreed to be underwritten by the Underwriter

The commission payable to the Underwriter calculated at 1.50% of the aggregate Subscription Price was determined after arm’s length negotiations between the Company and the Underwriter with reference to the prevailing market rates. The Directors consider that the commission rate to be fair and reasonable and are on normal commercial terms.

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LETTER FROM THE BOARD

Undertaking

As at the Latest Practicable Date, the Underwriter was interested in 354,010,656 Existing Shares, representing approximately 50.72% of the existing issued share capital of the Company and was a Controlling Shareholder of the Company. Pursuant to the Underwriting Agreement, the Underwriter has irrevocably undertaken to the Company that it will subscribe for the 17,700,532 Offer Shares to which the Underwriter is entitled pursuant to the Open Offer. The remaining Offer Shares not taken up by the Qualifying Shareholders are fully underwritten by the Underwriter pursuant to the Underwriting Agreement.

Termination of the Underwriting Agreement

The Underwriting Agreement contains provisions entitling the Underwriter to terminate its obligations thereunder in writing if at any time prior to 4:00 p.m. on the Settlement Date:

(i) there occurs:
(a) an introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof); or
(b) any local, national or international event or change (whether or not forming part of series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) of a political, military, financial, economic or currency (including a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America) or other nature (whether or not ejusdem generis with any of the foregoing) or of the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting the local securities market;

(ii) the Company commits any material breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission will have a material and adverse effect on its business, financial or trading position; or
(iii) the Underwriter shall receive notification pursuant to the Underwriting Agreement of, or shall otherwise become aware of, the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate, and the Underwriter shall, in its reasonable opinion,

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LETTER FROM THE BOARD

determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Open Offer; or

(iv) the Company shall, after any matter or event referred to in the Underwriting Agreement has occurred or come to the Underwriter’s attention, fail promptly to send out any announcement or circular (after the despatch of the Circular or the Prospectus Documents), in such manner (and as appropriate with such contents) as the Underwriter may reasonably request for the purpose of preventing the creation of a false market in the securities of the Company.

Conditions of the Underwriting Agreement

The Underwriting Agreement is conditional upon, among other things, the fulfillment of the following conditions:

(i) the passing at the SGM (or any adjournment thereof) on or before the Posting Date of resolutions to approve the Share Consolidation and the Open Offer;
(ii) the delivery to the Stock Exchange and the filing and registration with the Registrars of Companies in Hong Kong and Bermuda respectively on or prior to the Posting Date of one copy of each of the Prospectus Documents each duly certified by two Directors (or their agents duly authorised in writing) in compliance with section 342C(1) of the Companies Ordinance (and all other documents required to be attached thereto) and otherwise complying with the requirements of the Companies Ordinance, the Companies Act and the Listing Rules;
(iii) compliance by the Company with all its obligations under the Underwriting Agreement;
(iv) compliance by the Underwriter with all its obligations under the Underwriting Agreement;
(v) the delivery to the Underwriter of one original signed CIF Undertaking Letter immediately after the execution of the Supplemental Agreement and compliance by CIF with all its obligations under the CIF Undertaking Letter in accordance with the terms under the CIF Undertaking Letter;
(vi) the Listing Committee (a) agreeing to grant listing of, and permission to deal in, the Consolidated Shares and the Offer Shares either unconditionally or subject to conditions (if any) which the Company and the Underwriter accept by no later than the Posting Date and (b) not having withdrawn or revoked such listing and permission on or before 4:00 p.m. on the Settlement Date; and

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LETTER FROM THE BOARD

(vii) the Share Consolidation becoming effective in all respects in accordance with the Companies Act on or before the Posting Date.

In the event that the above conditions have not been satisfied on or before the respective dates referred to therein (or such other date as may be agreed between the Underwriter and the Company), all obligations of the parties under the Underwriting Agreement shall cease and determine and no party shall have any claim against the other party save for any antecedent breach of the Underwriting Agreement by any of the parties to the Underwriting Agreement. All such costs, fees and other out-of-pocket expenses as may have been properly incurred by the Underwriter in connection with the proposed Open Offer or otherwise in connection with the arrangements contemplated by the Underwriting Agreement before the termination of the Underwriting Agreement by reason other than the antecedent breach by the Underwriter shall be borne by the Company.

WARNING OF THE RISK OF DEALINGS IN THE EXISTING SHARES

Shareholders and potential investors of the Company should note that the Open Offer is conditional upon the fulfillment of all conditions set out in the paragraph headed “Conditions of the Underwriting Agreement” under the section headed “Underwriting Arrangements” above. In particular, it is subject to, among other things, the Underwriter not having terminated the Underwriting Agreement in accordance with the terms thereof (a summary of which is set out in the paragraph headed “Termination of the Underwriting Agreement” under the section headed “Underwriting Arrangements” above). Accordingly, the Open Offer may or may not proceed.

Shareholders and potential investors of the Company should therefore exercise caution when dealing in the Existing Shares (or the Consolidated Shares upon the Share Consolidation becoming effective), and if they are in any doubt about their positions, they should consult their professional advisers.

Shareholders should note that the Existing Shares will be dealt in on an ex-entitlement basis commencing from Tuesday, 19 February 2008 and that dealings in the Existing Shares (or the Consolidated Shares upon the Share Consolidation becoming effective) will take place while the conditions to which the Underwriting Agreement is subject to remain unfulfilled. Any Shareholder or other person dealing in the Existing Shares (or the Consolidated Shares upon the Share Consolidation becoming effective) up to the date on which all conditions to which the Open Offer is subject to are fulfilled (which is expected to be on Friday, 14 March 2008), will accordingly bear the risk that the Open Offer may not become unconditional and may not proceed.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

The following table shows the shareholding structure of the Company before and after the Share Consolidation becoming effective and the completion of the Open Offer:

As at the Latest Practicable Date Existing Shares % (approx.) The Underwriter 354,010,656 50.72 *Public Shareholders* International Securities_(Note)_ 31,961,016 4.58 Other public Shareholders 311,956,328 44.70 Total 697,928,000 100.00	As at the Latest Practicable Date Existing Shares % (approx.) The Underwriter 354,010,656 50.72 *Public Shareholders* International Securities_(Note)_ 31,961,016 4.58 Other public Shareholders 311,956,328 44.70 Total 697,928,000 100.00	As at the Latest Practicable Date Existing Shares % (approx.) The Underwriter 354,010,656 50.72 *Public Shareholders* International Securities_(Note)_ 31,961,016 4.58 Other public Shareholders 311,956,328 44.70 Total 697,928,000 100.00	Immediately upon the Share Consolidation becoming effective but before the completion of the Open Offer Consolidated % Shares (approx.) 35,401,066 50.72 3,196,101 4.58 31,195,633 44.70	Immediately upon the Share Consolidation becoming effective but before the completion of the Open Offer Consolidated % Shares (approx.) 35,401,066 50.72 3,196,101 4.58 31,195,633 44.70	Immediately after the Share Consolidation becoming effective and the completion of the Open Offer (assuming all Qualifying Shareholders take up their respective entitlements under the Open Offer) Consolidated % Shares (approx.) 53,101,599 50.72 4,794,151 4.58 46,793,450 44.70	Immediately after the Share Consolidation becoming effective and the completion of the Open Offer (assuming all Qualifying Shareholders take up their respective entitlements under the Open Offer) Consolidated % Shares (approx.) 53,101,599 50.72 4,794,151 4.58 46,793,450 44.70	Immediately after the Share Consolidation becoming effective and the completion of the Open Offer (assuming none of the Qualifying Shareholders except the Underwriter take up their respective entitlements under the Open Offer) Consolidated % Shares (approx.) 70,297,466 67.15 3,196,101 3.05 31,195,633 29.80	Immediately after the Share Consolidation becoming effective and the completion of the Open Offer (assuming none of the Qualifying Shareholders except the Underwriter take up their respective entitlements under the Open Offer) Consolidated % Shares (approx.) 70,297,466 67.15 3,196,101 3.05 31,195,633 29.80
	697,928,000	100.00	69,792,800	100.00	104,689,200	100.00	104,689,200	100.00

Note:

International Securities is a wholly owned subsidiary of Capital Builder. Capital Builder was incorporated in the British Virgin Islands and is wholly owned by Madam Mak, the spouse of Mr. Wan, who is the beneficial owner of Baron Capital. Accordingly, Capital Builder, Madam Mak and Mr. Wan are all deemed to be interested in the 31,961,016 Existing Shares (or 3,196,101 Consolidated Shares upon the Share Consolidation becoming effective) held by International Securities.

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

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LETTER FROM THE BOARD

The Company recorded a consolidated profit attributable to Shareholders of approximately HK$9.67 million and HK$103.74 million for the year ended 31 December 2006 and for the six months ended 30 June 2007 respectively. The Group intends to strengthen its financial position by the Open Offer, which will enable the Company to expand its capital base. In addition, the Open Offer allows the Qualifying Shareholders to maintain their respective pro rata shareholdings in the Company and participate in the future growth and development of the Company. The Directors therefore consider that the Open Offer is in the interests of the Company and the Shareholders as a whole.

The estimated net proceeds from the Open Offer will amount to approximately HK$33.22 million, net of expenses of approximately HK$1.68 million. The Board intends to apply the net proceeds for future investment to achieve long-term capital appreciation of its assets primarily through equity and equity-related investments. As at the Latest Practicable Date, the Company had not identified any specific investment targets.

FUND RAISING ACTIVITIES OF THE COMPANY IN THE LAST TWELVE MONTHS

The following table depicts the fund raising activities of the Company during the past twelve months immediately prior to the Announcement Date:

				Actual use of
				proceeds as at
Date of		Approximate	Intended use	the date of this
announcement	Event	net proceeds	of proceeds	announcement
14 May 2007	Open offer of	HK$27.95 million	Future investment	Fully utilized in
	215,976,000		through equity	equity and
	Existing Shares		and equity related	equity related
	at HK$0.135 per		investments to	investments
	Existing Share		achieve long-term
			capital appreciation
			of its assets
23 August 2007	Grant of the CIF	HK$17.20 million	Subscription of	Fully utilized as
	Option to	upon full exercise	80,000,000 new	intended_(Note)_
	subscribe up to	of the CIF Option	shares in CIF
	86,000,000
	Existing Shares
	at HK$0.20 per
	Existing Share

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LETTER FROM THE BOARD

Note:

In consideration of the issue of 80,000,000 new shares by CIF to the Company, the Company granted CIF the CIF Option to subscribe for up to 86,000,000 Existing Shares. As at the Latest Practicable Date, CIF had exercised the CIF Option to subscribe for 50,000,000 Existing Shares. The proceeds had been utilized to subscribe for 80,000,000 shares in CIF, details of which are set out in the joint announcement of the Company and CIF dated 23 August 2007.

ADJUSTMENTS IN RELATION TO THE CIF OPTION

As at the Latest Practicable Date, the remaining subscription right attaching to the CIF Option entitles CIF to subscribe for up to an aggregate of 36,000,000 Existing Shares (or 3,600,000 Consolidated Shares upon the Share Consolidation becoming effective) at a subscription price of HK$0.20 per Existing Share remains outstanding. As at the Latest Practicable Date, CIF had irrevocably undertaken to the Company and the Underwriter that it will not exercise the remaining subscription right attaching to the CIF Option on or before the Record Date in accordance with the CIF Undertaking Letter.

The Share Consolidation and the issue of the Offer Shares will cause adjustments to the subscription price and/or the number of Consolidated Shares to be issued under the CIF Option. As regards the adjustments to the number of Consolidated Shares to be issued and/or the subscription price in respect of the CIF Option, the Company will instruct its auditors or an independent financial adviser to review and certify the basis of such adjustments as soon as possible. Further announcement will be made by the Company in respect of such adjustments as and when appropriate.

SGM

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LETTER FROM THE BOARD

Mr. Wan, the owner of Baron Capital, which is the financial adviser to the Company in respect of the Share Consolidation and the Open Offer, and its associates, who held in aggregate 31,961,016 Existing Shares, representing approximately 4.58% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting on the resolutions to approve the Share Consolidation and the Open Offer at the SGM.

A notice convening the SGM to be held at World Trade Centre Club Hong Kong at 38th Floor, World Trade Centre, 280 Gloucester Road, Causeway Bay, Hong Kong at 11:00 a.m. on Tuesday, 26 February 2008 is set out on pages 110 to 113 of this circular. A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time for holding the SGM or any adjourned meeting thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM or any adjourned meeting thereof (as the case may be) should you so wish.

PROCEDURES FOR DEMANDING A POLL

Pursuant to the bye-laws of the Company, at any general meeting of Shareholders, resolutions put to the vote of a meeting shall be decided on a show of hands unless a poll is taken as may from time to time be required under the Listing Rules or unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

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

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LETTER FROM THE BOARD

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Shareholder.

On a poll, every Shareholder present in person or by proxy or, in case of a Shareholder being a corporation, by its duly authorised representative shall have one vote for every Share held by him/her/it. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses the same way.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 28 of this circular, which contains its recommendation to the Independent Shareholders regarding the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares and the letter from Nuada set out on pages 29 to 42 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders regarding the Open Offer, the Underwriting Agreement and the transactions contemplated thereby and the absence of arrangements for excess application for the Offer Shares.

The Directors consider that the Share Consolidation, the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares are in the interests of the Company and the Shareholders as a whole and the terms of the Share Consolidation, the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares are fair and reasonable so far as the Company and the Shareholders are concerned. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Share Consolidation, the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares.

GENERAL

Your attention is drawn to the information contained in the appendices to this circular.

By order of the Board

Prosperity Investment Holding Limited Cheuk Yuk Lung Managing Director

— 27 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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

(Incorporated in Bermuda with limited liability)

(Stock Code: 310)

6 February 2008

To the Independent Shareholders

Dear Sir or Madam,

We have been appointed as the independent board committee to advise you in connection with the fairness and reasonableness of the terms of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares, details of which are set out under the section headed “Letter from the Board” contained in the circular to the Shareholders dated 6 February 2008 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares and the advice of and principal factors and reasons considered by Nuada in relation thereto set out on pages 29 to 42 of the Circular, we are of the opinion that the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares are in the interests of the Company and the Independent Shareholders as a whole and the terms of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares are fair and reasonable so far as the Independent Shareholders are concerned. We therefore recommend that you vote in favour of the ordinary resolution to be proposed at the SGM in relation to the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares.

Yours faithfully, Independent Board Committee of Prosperity Investment Holdings Limited

Mr. Chan Siu Wing, Raymond Mr. Yan Mou Keung, Ronald Mr. Chan Fai Yue, Leo Independent Non-executive Independent Non-executive Independent Non-executive Director Director Director

* For identification purppse only

— 28 —

LETTER FROM NUADA

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Nuada dated 6 February 2008 in relation to the Open Offer for the purpose of inclusion in this circular.

==> picture [172 x 40] intentionally omitted <==

7th Floor, New York House 60 Connaught Road Central Hong Kong 6 February 2008

To the Independent Board Committee and the Independent Shareholders of Prosperity Investment Holdings Limited

Dear Sirs,

PROPOSED OPEN OFFER OF 34,896,400 OFFER SHARES AT HK$1.00 PER OFFER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO CONSOLIDATED SHARES HELD ON THE RECORD DATE

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee with respect to the Open Offer, details of which are set out in the letter from the Board contained in the Circular (the “Board’s Letter”). Capitalised terms used in this letter shall have the same meanings ascribed to them in the circular of the Company dated 6 February 2008 (the “Circular”) unless the context otherwise requires.

On 17 January 2008, the Company announced that the Board proposed to raise approximately HK$34.90 million before expenses, by issuing 34,896,400 Offer Shares at the subscription price of HK$1.00 per Offer Share by way of the Open Offer, payable in full on application, on the basis of one Offer Share for every two Consolidated Shares held by the Qualifying Shareholders on the Record Date. The Open Offer is not available to the Excluded Shareholders.

As the Open Offer, when aggregated with the open offer of the Company as announced by the Company on 14 May 2007, will increase the issued share capital of the Company by more than 50% within the 12 months period immediately preceding the date of the Announcement, the Open Offer is subject to the approval by the Independent Shareholders at the SGM by way of poll pursuant to Rules 7.24(5) and 13.39(4) of the Listing Rules. In addition, since no excess application for the Offer Shares is available and the Underwriter is an associate of Mr. Lam, an executive Director, the absence of excess application is conditional on approval by the Independent Shareholders at the SGM by way of poll in accordance with Rules 7.26A(2)

— 29 —

LETTER FROM NUADA

and 13.39(4) of the Listing Rules. In this respect, the Underwriter, Mr. Lam and their respective associate will be required to abstain from voting in favour of the relevant resolution to approve the Open Offer at the SGM. The Underwriter, Mr. Lam and their respective associates, who held in aggregate 354,010,656 Shares representing approximately 50.72% of the issued shares capital of the Company as at the Latest Practicable Date, will also be required to abstain from voting on the relevant resolution to approve the absence of excess application for the Open Offer at the SGM. Furthermore, International Securities, being a corporation controlled by an associate of Mr. Wan, the owner of Baron Capital, which is the financial adviser to the Company in respect of the Open Offer, and its associates, who held in aggregate 31,961,016 Shares representing approximately 4.58% of the issued shares capital of the Company as at the Latest Practicable Date, will abstain from voting on the resolutions to approve, among others, the Open Offer at the SGM.

The Independent Board Committee comprising Mr. Chan Fai Yue, Leo, Mr. Yan Mou Keung, Ronald and Mr. Chan Siu Wing, Raymond, all being independent non-executive Directors, has been formed to advise the Independent Shareholders in respect of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares. We have been appointed by the Company as the independent financial adviser to advise the Independent Board Committee as to whether the terms of the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares are fair and reasonable so far as the Independent Shareholders are concerned and whether it is in the interests of the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our opinion and recommendations, we have relied on the accuracy of the information, opinions and representations contained or referred to in the Circular and provided to us by the Company, the Directors and the management of the Company. We have assumed that all information, opinions and representations contained or referred to in the Circular were true and accurate at the time when they were made and continued to be true and accurate at the date of the SGM. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiries and considerations. We have no reason to doubt that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading.

We consider that we have reviewed sufficient information to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular to provide a reasonable basis for our opinions and recommendations.

— 30 —

LETTER FROM NUADA

Having made all reasonable enquiries, the Directors have confirmed that, to the best of their knowledge, there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Company, the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs, financial condition and future prospects of the Group. We disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion expressed herein which may come or be brought to our attention after the Latest Practicable Date.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to the Independent Board Committee in respect of the Open Offer, we have taken into consideration the following principal factors and reasons:

Reasons for the Open Offer

Financial results and position of the Group

According to the annual report 2005/2006 of the Company (the “2006 Annual Report”), the Group recorded an audited turnover and profit attributable to the shareholders of the Company were approximately HK$138.1 million (2005: approximately HK$51.4 million) and approximately HK$9.7 million (2005: loss attributable to the shareholders of the Company in approximately HK$7.9 million) respectively for the financial year ended 31 December 2006. This was approximately 168.7% increase in turnover as compared with that for the year ended 31 December 2005. As disclosed in the 2006 Annual Report, such increase in turnover was mainly attributed to the sale of investment securities and disposal of equity-linked notes of the Company. Moreover, the Group recorded a gain on disposal of an investment of the Group of approximately HK$20.2 million in that year. As stated in 2007 interim report of the Company (the “2007 Interim Report”), the unaudited turnover of the Company and profit attributable to shareholders of the Company for the six months ended 30 June 2007 were HK$74.5 million (2006: HK$64.8 million) and HK$103.7 million (2006: HK$31.2 million) respectively. There was 15.0% increase in turnover with an approximately 232.4% increase in profit attributable to equity holders over the corresponding period last year. According to the 2007 Interim Report, such increase in the profit attributable to equity holders was mainly attributable to the write back of a receivable of HK$30.7 million which was written off in previous years and dividend income of HK$57.5 million realized from an associate of the Company respectively.

— 31 —

LETTER FROM NUADA

As at 30 June 2007, the Group had net assets of approximately HK$348.7 million, representing an increase of approximately 40.0% from approximately HK$249.1 million as at 31 December 2006. The increase of net assets of the Company in 2006 was mainly attributed to increase in cash of approximately HK$52.8 million by way of the open offer of 215,976,000 existing Shares of the Company on 12 July 2007.

According to the Board’s representation, the Directors have been continuing to identify and pursue any investment opportunities and manage the existing investment in accordance with the Company’s investment objective and policy of achieving long term capital appreciation and growth in profits. By way of the Open Offer, the Group can be strengthening its financial position and to expand its capital base for future development of the Company, meanwhile, it allows the Qualifying Shareholders to maintain their respective pro rata shareholdings in the Company and participate in the future growth and development of the Company. As the Directors are optimistic in economic growth and stock market performance of Hong Kong, the Group will continue to evaluate potential investments with a view of gaining high investment returns and yields for its Shareholders.

The estimated net proceeds from the Open Offer will amount to approximately HK$33.2 million, net of expenses of approximately HK$1.7 million. The Boards intends to apply the net proceeds for future investments to achieve long-term capital appreciation of its assets primarily through equity and equity-related investments. As at the Latest Practicable Date, the Company had not identified any specific investment targets.

Based on the above, we are of the view that the Open Offer is an essential means to strengthen the financial position of the Group and to enlarge the capital base of the Company for optimizing investment opportunities in a timely manner. It is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

Terms of the Open Offer

Pursuant to the terms of the Open Offer, the Company will issue 34,896,400 Offer Shares at the subscription price of HK$1.00 per Offer Share, payable in full in application, on the basis of one Offer Share for every two Consolidated Shares held by Qualifying Shareholders on the Record Date.

Subscription Price

The subscription price for the Offer Share is HK$1.00 per Offer Share (the “Subscription Price”), represents:

(i) a discount of approximately 45.95% to the closing price of HK$1.85 per Consolidated Share (based on the closing price of HK$0.185 per Existing Share as quoted on the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation);

— 32 —

LETTER FROM NUADA

(ii) a discount of approximately 51.08% to the average closing price of HK$2.044 per Consolidated Share (based in the average closing price of HK$0.2044 per Existing Share for the last ten trading days up to and including the Last Trading Day as quoted in the Stock Exchange and adjusted for the effect of the Share Consolidation);
(iii) a discount of approximately 36.18% to the theoretical ex-entitlement price of approximately HK$1.567 per Consolidated Share (based on the closing price of HK$0.185 per Existing Share as quoted in the Stock Exchange on the Last Trading Day and adjusted for the effect of the Share Consolidation);
(iv) a discount of approximately 30.07% to the closing price of HK$1.430 per Consolidated Share (based on the closing price of HK$0.143 per Existing Share as quoted in the Stock Exchange on the Latest Practicable Date and adjusted for the effect of the Share Consolidation); and
(v) a discount of approximately 84.85% to the unaudited consolidated net asset value per Consolidated Share of approximately HK$6.60 as at 31 December 2007 as announced by the Company on 14 January 2008 and adjusted for the effect of the Share Consolidation.

The Subscription Price was arrived at after arm’s length negotiations between the Company and the Underwriter after having taken into account the recent price performance and the low liquidity of the Existing Shares. The Directors consider that the Subscription Price is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Share price performance

The graph below illustrates the closing price level of the Shares during the period from 16 January 2007 to 15 January 2008, being the twelve calendar months prior to the Last Trading Day (the “Review Period”), assuming the Share Consolidation having become effective as at the Latest Practicable Date.

— 33 —

LETTER FROM NUADA

==> picture [365 x 279] intentionally omitted <==

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

Share Price Offer Price
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0.000
----- End of picture text -----

==> picture [359 x 33] intentionally omitted <==

Data source: Website of the Stock Exchange (www.hkex.com.hk).

Note: Trading of Shares was suspended during the period from 23 February 2007 to 26 February 2007, 10 May 2007 to 14 May 2007 and 20 August 2007 to 23 August 2007.

During the Review Period, the closing price of the Shares ranged from the lowest of HK$1.33 per Share (based on the closing price of HK$0.133 per Existing Share as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) on 13 February 2007 to the highest of HK$7.00 per Share (based on the closing price of HK$0.700 per Existing Share as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) on 5 July 2007. We note that the closing price of the Shares had soared from its lowest of HK$1.33 per Share (based on the closing price of HK$0.133 per Existing Share as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) on 13 February 2007 to its highest of HK$7.00 per Share (based on the closing price of HK$0.700 per Existing Share as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) on 5 July 2007. Save for the announcement dated 14 May 2007 issued by the Company in relation to the open offer of 215,976,000 offer shares and mandatory cash offer for the Shares, the Board was not aware of the reasons for the increase in price of the Shares. Since then, the closing price of the Shares had been fluctuating within the range between HK$1.80 per Share

— 34 —

LETTER FROM NUADA

(based on the closing price of HK$0.18 per Existing Share as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) and HK$4.00 per Share (based on the closing price of HK$0.40 per Existing Share as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) for most of the time during the Review Period. Overall, the Shares had been traded above the Subscription Price during the Review Period. We note that the Subscription Price represents a discount of approximately 62.67% to the daily average closing price of the Shares of approximately HK$2.679 per Share (based on the average closing price of HK$0.2679 per Existing Share for the trading days during the Review Period up to and including the Last Trading Day as quoted on the Stock Exchange and adjusted for the effect of the Share Consolidation) during the Review Period.

Liquidity of the Shares

The average daily trading volume of the Shares and its percentage to the total number of issued Shares and the total number of Shares held by the Independent Shareholders respectively during the Review Period are set out below (assuming Share Consolidation having become effective):

Historical trading volume of the Shares

			Percentage to the	Percentage to the
			number of issued
		Percentage to		Shares held by
	Average	the total number	the Independent
	daily trading	of issued Shares		Shareholders
	volume (Shares)	(%) (Note 1)		(%)(Note 2)
2007
January (from 16 January onwards)	16,016.67	0.02295		0.04657
February	46,000.00	0.06591		0.13375
March	11,954.50	0.01713		0.03476
April	16,527.78	0.02368		0.04806
May	108,855.56	0.15597		0.31651
June	62,277.50	0.08923		0.18108
July	1,288,524.21	1.84621		3.74661
August	958,023.68	1.37267		2.78562
September	338,789.47	0.48542		0.98509
October	202,738.10	0.29049		0.58950
November	139,391.24	0.19972		0.40530
December	79,736.84	0.11425		0.23185

— 35 —

LETTER FROM NUADA

			Percentage to the
			number of issued
		Percentage to	Shares held by
	Average	the total number	the Independent
	daily trading	of issued Shares	Shareholders
	volume (Shares)	(%) (Note 1)	(%)(Note 2)
2008
January (up to the Last
Trading Day)(Note 3)	65,500.00	0.09385	0.19045

Data source: Website of the Stock Exchange (www.hkex.com.hk)

Notes:

Based on 69,792,800 Shares in issue as at the Latest Practicable Date.
Based on 34,391,734 issued Shares held by the Independent Shareholders as at the Latest Practicable Date.
Trading of the Shares was suspended during the period from 23 February 2007 to 26 February 2007, 10 May 2007 to 14 May 2007 and 20 August 2007 to 23 August 2007.

As illustrated in the table above, the trading volume of the Shares during the Review Period had been relatively thin, with the highest daily average trading volume amounted to 1,288,524.21 Shares recorded in July 2007, representing approximately 1.84621% of the total number of issued Shares and approximately 3.74661% of the number of Shares held by the Independent Shareholders respectively. For the 237 trading days during the Review Period, there were 35 trading days with no trading of Shares, representing approximately 14.77% of the total number of trading days during the Review Period. The average daily trading volume of Shares during the Review Period amounted to approximately 3,334,335.55 Shares, representing approximately 4.78% of the total number of issued Shares and approximately 9.70% of the number of Shares held by the Independent Shareholders respectively. Based on the above, we consider that the liquidity of the Shares was in general low during the Review Period. We also note from the table above that the average trading volume has continuously decreased in the past six months under the Review Period.

— 36 —

LETTER FROM NUADA

Comparison with other open offers

In order to assess the fairness and reasonableness of the Subscription Price pursuant to the Open Offer, we identified, to the best of our knowledge, from the website of the Stock Exchange, and reviewed for reference purpose, the open offer (the “Comparables”) conducted by other listed issuers in the Stock Exchange from 16 July 2007 to 15 January 2008, being the six calendar months prior to the Last Trading Day. The key terms of these market comparables are set out in the following table:

					Subscription
				Subscription	price discount
				price discount	to theoretical
				to share price	ex-entitlement
				as at the last	price as at the last
Date of				trading day prior	trading day prior
Announcement	Company	Subscription	Basis of	to release of the	to release of the	Underwriting
(2007)	(stock code)	price	entitlement	announcement	announcement	commission
				%	%	%
30 November	COL Capital Limited (383)	HK$4.00	1 for 1	38.93	24.17	0
7 November	Long Success International	HK$0.11	1 for 1	63.9	20.3	3
	(Holdings) Limited (8017)
2 November	Kanhan Technologies	HK$0.08	1 for 2	65.96	56.28	2.5
	Group Limited (8175)
21 October	Magician Industries	HK$0.10	1 for 2	79.80	72.50	3
	(Holdings) Limited (526)
18 October	Riche Multi-Media Holdings	HK$0.3	1 for 5	20.00	14.29	2
	Limited (764)
2 October	Tian An China Investments	HK$6.0	1 for 5	36.84	32.74	2
	Company Limited (28)
28 September	Everest International	HK$1.0	2 for 1	16.67	6.25	0
	Investments Limited (204)
28 September	Paliburg Holdings Limited (617)	HK0.21	7 for 2	32.30	26.08	N/A
21 September	Sun Innovation Holdings	HK$1.56	1 for 3	15.68	12.24	In the form of
	Limited (547)					share options

— 37 —

LETTER FROM NUADA

						Subscription
				Subscription		price discount
				price discount		to theoretical
				to	share price	ex-entitlement
				as at the last		price as at the last
Date of				trading day prior		trading day prior
Announcement	Company	Subscription	Basis of	to release of the		to release of the	Underwriting
(2007)	(stock code)	price	entitlement	announcement		announcement	commission
					%	%	%
20 September	Intelli-Media Group	HK$0.05	1 for 2		60.00	50.00	1.5
	(Holdings) Limited (8173)
5 September	Prime Investment	HK$0.101	5 for 1		86.53	51.71	0
	Holdings Limited (721)
31 August	Brilliant Arts Multi-Media	HK$0.15	1 for 2		34.78	26.23	2.5
	Holdings Limited (8130)
23 August	eCyber China Holdings	HK$0.12	30 for 1		91.43	25.60	2
	Limited (254)
15 August	Thiz Technology	HK$0.1	1 for 2		56.52	46.43	2.5
	Group Limited (8119)
24 July	Northern International	HK$0.17	3 for 1		76.10	44.26	2.5
	Holdings Limited (736)
23 July	China State Construction	HK$10.00	1 for 5		22.00	19.00	2.5
	International Holdings
	Limited (3311)
20 July	Mandarin Entertainment	HK$0.5	1 for 2		50.50	40.48	2.5
	(Holdings) Limited (009)
20 July	Theme International	HK$0.06	1 for 2		55.20	45.12	2
	Holdings Limited (990)
17 July	Asia Commercial Holdings	HK$0.4	4 for 5		54.00	39.50	2\|
	Limited (104)
		Max			91.43	72.50	3
		Min			15.68	6.25	0
		Average			50.38	34.38	1.71
17 January 2008	the Company	HK$1.0	1 for 2		45.95	36.18	1.5

— 38 —

LETTER FROM NUADA

As noted from the terms of the Comparables, the discount to their share price prior to release of the relevant announcements ranged from 91.43% to a 15.68% with an average of 50.38%. We note that the discount of 45.95% to the Share price as at the Last Trading Day as implied by the Subscription Price fall within the range of discount of the Comparables and below the average of 50.38%. In addition, as noted from our analysis, the discount of Comparables to theoretical ex-entitlement price prior to the release of the relevant announcement ranged from a discount of approximately 72.50% to a discount of approximately 6.25% with an average of approximately 34.38%, the 36.18% discount of the Subscription Price also fall within the range of discount of the Comparables and slightly above the average of 34.38%.

In general, we consider that it is common for listed issuers in Hong Kong to issue offer shares at a discount to the market price in order to give an incentive to their shareholders to participate in the respective open offer.

Based on the foregoing, we are of the view that taking into account that (a) the Subscription Price was determined after arm’s length negotiations between the Company and the Underwriter; (b) the weakened share price performance of the Existing Shares on prevailing trade market; (c) the low trading liquidity of the Shares; and (d) the discount of the Offer Shares and the underwriting commission falls within the range of the Comparables; we are of the view that the Subscription Price is fair and reasonable and the Open Offer is in the interests of the Company and the Shareholders as a whole.

Alternative to the Open Offer

We are advised that the Company have considered alternative means for the Group to raise funds other than the Open Offer, including but not limited to, placing of new Shares, rights issue and debt financing. By placing of new Shares, the existing Shareholders will not able to participate in the enlargement of the capital base of the Company and at the same time allow them to maintain their proportionate interests in the Company and result in a dilution of existing Shareholders’ interest. It is more appropriate means if the Shareholders should be at liberty to take up their entitlements.

The Directors also consider that further debt financing is not the optimal approach to raise funds in the market as it will incur additional financing cost on the Group, affect gearing ratio of the Group and may subject to lengthy due diligence and negotiations with banks. The Company has also considered the possibility of fund raising by way of rights issue as an alternative to the Open Offer. But, unlike the Open Offer, a rights issue may not be implemented in a timely manner and is less cost effective given that there will be trading in nil-paid rights during the offer period. As such, Open Offer is considered to be an equitable means to raise funds for the Company.

— 39 —

LETTER FROM NUADA

Absence of arrangement for application for excess Offer Shares

As set out in the Board’s Letter, in order to lower the administrative cost, in particular when considering the relatively small issue size of the Open Offer, the Directors have made no arrangement for application for excess Offer Shares which are in excess of their assured entitlements by the Qualifying Shareholders under the Open Offer. Hence, if the Qualifying Shareholders do not accept the Offer Shares to which they are entitled, the Underwriter would have to take up the unsubscribed Offer Shares, under the obligation as the Underwriter, at the Subscription Price.

We wish to draw the attention of Independent Shareholders, pursuant to the Underwriting Agreement, under the obligation as the Underwriter, the Underwriter has to take up the unsubscribed Offer Shares whilst other Shareholders cannot further participate in the Open Offer in excess of their entitlements. We consider that such arrangement may not be considered desirable from the point of view of those Qualifying Shareholders who wish to take up the Offer Shares in excess of their entitlements. However, we consider that that the aforesaid should be balanced against the fact that given the terms of the Open Offer are structured with an intention to encourage the Qualifying Shareholders to take up their respective assured allotment of the Offer Shares (as the Subscription Price is set at a discount to the prevailing market price of the Shares which provides reasonable incentives to the Qualifying Shareholders), it is reasonable to expect that a majority of the Qualifying Shareholders will apply and pay for their respective assured allotment of the Offer Shares and, therefore, the Offer Shares that will be available for the excess application arrangement are expected to be minimal and the absence of an excess application arrangement may not be considered material to the Qualifying Shareholders. As a result, we consider that the absence of a facility for excess application under the Open Offer is fair and reasonable.

— 40 —

LETTER FROM NUADA

Potential dilution effect on the shareholding interests of the Independent Shareholders

The Underwriter Public Shareholders International Securities_(Note)_ Other public Shareholders Total	Immediately after the Immediately after Share Consolidation the Share Consolidation becoming effective becoming effective and and the completion the completion of the of the Open Offer Immediately upon the Open Offer (assuming all (assuming none of the Share Consolidation Qualifying Shareholders Qualifying Shareholders becoming effective take up their take up their As at the Latest but before completion respective entitlements respective entitlements Practicable Date of the Open Offer under the Open Offer) under the Open Offer) Existing % Consolidated % Consolidated % Consolidated % Shares (approx.) Shares (approx.) Shares (approx.) Shares (approx.) 354,010,656 50.72 35,401,066 50.72 53,101,599 50.72 70,297,466 67.15 31,961,016 4.58 3,196,101 4.58 4,794,151 4.58 3,196,101 3.05 311,956,328 44.70 31,195,633 44.70 46,793,450 44.70 31,195,633 29.80 697,928,000 100.00 69,792,800 100.00 104,689,200 100.00 104,689,200 100.00	Immediately after the Immediately after Share Consolidation the Share Consolidation becoming effective becoming effective and and the completion the completion of the of the Open Offer Immediately upon the Open Offer (assuming all (assuming none of the Share Consolidation Qualifying Shareholders Qualifying Shareholders becoming effective take up their take up their As at the Latest but before completion respective entitlements respective entitlements Practicable Date of the Open Offer under the Open Offer) under the Open Offer) Existing % Consolidated % Consolidated % Consolidated % Shares (approx.) Shares (approx.) Shares (approx.) Shares (approx.) 354,010,656 50.72 35,401,066 50.72 53,101,599 50.72 70,297,466 67.15 31,961,016 4.58 3,196,101 4.58 4,794,151 4.58 3,196,101 3.05 311,956,328 44.70 31,195,633 44.70 46,793,450 44.70 31,195,633 29.80 697,928,000 100.00 69,792,800 100.00 104,689,200 100.00 104,689,200 100.00
		100.00

Note: International Securities is a wholly owned subsidiary of Capital Builder. Capital Builder was incorporated in the British Virgin Islands and is wholly owned by Madam Mak, the spouse of Mr. Wan, who is the beneficial owner of Baron Capital. Accordingly, Capital Builder, Madam Mak and Mr. Wan are all deemed to be interested in the 31,961,016 Existing Shares (or 3,196,101 Consolidated Shares upon the Share Consolidation becoming effective).

All Qualifying Shareholders are entitled to subscribe for the Offer Shares. For those Qualifying Shareholders who take up their entitlements in full under the Open Offer, their shareholding interests in the Company will remain unchanged upon completion of the Open Offer. For those Qualifying Shareholders who do not exercise their rights to subscribe for the Offer Shares in full, depending on the extent to which they take up their entitlements, their shareholding interests will be diluted up to a maximum of approximately 33.33% upon completion of the Open Offer.

Following the completion of the Open Offer, the Underwriter will continue to be the controlling shareholder of the Company if none of the Qualifying Shareholders is willing to take up his or her or its entitlements of such number of Offer Shares. As such, the Underwriter will own approximately as to 67.15%.

— 41 —

LETTER FROM NUADA

Financial effects of the Open Offer

Net assets

With reference to the pro forma financial information of the Group under Appendix II to the Circular, the Group had an unaudited net tangible assets of the Group of approximately HK$348.7 million as at 30 June 2007. Assuming the Open Offer is approved, the net assets, the cash and bank balance and the working capital of the Group would increase by approximately HK$33.2 million, being the net proceeds from the Open Offer. However, Independent Shareholders should note that the effect of the Open Offer on the future financial position of the Group will not be reflected until the actual results are published in the future.

Gearing ratio

With reference to the pro forma financial information of the Group under Appendix II to the Circular, the gearing ratio of the Group would also be improved upon completion of the Open Offer.

RECOMMENDATION

Taking into consideration principal factors and reasons considered above, we consider that the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of excess application for Offer Shares are on normal commercial terms and the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares are fair and reasonable and are in the interest of the Independent Shareholders and the Company as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder and the absence of arrangements for excess application for the Offer Shares at the SGM.

Yours faithfully, For and on behalf of Nuada Limited Po Chan Executive Director

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

A summary of the published results, assets and liabilities of the Group as extracted from the respective annual and interim reports of the Company is set out below:

(i) Results

Turnover
Profit/(Loss) before
taxation
Income tax expense
Net profit/(loss) for
the year
Attributable to:
Equity holders of
the Company
Earnings/(Loss) per
share

Six months ended 30 June
Year ended 31 December
2007
2006
2006
2005
2004
(restated)
(unaudited)
(unaudited)
(audited)
(audited)
(audited)
HK$
HK$
HK$
HK$
HK$
74,540,705
64,823,581 138,114,855
51,367,296
2,679,393
103,737,283
31,158,322
11,011,908
(7,769,405)
(2,978,709)
—
—
(1,338,120)
(155,354)
(805,385)
103,737,283
31,158,322
9,673,788
(7,924,759) (3,784,094)
103,737,283
31,158,322
9,673,788
(7,924,759) (3,784,094)
18.00 cents*
5.48 cents
2.24 cents
(1.83) cents
(0.88) cents

(ii) Assets and liabilities

Total assets Total liabilities Net assets	Six months ended 30 June Year ended 31 December 2007 2006 2006 2005 2004 (restated) (unaudited) (unaudited) (audited) (audited) (audited) HK$ HK$ HK$ HK$ HK$ 350,294,437 275,597,952 264,270,410 258,551,037 253,991,023 (1,603,123) (13,700,506) (15,175,715) (24,188,899) (19,375,837) 348,691,314 261,897,446 249,094,695 234,362,138 234,615,186	Six months ended 30 June Year ended 31 December 2007 2006 2006 2005 2004 (restated) (unaudited) (unaudited) (audited) (audited) (audited) HK$ HK$ HK$ HK$ HK$ 350,294,437 275,597,952 264,270,410 258,551,037 253,991,023 (1,603,123) (13,700,506) (15,175,715) (24,188,899) (19,375,837) 348,691,314 261,897,446 249,094,695 234,362,138 234,615,186	Six months ended 30 June Year ended 31 December 2007 2006 2006 2005 2004 (restated) (unaudited) (unaudited) (audited) (audited) (audited) HK$ HK$ HK$ HK$ HK$ 350,294,437 275,597,952 264,270,410 258,551,037 253,991,023 (1,603,123) (13,700,506) (15,175,715) (24,188,899) (19,375,837) 348,691,314 261,897,446 249,094,695 234,362,138 234,615,186	Six months ended 30 June Year ended 31 December 2007 2006 2006 2005 2004 (restated) (unaudited) (unaudited) (audited) (audited) (audited) HK$ HK$ HK$ HK$ HK$ 350,294,437 275,597,952 264,270,410 258,551,037 253,991,023 (1,603,123) (13,700,506) (15,175,715) (24,188,899) (19,375,837) 348,691,314 261,897,446 249,094,695 234,362,138 234,615,186
	348,691,314	261,897,446	249,094,695	234,362,138

Capital and reserves attributable to the Company’s equity holders 348,691,314 261,897,446 249,094,695 234,362,138 234,615,186 Minority interests — — — — — 348,691,314 261,897,446 249,094,695 234,362,138 234,615,186

The earnings per share has been adjusted for the effect of the open offer of the Company as announced on 14 May 2007.

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

The financial information set out below is an extract from pages 23 to 73 of the annual report of the Company for the year ended 31 December 2006. All information in this paragraph should be read in conjunction with the audited financial statements for the year ended 31 December 2006 which are included in the 2006 annual report.

Consolidated income statement

For the year ended 31 December 2006

Note Turnover 5 Cost of sales Gross profit Other revenue 5 Investment management fees Staff costs Other operating expenses Profit/(Loss) from operations 6 Finance costs 7 Gain on disposal of an investment 8 Provision for impairment loss Impairment loss of goodwill on acquisition of a subsidiary Share of profits of jointly controlled entities Loss on disposal of a subsidiary Profit/(Loss) before taxation Income tax expense 10 Profit/(Loss) attributable to shareholders 25 Earnings/(Loss) per share 12	2006 HK$ 138,114,855 (124,106,377) 14,008,478 7,441,306 (2,337,513) (986,003) (2,714,982) 15,411,286 (8,079) 20,162,090 (23,553,701) (999,688) — — 11,011,908 (1,338,120) 9,673,788 2.24 cents	2005 HK$ (restated) 51,367,296 (45,716,923) 5,650,373 3,425,699 (3,584,185) (395,965) (11,224,158) (6,128,236) (48,965) — (223,670) — 575,386 (1,943,920) (7,769,405) (155,354) (7,924,759) (1.83)cents

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated balance sheet

At 31 December 2006

Note Non-current assets Interests in associates 14 Interests in a jointly controlled entity 15 Available-for-sale financial assets 18 Other asset 19 Current assets Available-for-sale financial assets 18 Financial assets at fair value through profit or loss 17 Other receivables 20 Cash with brokers Cash and bank balances Non-current assets held for sale 16 Less: Current liabilities Other payables 21 Due to Sinox Fund Management Limited 22 Deposit received Provision for taxation Net current assets NET ASSETS Capital and reserves Share capital 24 Reserves 25 SHAREHOLDERS’ FUNDS Net asset value per share 28	2006 HK$ 24,032,496 — 112,237,267 150,000 136,419,763 19,766,204 7,928,054 21,050,850 7,206,335 69,125,776 125,077,219 2,773,428 127,850,647 314,509 143,145 — 14,718,061 15,175,715 112,674,932 249,094,695 4,319,520 244,775,175 249,094,695 58 cents	2005 HK$ (restated) 19,085,091 2,773,428 73,459,817 150,000
		95,468,336
		3,698,235 26,359,349 67,528,942 1,279,521 64,216,654
		163,082,701 —
		163,082,701
		452,409 346,437 10,000,000 13,390,053
		24,188,899
		138,893,802
		234,362,138

		43,195,200 191,166,938
		234,362,138

		54 cents

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance sheet of the Company

At 31 December 2006 Note Non-current assets Interests in subsidiaries 13 Available-for-sale financial assets 18 Current assets Other receivables 20 Bank balances _Less:_Current liabilities Other payables 21 Due to Sinox Fund Management Limited 22 Due to a subsidiary 23 Net current assets NET ASSETS Capital and reserves Share capital 24 Reserves 25 SHAREHOLDERS’ FUNDS	2006 HK$ 90,006,380 17,891,412 107,897,792 379,891 58,615,664 58,995,555 307,163 143,145 56,771,541 57,221,849 1,773,706 109,671,498 4,319,520 105,351,978 109,671,498	2005 HK$ 90,002,090 10,027,635
		100,029,725
		217,891 36,935,766
		37,153,657
		331,997 346,437 30,284,428
		30,962,862
		6,190,795
		106,220,520

		43,195,200 63,025,320
		106,220,520

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated statement of changes in equity

For the year ended 31 December 2006

Share capital Note HK$ At 31 December 2004 43,195,200 Effect for the adoption of HKFRS 3 — Effect for the adoption of HKAS 39 — At 1 January 2005, as restated 43,195,200 Realisation of exchange fluctuation reserve on disposal of a subsidiary — Increase in fair value of available-for-sale financial assets — Loss for the year — At 31 December 2005 43,195,200 Prior year adjustments 25 — At 1 January 2006, as restated 43,195,200 Increase in fair value of available-for-sale financial assets — Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account (38,875,680 ) Profit for the year — At 31 December 2006 4,319,520	Share premium HK$ 169,564,710 — — 169,564,710 — — — 169,564,710 — 169,564,710 — — — 169,564,710			Reserves	Reserves			Total HK$ 234,615,186 — 2,875,205 237,490,391 1,887,093 1,364,105 (7,924,759) 232,816,830 1,545,308 234,362,138 5,058,769 — 9,673,788 249,094,695
			Capital reserve on consolidation HK$ 468,163 (468,163 ) — — — — — — — — — — — —	Contributed surplus HK$ 86,752,510 — — 86,752,510 — — — 86,752,510 — 86,752,510 — 13,630,807 — 100,383,317	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 — 1,364,105 — 3,644,188 — 3,644,188 5,058,769 — — 8,702,957	Accumulated losses HK$ (63,610,223) 468,163 595,122 (62,546,938) — — (7,924,759) (70,471,697) 1,545,308 (68,926,389) — 25,244,873 9,673,788 (34,007,728)

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated cash flow statement

For the year ended 31 December 2006

Note CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before taxation Adjustments for: Finance costs Interest on bank deposits Dividend income from investment securities and other investments/ financial assets, listed Loss on disposal of derivatives Unrealized gain of financial assets Gain on disposal of an investment 8 Impairment loss of goodwill on acquisition of a subsidiary Provision for impairment loss Share of profits of jointly controlled entities Loss on disposal of a subsidiary OPERATING CASH FLOWS BEFORE MOVEMENTS IN WORKING CAPITAL Increase in amount due from associated companies Decrease in financial assets at fair value through profit or loss Decrease in other receivables Decrease in amount due from Sinox Fund Management Limited (Decrease)/Increase in other payables (Decrease)/Increase in amount due to Sinox Fund Management Limited CASH GENERATED FROM OPERATIONS Hong Kong profits tax refund NET CASH INFLOWS FROM OPERATING ACTIVITIES	2006 HK$ 11,011,908 — (4,282,230) (2,373,336) — — (20,162,090) 999,688 23,553,701 — — 8,747,641 (9,830,215) 18,431,295 46,465,743 — (10,137,900) (203,292) 53,473,272 2,237 53,475,509	2005 HK$ (7,769,405) 33,854 (1,648,651) (2,360,289) 8,360,670 (920,902) — — 223,671 (575,386) 1,943,920 (2,712,518) — — 19,505,020 885,724 1,420,381 346,437 19,445,044 — 19,445,044

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note CASH FLOWS FROM INVESTING ACTIVITIES Interest paid Dividends received from investment securities and other investments/ financial assets, listed Interest on bank deposits Acquisition of debt Acquisition of financial assets at fair value through profit or loss Acquisition of available-for-sale financial assets Acquisition of an associated company Acquisition of a subsidiary Proceeds from disposal of an investment 8 Proceed from sale of financial assets at fair value through profit or loss Proceed from redemption of financial assets at fair value through profit or loss Disposal of a subsidiary Deposits received from sale of available-for-sale financial assets Deposits paid for acquisition of available-for-sale financial assets NET CASH OUTFLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Repayments of other borrowings NET CASH OUTFLOWS FROM FINANCING ACTIVITIES	2006 HK$ — 2,373,336 4,282,230 — — (69,954,043) (2,201,422) (1,000,000) 23,860,326 — — — — — (42,639,573) — —	2005 HK$ (33,854) 2,360,289 1,648,651 (5,500,000) (70,163,340) (17,459,156) — — — 13,390,123 39,441,890 23,696,917 10,000,000 (13,500,000) (16,118,480) (5,460,000) (5,460,000)

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash with brokers Cash and bank balances	2006 HK$ 10,835,936 65,496,175 76,332,111 7,206,335 69,125,776 76,332,111	2005 HK$ (2,133,436) 67,629,611 65,496,175 1,279,521 64,216,654 65,496,175

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the financial statements

For the year ended 31 December 2006

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 Companies Act (1981) of Bermuda. The addresses of the registered office and principal place of business of the Company are disclosed in the corporation information of the annual report.

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 Hong Kong Financial Reporting Standards (the “HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and generally accepted accounting principles in Hong Kong. In addition, the financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Hong Kong Companies Ordinance.

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(h).

Impact of New and Revised Hong Kong Financial Reporting Standards

In the current year, the Group has applied, for the first time, a number of new standard, amendments and interpretations (“new HKFRSs”) issued by the HKICPA, which are either effective for accounting period beginning on or after 1 January 2006. The adoption of the new HKFRSs below did not result in substantial changes to the Group’s accounting policies and had no material effect on how the results for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

HKAS 21 Amendment Net investment in a Foreign Operation HKAS 39 & HKFRS 4 Amendments Financial Guarantee Contracts HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HKFRS-Int4 Determining whether an Arrangement contains a Lease

The principal changes in accounting policies are as follows:

(a) HKAS 21 Amendment The Effects of Changes in Foreign Exchange Rates — Net Investment in a Foreign Operation

Upon the adoption of the HKAS 21 Amendment regarding a net investment in a foreign operation, all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognised in a separate component of equity in the consolidated financial statements irrespective of the currency in which the monetary item is denominated. This change has had no material impact on these financial statements as at 31 December 2006.

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) HKAS 39 & HKFRS 4 Amendments Financial Instruments: Recognition and Measurement and Insurance Contracts — Financial Guarantee Contracts

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts, to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. The adoption of this amendment has had no material impact on these financial statements.

(c) HKAS 39 Amendment — Cash Flow Hedge Accounting of Forecast Intragroup Transactions

This amendment has revised HKAS39 to permit the foreign currency risk of a highly probable intragroup forecast transaction to qualify as a hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the consolidated income statement. As the Group currently has no such transactions, the amendment has had no effect on these financial statements.

(d) HKAS 39 Amendment — The Fair Value Option

This amendment has changed the definition of a financial instrument classified as fair value through profit or loss and has restricted the use of the option to designate any financial asset or any financial liability to be measured at fair value through the income statement. The Group had not previously used this option, and hence the amendment has had no effect on the financial statements.

(e) HKFRS-Int4 — Determining whether an Arrangement contains a Lease

HKFRS-Int4 Determining whether an arrangement contains a lease, which is effective for annual period beginning on or after 1 January 2006, requires the Group to determine whether arrangements which do not take the legal form of a lease, but convey the right to use an asset in return for a series of payments are in substance leases by assessing whether:

the fulfilment of the arrangement is dependent on the use of a specific asset or assets; and
the arrangement conveys a right to use the asset.

Once an arrangement is determined to be a lease in accordance with this interpretation, the requirements of HKAS 17 are applied in classifying the arrangement as a finance lease or as an operating lease. As the Group has no such transaction during the year ended 2005 and 2006. This interpretation has had no effect on these financial statements.

The Group has not early applied the following new standard, amendment or interpretations that have been issued but not yet effective. The directors of the Company anticipate that the application of these standard, amendment or interpretations will have no material impact on the results and the financial position of the Group.

— 52 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK (IFRIC) — Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK (IFRIC) — Int 8 Scope of HKFRS 2[3] HK (IFRIC) — Int 9 Reassessment of Embedded Derivatives[4] HK (IFRIC) — Int 10 Interim Financial Reporting and Impairment[5]

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

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

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

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

5 Effective for annual periods beginning on or after 1 November 2006

3. Principal Accounting Policies

(a) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

Sales of goods are recognised when goods are delivered and title has passed.

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. 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 whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interests in subsidiaries, that are not classified as held for sale in accordance with HKFRS 5, are stated at cost less any impairment losses.

(d) Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale (in which case it is accounted for under HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations) or when the investment is designated as at fair value through profit or loss upon initial recognition or is classified as held for trading (in which case it is accounted for under HKAS 39 Financial Instruments: Recognition and Measurement). Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the associate, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

(e)

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets (“disposal groups”) previous carrying amount and fair value less costs to sell.

(f) 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 entity 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.

(g) Goodwill

Goodwill represents the excess of the cost of a business combination or an investment in an associate or a jointly controlled entity over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 3(k)). In respect of associates or jointly controlled entities, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or jointly controlled entity.

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Any excess of the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate or a jointly controlled entity is recognised immediately in profit or loss.

On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

(h) Investments

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 categorized 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 consolidated balance sheet (Note 20) .

(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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 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.

(i) Golf club membership

Golf club membership is stated at cost less impairment losses, if any. The carrying amount of individual golf 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 golf 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 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) 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

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

In determining the estimated impairment of trade receivable, there is objective evidence of impairment loss. The Group takes into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise.

(l) Leasing

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

The Group as lessee

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs.

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

(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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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;
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.

(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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow 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 as adjusted for items which are non-assessable or disallowable. Hong Kong profits tax is provided at the rate prevailing for the year based on the assessable profit for the year less allowable losses, if any, brought forward.

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 utilized.

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 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.

(t) Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair value can otherwise be reliably estimated) is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

(u) Related parties

A party is considered to be related to the Group if:

(i) directly, or indirectly through one or more intermediaries, the party:
controls, is controlled by, or is under common control with, the Group;
has an interest in the Group that gives it significant influence over the Group; or
has joint control over the Group;
(ii) the party is a member of key management personnel of the Company or its parent company;
(iii) the party is a close member of the family of any individual referred to in (i) and (ii);
(iv) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, the individual referred to in (ii) or (iii); and
(v) the party is a post-employment benefit plan for the benefit of employees of the Group, or of any entity that is a related party of the Group.

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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 profit/(loss) from operations by business segment and turnover by geographical segment for the year is as follows:

By business segment: Management fees from jointly controlled entities Dividend income from investment securities and other investments/ financial assets, listed Proceeds from sale of investment securities and disposal of equity-linked notes Finance costs Share of profits of jointly controlled entities Loss on disposal of a subsidiary Provision for impairment loss Impairment loss of goodwill on acquisition of a subsidiary Gain on disposal of an investment Profit/(Loss) before taxation Total assets (unallocated) Total liabilities (unallocated)	Turnover 2006 2005 HK$ HK$ (restated) — 117,924 2,373,336 2,360,289 135,741,519 48,889,083 138,114,855 51,367,296	Profit/(loss) from operations 2006 2005 HK$ HK$ (restated) — 117,924 2,373,336 2,360,289 13,037,950 (8,606,449) 15,411,286 (6,128,236) (8,079) (48,965) — 575,386 — (1,943,920) (23,553,701) (223,670) (999,688) — 20,162,090 — 11,011,908 (7,769,405) 264,270,410 258,551,037 15,175,715 24,188,899

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

By geographical segment: Hong Kong The PRC	Turnover 2006 2005 HK$ HK$ (restated) 138,114,855 51,249,372 — 117,924 138,114,855 51,367,296

Given the nature of the Group’s operations is investment holding, segment assets and segment liabilities are unallocated. In addition, it is not considered meaningful to provide geographical analysis of profit/(loss) from operations and segment assets.

5. Turnover

Turnover Management fees from jointly controlled entities Dividend income from investment securities and other investments/financial assets, listed Proceeds from sale of investment securities Proceeds from disposal of equity-linked notes Other revenue Interest on bank deposits Unrealized gain of financial assets Other income	Group 2006 2005 HK$ HK$ (restated) — 117,924 2,373,336 2,360,289 37,397,019 7,915,083 98,344,500 40,974,000 138,114,855 51,367,296 4,282,230 1,648,651 2,657,030 — 502,046 1,777,048 7,441,306 3,425,699

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group is principally engaged in the trading of securities and other financial assets investment. The directors of the Group are in the opinions that reclassification of turnover, other revenue, cost of sales and other operating expenses for the year ended 31 December 2005 would reflect better presentation of the financial results for the Group. The cumulative effect on the restatement is summarized below:

Effect on income statement
2005
Reclassification
HK$
HK$
(as previously reported)
Turnover
Management fees from jointly
controlled entities
117,924
—
Dividend income from
investment securities and
other investments/financial
assets, listed
2,360,289
—
Proceeds from sale of
investment securities
—
7,915,083
Proceeds from disposal of
equity-linked notes
—
40,974,000
2,478,213
Other revenue
Interest on bank deposits
1,648,651
—
Investment income from
financial assets, unlisted
1,585,893
(1,585,893)
Other income
1,723,265
53,783
4,957,809
Cost of sales
Investment income from
financial assets, unlisted
—
(45,716,923)
Other operating expenses
Provision for Impairment loss
(223,670)
223,670
Loss on disposal of
investment securities
(6,944,910)
6,944,910
Loss on disposal of derivatives
—
(8,584,960)
Other operating expenses
(2,639,198)
—
(9,807,778)
Provision for impairment loss
—
(223,670)
—

2005
HK$
(as restated)
117,924
2,360,289
7,915,083
40,974,000
51,367,296
1,648,651
—
1,777,048
3,425,699
(45,716,923)
—
—
(8,584,960)
(2,639,198)
(11,224,158)
(223,670)

Note: The restatement as described above has no effect on the result for the year.

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. Profit/(Loss) from Operations

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

Auditors’ remuneration Provision for impairment loss Operating lease payments on land and buildings Retirement benefit costs Interest on bank deposits Exchange gains, net Loss on disposal of derivatives Unrealized (gain)/loss of financial assets	Group 2006 2005 HK$ HK$ (restated 130,000 180,000 23,553,701 223,670 3,638 3,900 38,874 23,983 (4,282,230) (1,648,651 (47,501) (45,603 — 8,360,670 (2,657,030) 494,858

7. Finance Costs

Bank charges Interest on other borrowing wholly repayable within five years	Group 2006 2005 HK$ HK$ 8,079 15,111 — 33,854 8,079 48,965	Group 2006 2005 HK$ HK$ 8,079 15,111 — 33,854 8,079 48,965
		48,965

8. Gain on Disposal of an Investment

It represents the gain arising from the Group’s disposal of its 18% equity interest in Dragon Fortune Limited which was indirectly holding Palm Island Golf Club and Resort at Huizhou in the People’s Republic of China.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Directors’ and Senior Management’s Emoluments

(a) Directors’ emoluments

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

Fees: Executive directors Non-executive directors Other emoluments Retirement benefits scheme contributions: Executive directors Non-executive directors	2006 HK$ 141,167 160,000 — 7,058 — 308,225	2005 HK$ 123,710 160,000 — 6,000 —
		289,710

Emoluments breakdown of each of the directors for the year ended 31 December 2006:

Executive directors Cheuk Yuk Lung Tsui Yee Ni Lam Kwing Wai, Alvin Lam Wo Wong Kwok Bui, George Non-executive directors Yan Mou Keung, Ronald Chan Siu Wing, Raymond Chan Fai Yue, Leo	Directors’ fees HK$ 60,000 33,667 12,500 5,000 30,000 141,167 60,000 60,000 40,000 160,000 301,167	Retirement benefits scheme contributions HK$ 3,000 1,683 625 250 1,500 7,058 — — — — 7,058	Total HK$ 63,000 35,350 13,125 5,250 31,500
			148,225
			60,000 60,000 40,000
			160,000
			308,225

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Emoluments breakdown of each of the directors for the year ended 31 December 2005:

Executive directors Lam Wo Cheuk Yuk Lung Wong Kwok Bui, George Non-executive directors Yan Mou Keung, Ronald Chan Siu Wing, Raymond Chan Fai Yue, Leo	Directors’ fees HK$ 60,000 60,000 3,710 123,710 60,000 60,000 40,000 160,000 283,710	Retirement benefits scheme contributions HK$ 3,000 3,000 — 6,000 — — — — 6,000	Total HK$ 63,000 63,000 3,710
			129,710
			60,000 60,000 40,000
			160,000
			289,710

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

During the year, no share option was granted to the directors.

(b) Five highest paid individuals

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

	2006	2005
Number of directors	3	4
Number of employees	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	2006 HK$ 746,766 34,270 781,036	2005 HK$ 49,530 —
		49,530

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

During the year, 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.

10. Income Tax Expense

Company and subsidiaries — Hong Kong profits tax Share of taxation attributable to jointly controlled entities	Group 2006 2005 HK$ HK$ 1,338,120 — — 155,354 1,338,120 155,354	Group 2006 2005 HK$ HK$ 1,338,120 — — 155,354 1,338,120 155,354
		155,354

Hong Kong profits tax has been provided as the individual companies comprising the Group has assessable profit arising in Hong Kong for the year.

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

Reconciliation between taxation and tax at the applicable rate:

Profit/(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 Under provision of tax payable Effect of tax rate of jointly controlled entity operating in other jurisdiction Taxation charge	Group 2006 2005 HK$ HK$ 11,011,908 (7,769,405 1,927,084 (1,359,646 (1,781,782) (999,732 759,105 2,471,196 — (11,125 (500) — 333,864 — 100,349 — — 54,661 1,338,120 155,354	Group 2006 2005 HK$ HK$ 11,011,908 (7,769,405 1,927,084 (1,359,646 (1,781,782) (999,732 759,105 2,471,196 — (11,125 (500) — 333,864 — 100,349 — — 54,661 1,338,120 155,354
		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.

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Profit/(Loss) Attributable to Shareholders

The profit attributable to shareholders for the year ended 31 December 2006 is dealt with in the financial statements of the Company to the extent of HK$864,904 (2005: Loss HK$10,430,192).

12. Earnings/(Loss) Per Share

The calculation of earnings/(loss) per share is based on:

Profit/(loss) attributable to shareholders Weighted average number of ordinary shares Interests in Subsidiaries Unlisted shares, at cost Due from a subsidiary	Group 2006 2005 HK$ HK$ 9,673,788 (7,924,759) 431,952,000 431,952,000 Company 2006 2005 HK$ HK$ 780 780 90,005,600 90,001,310 90,006,380 90,002,090

13. Interests in Subsidiaries

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

Details of the principal subsidiaries as at 31 December 2006 are as follows:

		Particulars of	Percentage of
		issued share	issued share
	Place of	capital/	capital/
	incorporation/	registered	registered	Principal
Name	operation	capital	capital held	activities
Directly held by the Company:
Accufocus Investments	British Virgin Islands	100 shares of	100%	Investment
Limited	(“BVI”)/Hong Kong	US$1 each		holding
Indirectly held by the Company:
Attentive Investments	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
B2C E-Commerce Group	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
Best Policy Management	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Particulars of	Percentage of
		issued share	issued share
	Place of	capital/	capital/
	incorporation/	registered	registered	Principal
Name	operation	capital	capital held	activities
Chief Success Management	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
Ever Honest Investments	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
Founder China Industrial	Hong Kong	2 ordinary shares of	100%	Investment
Investments Company		HK$1 each		holding
Limited
Linkson Investment Limited	Hong Kong	2 ordinary shares of	100%	Dormant
		HK$1 each
Founder Industrial	Hong Kong	10,000,000 ordinary	100%	Investment
Investments (Holdings)		shares of HK$1 each		holding
Company Limited
Genius Choice Investments	BVI/Hong Kong	1 share of	100%	Investment
Limited		US$1 each		holding
GR Investment Holdings	Hong Kong	899,900,000 ordinary	100%	Investment
Limited		shares of HK$0.1 each		holding
Glorious Bright Limited	Hong Kong	2 ordinary shares of	100%	Money
		HK$1 each		lending
Home Growth Assets	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
GR Investment International	Hong Kong	2 ordinary shares of	100%	Dormant
Limited		HK$1 each
Rich Concept Investments	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
Rich Profits International	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
Market Court Resources	BVI/Hong Kong	1 share of US$1 each	100%	Investment
Limited				holding
Target Plus Holdings Limited	BVI/Hong Kong	1 share of US$1 each	100%	Investment
				holding
Contessa Assets Limited	BVI/Hong Kong	1 share of US$1 each	100%	Investment
				holding

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Interests in Associates

Unlisted shares at cost Post-acquisition profit Share of associates’ results _Less:_Provision for impairment loss Amounts due from associates _Less:_Provision for impairment loss	Group 2006 2005 HK$ HK$ (restated) 4,189,781 1,988,046 — — 4,189,781 1,988,046 (1,890,000) — 2,299,781 1,988,046 26,927,260 17,097,045 (5,194,545) — 21,732,715 17,097,045 24,032,496 19,085,091

During the year ended 2006, the Group’s share of losses in associates exceeds its interest in the associates, therefore, the Group’s interest is reduced to nil and recognition of further losses is discontinued.

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

Details of the principal associates, all of which are unlisted, as at 31 December 2006 are as follows:

		Particulars	Proportion
	Place of	of issued	of associates’	Principal
Name	incorporation	share capital	capital owned	activities
Luck Point Investments	BVI	200 shares of	35%	Investment
Limited		US$1 each		holding
Happy Online Group	BVI	14,000 shares of	33.75%	Investment
Limited		US$1 each		holding
Bright Honest Limited	BVI	50,000 shares of	25%	Investment
		US$1 each		holding
Halway Development	Hong Kong	10 ordinary shares of	30%	Investment
Limited		HK$1 each		holding
Skyplane Enterprises	BVI	130 shares of	30.77%	Investment
Limited		US$1 each		holding

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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:

	2006	2005
	HK$	HK$
Assets	125,308,631	16,701,517
Liabilities	(131,012,056)	(17,090,378)
Income	66,500	—
Loss	(1,367,660)	(2,223)

15. Interests in a Jointly Controlled Entity

(a) The balances represent:

Share of net assets other than goodwill _Less:_Impairment loss	2006 HK$ — — —	Group 2005 HK$ 5,097,099 (2,323,671) 2,773,428

The jointly controlled entity representing 25% equity interest for the Group held in an unlisted company, Shanghai Yong An Dairy Company Limited, which was established in PRC. Pursuant to an agreement dated 29 December 2004, the Group has committed to dispose its entire equity interest of the Company and consequently the amount was classified as non-current assets held for sale and disclosed in note 16.

(b) The following amounts represent the Group’s share of the assets and liabilities, and sales and results of the joint venture:

Assets: Non-current assets Current assets Liabilities: Long-term liabilities Current liabilities Net assets Income Expenses Profit after income tax	2006 HK$ — — — — — — — — — —	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

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Non-Current Assets Held For Sale

Interests in a jointly controlled entity held for sale Share of net assets other than goodwill _Less:_Impairment loss	Group 2006 2005 HK$ HK$ 5,097,099 — (2,323,671) — 2,773,428 —	Group 2006 2005 HK$ HK$ 5,097,099 — (2,323,671) — 2,773,428 —
		—

The Group has committed to dispose its 25% equity interest in Shanghai Yong An Dairy Company Limited to a third party for a consideration of RMB2.8 million (approximately HK$2.7 million). The transaction was completed on 12 February 2007 as described in note 15. It gives rise to immaterial financial effect in the income statement for the year ended 2007.

17. 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)_ Embedded derivatives, at fair value	Group 2006 2005 HK$ HK$ 5,680,000 3,375,000 2,248,054 5,616,051 7,928,054 8,991,051 — 17,368,298 7,928,054 26,359,349	Group 2006 2005 HK$ HK$ 5,680,000 3,375,000 2,248,054 5,616,051 7,928,054 8,991,051 — 17,368,298 7,928,054 26,359,349
		8,991,051 17,368,298
		26,359,349

Note:

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

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

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. Available-For-Sale Financial Assets

Non-current assets Hong Kong unlisted equity securities, at cost Overseas unlisted equity securities, at cost _Less:_Impairment loss Hong Kong listed equity securities, at fair value Overseas unlisted equity securities, at fair value Current assets Overseas unlisted equity securities, at cost Overseas unlisted equity securities, at fair value	Group 2006 2005 HK$ HK$ (restated) 17,070,000 — 25,626,167 25,626,167 (25,626,167) (9,157,010) 17,070,000 16,469,157 79,892,527 56,990,660 15,274,740 — 112,237,267 73,459,817 — 3,698,235 19,766,204 — 19,766,204 3,698,235	Company 2006 2005 HK$ HK$ — — — — — — — — 17,891,412 10,027,635 — — 17,891,412 10,027,635 — — — — — —	Company 2006 2005 HK$ HK$ — — — — — — — — 17,891,412 10,027,635 — — 17,891,412 10,027,635 — — — — — —
			— 10,027,635 —
			10,027,635

			— —
			—

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.

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2006, the carrying amounts of interests in the following available-for-sale financial assets exceeded 5% of total assets of the Group and the Company:

			Proportion				Dividend	Dividend
			of			Directors’	income				Net assets	Unrealised			Principal
			investee’s	Cost	and	valuation/	received				attributable	gain taken			activities/
		Place of	capital	advances		market	during		Dividend		to the		in the		place of
	Name	incorporation	owned	thereto		value	the year		cover		investment		accounts		operation
				HK$		HK$	HK$				HK$		HK$
				million		million	million				million		million
	Golden	Bermuda	5.28%		22	23	1.72			76%	46			0.90	Investment
	Resources														holding/
	Development														Hong Kong
	International
	Limited
	Cosmopolitan	Cayman	9.92%		17	18	—			—	7			0.87	Investment
	International	Islands													holding/
	Holdings														Hong Kong
	Limited
	Sun Hung Kai	Hong Kong	0.16%		12	14	0.18			99%	10			2.22	Investment
	& Co.														holding/
	Limited														Hong Kong
	Golden Chain	Hong Kong	15%		12	12	—			—	5			—	Investment
	Development														holding/
	Limited														Hong Kong
19.	Other Asset
												Group
											2006				2005
											HK$				HK$
	Golf club membership,		at cost								150,000				150,000

20.	Other Receivables
								Group						Company
							2006			2005			2006		2005
							HK$			HK$			HK$		HK$
	Prepayments and deposits					15,250,850			13,889,268			229,891			217,891
	Loan to an investee company_(Note a)_						—		48,139,674				—			—
	Other loan_(Note a)_						150,000				—		—			—
	Others					5,650,000			5,500,000			150,000				—
						21,050,850			67,528,942			379,891			217,891

— 74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note:

(a) The ageing analysis of the receivables other than the prepayments and deposits and others is as follows:

Within 3 months 3 to 6 months 6 to 12 months Over 1 year	Group 2006 2005 HK$ HK$ — — 150,000 — — — — 48,139,674 150,000 48,139,674	Company 2006 2005 HK$ HK$ — — — — — — — — — —	Company 2006 2005 HK$ HK$ — — — — — — — — — —
			—

The other loan amounted to HK$150,000 is secured, interest bearing at 6% per annum and will be repaid on 28 May 2007.

21. Other Payables

		Group	Company	Company
	2006	2005	2006	2005
	HK$	HK$	HK$	HK$
Accruals	314,509	452,409	307,163	331,997

22. Due to Sinox Fund Management Limited

The amount due to SINOX represents investment management fees payable at the year end. The amount due is unsecured, interest free and repayable on demand.

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.

23. Due to a Subsidiary

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

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. Share Capital

Notes Ordinary shares of HK$0.01 each (2005: HK$0.10 each) Authorised: At beginning of the year Capital Reduction (a) At end of the year Issued and fully paid: At beginning of the year Capital Reduction (a) At end of the year	Number of shares 2006 2005 3,000,000,000 3,000,000,000 — — 3,000,000,000 3,000,000,000 431,952,000 431,952,000 — — 431,952,000 431,952,000	Share capital 2006 2005 HK$ HK$ 300,000,000 300,000,000 (270,000,000) — 30,000,000 300,000,000 43,195,200 43,195,200 (38,875,680) — 4,319,520 43,195,200	Share capital 2006 2005 HK$ HK$ 300,000,000 300,000,000 (270,000,000) — 30,000,000 300,000,000 43,195,200 43,195,200 (38,875,680) — 4,319,520 43,195,200
			300,000,000

			43,195,200 —
			43,195,200

Note :

(a) Pursuant to a special resolution passed at the special general meeting held on 20 June 2006, the nominal value of each authorized but unissued or issued share of the Company was reduced from HK$0.10 to HK$0.01.

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 part-time 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.

The Share Option Scheme has been expired on 10 December 2006. No option was granted, exercised, lapsed or cancelled during the year or remained outstanding as at 31 December 2006.

— 76 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. Reserves

Group At 31 December 2004 — As originally stated — Effect for the adoption of HKFRS 3 — Effect for the adoption of HKAS 39 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 year At 31 December 2005 At 31 December 2005 — As originally stated — Prior year adjustments (see Notes below) At 1 January 2006, as restated Increase in fair value of available-for-sale financial assets Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account Profit for the year At 31 December 2006 Retained by: Company and subsidiaries Associates Jointly controlled entities	Capital Share reserve on premium consolidation HK$ HK$ 169,564,710 468,163 — (468,163) — — 169,564,710 — — — — — — — 169,564,710 — 169,564,710 — — — 169,564,710 — — — — — — — 169,564,710 — 169,564,710 — — — — — 169,564,710 —	Contributed surplus HK$ 86,752,510 — — 86,752,510 — — — 86,752,510 86,752,510 — 86,752,510 — 13,630,807 — 100,383,317 100,383,317 — — 100,383,317	Changes in fair value of (Accumulated Exchange available-for- losses)/ fluctuation sale financial Retained reserve assets profits HK$ HK$ HK$ (1,755,174) — (63,610,223) — — 468,163 — 2,280,083 595,122 (1,755,174) 2,280,083 (62,546,938) 1,887,093 — — — 1,364,105 — — — (7,924,759) 131,919 3,644,188 (70,471,697) 131,919 3,644,188 (70,471,697) — — 1,545,308 131,919 3,644,188 (68,926,389) — 5,058,769 — — — 25,244,873 — — 9,673,788 131,919 8,702,957 (34,007,728) 131,919 8,702,957 (33,958,644) — — (182,826) — — 133,742 131,919 8,702,957 (34,007,728)	Total HK$ 191,419,986 — 2,875,205 194,295,191 1,887,093 1,364,105 (7,924,759) 189,621,630 189,621,630 1,545,308 191,166,938 5,058,769 38,875,680 9,673,788 244,775,175 244,824,259 (182,826) 133,742 244,775,175

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital Share reserve on premium consolidation HK$ HK$ Company At 31 December 2004 — As originally stated 3,237,490 — — Effect for the adoption of HKAS 39 — — At 1 January 2005, as restated 3,237,490 — Decrease in fair value of available-for-sale financial assets — — Loss for the year — — At 31 December 2005 3,237,490 — At 1 January 2006 — As brought forward 3,237,490 — Increase in fair value of available-for-sale financial assets — — Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account — — Profit for the year — — At 31 December 2006 3,237,490 —	Contributed surplus HK$ 86,752,510 — 86,752,510 — — 86,752,510 86,752,510 — 13,630,807 — 100,383,317	Changes in fair value of (Accumulated Exchange available-for- losses)/ fluctuation sale financial Retained reserve assets profits HK$ HK$ HK$ — — (15,684,681) — (664,267) 870,000 — (664,267) (14,814,681) — (1,055,540) — — — (10,430,192) — (1,719,807) (25,244,873) — (1,719,807) (25,244,873) — 2,586,074 — — — 25,244,873 — — 864,904 — 866,267 864,904	Total HK$ 74,305,319 205,733 74,511,052 (1,055,540) (10,430,192) 63,025,320 63,025,320 2,586,074 38,875,680 864,904 105,351,978

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.

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.

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prior year adjustments represent the following:

The effects of the prior year adjustments in the consolidated balance sheet and other significant related disclosure items as previously reported for the balances at 1 January 2005 are summarized below:

2005 HK$ (as previously reported) Consolidated balance sheet items Interests in associates 17,562,305 Available-for-sale financial assets 73,437,295 Net asset value 232,816,830 Net asset value per share 54 cents		Adjustment 1,522,786 22,522 1,545,308	2005 HK$ (as restated) 19,085,091 73,459,817

			234,362,138 54 cents

Notes:

(1) In previous years, the Group had mistakenly recognised, in the interests in associates, a share of the loss of its associate, namely Luck Point Investments Limited, by the amount of HK$1,522,786. The correction of this error has resulted in an increase in retained profits and increase in the interests in associates at 1 January 2005 by that amount.
(2) In addition, the impairment loss for the disposed financial assets amounted to HK$22,522 was not yet reversed at the year when it was sold. The reversal of the impairment loss has increased the retained profits and the available-for-sale financial assets at 1 January 2005 for the amount.

26. Disposal of a Subsidiary

Net assets disposed of: Interests in jointly controlled entities Property, plant and equipment Cash and bank balances Other receivables Other payables Realisation of exchange fluctuation reserve Sales proceeds Loss on disposal	Group 2006 2005 HK$ HK$ — 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	Group 2006 2005 HK$ HK$ — 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
		65,180,198 1,887,093
		67,067,291 (65,123,371)
		1,943,920

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Sales proceeds Cash and bank balances of the disposed subsidiary Net inflow of cash and cash equivalents in respect of disposal of the subsidiary	Group 2006 2005 HK$ HK$ — 65,123,371 — (41,426,454) — 23,696,917	Group 2006 2005 HK$ HK$ — 65,123,371 — (41,426,454) — 23,696,917
		23,696,917

27. Acquisition of a Subsidiary

The Group had acquired 100% of the issued share capital of Contessa Assets Limited. Contessa Assets Limited is engaged in investment holding. The purchase consideration for the acquisition was in the form of cash, with HK$1,000,000 paid at the acquisition date.

The fair values of the identifiable assets and liabilities of Contessa Assets Limited as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows:

Investment in an associate Amount due from an associate Goodwill Satisfied by cash	2006 Fair value recognized on acquisition HK$ 312 — 312 999,688 1,000,000	Carrying amount HK$ 312 10,851,203
		10,851,515

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

Cash consideration Net outflow of cash and cash equivalents in respect of the acquisition of a subsidiary	2006 HK$ 1,000,000

	1,000,000

The goodwill arising on acquisition was reviewed and subsequently an impairment loss of this goodwill has been recognised in the consolidated income statement for the year ended 31 December 2006.

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Net Asset Value Per Share

Net asset value per share is computed based on:

Net assets Number of ordinary shares	Group 2006 2005 HK$ HK$ (restated) 249,094,695 234,362,138 431,952,000 431,952,000	Group 2006 2005 HK$ HK$ (restated) 249,094,695 234,362,138 431,952,000 431,952,000

		431,952,000

29. 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.

30. Operating Lease Commitments

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

Within one year In the second to fifth year inclusive	Group 2006 2005 HK$ HK$ 122,440 — 40,800 — 163,240 —	Group 2006 2005 HK$ HK$ 122,440 — 40,800 — 163,240 —
		—

31. Related Party Transactions

Apart from the transactions with related parties disclosed elsewhere in the financial statements, the following transactions were entered into by the Group with the related parties negotiated on terms mutually agreed with these related parties:

(a) Group

		2006	2005
		HK$	HK$
Management	fees received from jointly
controlled	entities	—	117,924

(b) Details of guarantees issued by the Company in favour of banks to a direct subsidiary of an associate are set out in note 32.

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. 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 2006 2005 HK$ HK$ — 13,573,000 — 9,855,000 17,250,000 7,250,000 17,250,000 30,678,000	Group 2006 2005 HK$ HK$ — 13,573,000 — 9,855,000 17,250,000 7,250,000 17,250,000 30,678,000
		30,678,000

33. Financial Risk Management

(A) Financial Risk Factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and cash flow and interestrate 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.

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 available-for-sale financial assets or as financial assets at fair value through profit or loss. The Group is not exposed to commodity price risk.

— 82 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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 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.

(B) Fair value estimation

The fair value of financial instruments traded in active market is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

Fair value of financial assets and liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

34. Critical Accounting Estimates and Judgement

Estimates are continually evaluated and are based on historical experience and other factor, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are mainly impairment of financial assets. Note 3(h) contains information on the assumptions on impairment of unlisted securities.

35. Event After the Balance Sheet Date

During the year 2000, the Group disposed of its 26.8% equity interest in an associated company, Shanghai White Cat Company Limited (“White Cat”), for a consideration of RMB108 million (approximately HK$100 million). This gave rise to a gain on disposal of approximately HK$17 million (net of taxation of approximately HK$14 million which comprised enterprise tax and business tax in the PRC). RMB33 million out of the consideration was not received since then and a provision for non-recovery of receivable had also been made in the year 2003. Subsequent to the balance sheet date, the Group has finalised all necessary procedures for the disposal of White Cat with the purchaser and obtaining all necessary approvals from the PRC government authorities by receiving a final payment of approximately HKD22 million, after expenses, which will be recognized in the financial statements for the year ended 31 December 2007.

— 83 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. Cash and Cash Equivalents

Cash and Cash Equivalents
Cash at bank and in hand Cash with brokers Short term bank deposits	Group 2006 2005 HK$ HK$ 10,679,787 6,478,981 7,206,335 1,279,521 58,445,989 57,737,673 76,332,111 65,496,175	Company 2006 2005 HK$ HK$ 169,675 179,072 — — 58,445,989 36,756,694 58,615,664 36,935,766
			36,935,766

The average interest rate on short term bank deposits was approximately 4.2% (2005: approximately 2.16%); these deposits have an average maturity of 4 days.

37. Approval of Financial Statements

The financial statements on page 23 to 73 were approved and authorized for issue by the board of directors on 14 March 2007.

— 84 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2007

The financial information set out below is an extract from pages 1 to 8 of the interim report of the Company for the six months ended 30 June 2007. All information in this paragraph should be read in conjunction with the unaudited financial statements for the six months ended 30 June 2007 which are included in the 2007 interim report.

Condensed consolidated income statement

For the six months ended 30 June

Notes Turnover 2 Cost of sales Gross profit Other revenues Investment management fee Staff costs Other operating expenses Profit from operations 3 Finance costs Gain on disposal of an investment Write back of receivable arising from the disposal of an associate written off in previous years Dividend income from an associate 4 Profit before taxation Income tax expense 5 Profit attributable to shareholders Earnings per share — as originally reported — including effects of Open Offer (restated for 2006) 6	2007 Unaudited HK$ 74,540,705 (65,946,475) 8,594,230 12,221,345 (924,000) (626,725) (3,702,393) 15,562,457 (5,274) — 30,680,100 57,500,000 103,737,283 — 103,737,283 N/A 18.00 cents	2006 Unaudited HK$ 64,823,581 (57,059,914) 7,763,667 11,049,533 (1,413,513) (346,163) (6,052,425) 11,001,099 (4,867) 20,162,090 — — 31,158,322 — 31,158,322 7.21 cents 5.48 cents

— 85 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed consolidated balance sheet

Notes Non-current assets Interests in associates 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 7 Cash with brokers Cash and bank balances Non-current assets held for sale Less: Current liabilities Other payables 8 Due to Sinox Fund Management Limited Provision for taxation Net current assets NET ASSETS Capital and Reserves Share Capital 9 Reserves 10 SHAREHOLDERS’ FUNDS Net asset value per share 11	30 June 31 December 2007 2006 Unaudited Audited HK$ HK$ 9,012,496 24,032,496 195,994,111 112,237,267 150,000 150,000 205,156,607 136,419,763 — 19,766,204 2,245,650 7,928,054 14,076,457 21,050,850 6,934,649 7,206,335 121,881,074 69,125,776 145,137,830 125,077,219 — 2,773,428 145,137,830 127,850,647 220,500 314,509 150,590 143,145 1,232,033 14,718,061 1,603,123 15,175,715 143,534,707 112,674,932 348,691,314 249,094,695 4,319,520 4,319,520 344,371,794 244,775,175 348,691,314 249,094,695 0.81 0.58	30 June 31 December 2007 2006 Unaudited Audited HK$ HK$ 9,012,496 24,032,496 195,994,111 112,237,267 150,000 150,000 205,156,607 136,419,763 — 19,766,204 2,245,650 7,928,054 14,076,457 21,050,850 6,934,649 7,206,335 121,881,074 69,125,776 145,137,830 125,077,219 — 2,773,428 145,137,830 127,850,647 220,500 314,509 150,590 143,145 1,232,033 14,718,061 1,603,123 15,175,715 143,534,707 112,674,932 348,691,314 249,094,695 4,319,520 4,319,520 344,371,794 244,775,175 348,691,314 249,094,695 0.81 0.58
		136,419,763 19,766,204 7,928,054 21,050,850 7,206,335 69,125,776
		125,077,219 2,773,428
		127,850,647 314,509 143,145 14,718,061
		15,175,715
		112,674,932
		249,094,695

		4,319,520 244,775,175
		249,094,695

		0.58

— 86 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed consolidated statement of changes in equity

At 1 January 2006 Increase in fair value of available-for-sale financial assets Credit arised on capital reduction set off against accumulated losses of the Company and remaining balance transferred to contributed surplus account Profit for the year At 31 December 2006 Realisation of exchange fluctuation reserve on disposal of a jointly controlled entity Decrease in fair value of available- for-sale financial assets Profit for the Period At 30 June 2007			Reserves	Reserves		Retained earnings HK$ (68,926,389) — 25,244,873 9,673,788 (34,007,728) — — 103,737,283 69,729,555	Total HK$ 234,362,138 5,058,769 — 9,673,788 249,094,695 (131,919) (4,008,745) 103,737,283 348,691,314
	Share capital HK$ 43,195,200 — (38,875,680) — 4,319,520 — — — 4,319,520	Share premium HK$ 169,564,710 — — — 169,564,710 — — — 169,564,710	Contributed surplus HK$ 86,752,510 — 13,630,807 — 100,383,317 — — — 100,383,317	Exchange fluctuation reserve HK$ 131,919 — — — 131,919 (131,919) — — —	Changes in fair value of available- for-sale financial assets HK$ 3,644,188 5,058,769 — — 8,702,957 — (4,008.745) — 4,694,212

— 87 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed consolidated cash flow statement

NET CASH GENERATED FROM/(USED IN): OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD CASH AND CASH EQUIVALENTS AT END OF THE PERIOD ANALYSIS OF THE BALANCE OF CASH AND CASH EQUIVALENTS Cash with brokers Cash and bank balances	For the six months ended 30 June 2007 2006 Unaudited Unaudited HK$ HK$ 106,051,644 22,819,790 (53,568,032) (32,569,267) — — 52,483,612 (9,749,477) 76,332,111 64,109,020 128,815,723 54,359,543 6,934,649 14,060,374 121,881,074 40,299,169 128,815,723 54,359,543

— 88 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the condensed financial statements

For the six months ended 30 June 2007

1. Basis of presentation and accounting policies

The condensed financial statements of the Group are prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Hong Kong Accounting Standard (the “HKAS”) No. 34 “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants and are in compliance with the Hong Kong Financial Reporting Standards (the “HKFRSs”).

The accounting policies adopted in these condensed financial statements are consistent with those followed in the preparation of the Group’s audited annual financial statements for the year ended 31 December 2006.

2. Turnover and segmental information

An analysis of the Group’s unaudited turnover and profit from operations by principal activity and geographical segment is as follows:

By geographical segment: Dividend income from investment securities and other investments/ financial assets Proceeds from sale of investment securities and disposal of equity-linked notes By geographical segment: The People’s Republic of China: Hong Kong Other regions	Turnover Profit from operations for the six months for the six months ended 30 June ended 30 June 2007 2006 2007 2006 HK$ HK$ HK$ HK$ 1,476,930 1,300,962 1,476,930 1,300,962 73,063,775 63,522,619 14,085,527 9,700,137 74,540,705 64,823,581 15,562,457 11,001,099 Turnover for the six months ended 30 June 2007 2006 HK$ HK$ 74,540,705 64,823,581 — — 74,540,705 64,823,581	Turnover Profit from operations for the six months for the six months ended 30 June ended 30 June 2007 2006 2007 2006 HK$ HK$ HK$ HK$ 1,476,930 1,300,962 1,476,930 1,300,962 73,063,775 63,522,619 14,085,527 9,700,137 74,540,705 64,823,581 15,562,457 11,001,099 Turnover for the six months ended 30 June 2007 2006 HK$ HK$ 74,540,705 64,823,581 — — 74,540,705 64,823,581
		64,823,581

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

— 89 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Profit from operations

		For the	six months ended
			30 June
		2007	2006
		HK$	HK$
Unaudited	profit from operations is arrived at after crediting:
Interest	income	2,656,514	2,323,351

4. Dividend income from an associate

At the end of the Period, the Group received a dividend from an associate, Bright Honest Limited, of which the Group’s shareholding is 25%. The dividend was received from the distribution of the gain on disposal of the investment properties of the associate’s direct subsidiaries.

5. Income tax expense

Income tax expense in the unaudited consolidated income statement represents:

Company and subsidiaries Hong Kong profits tax	For the six months ended 30 June 2007 2006 HK$ HK$ — — — —	For the six months ended 30 June 2007 2006 HK$ HK$ — — — —
		—

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

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

No deferred tax has been provided in the condensed financial statements as there is no material timing difference.

6. Earnings per share

The calculation of the earnings per share is based on the following data:

	For the	six months ended
		30 June
	2007	2006
	HK$	HK$
Profit attributable to shareholders	103,737,283	31,158,322
Weighted average number of ordinary shares
— originally stated	N/A	431,952,000
— including effects of Open Offer	576,204,163	568,769,376

— 90 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Other receivables

The ageing analysis of the other receivables is as follows:

Within 3 months 3 to 6 months 6 to 12 months Over 1 year Others 8. Other payables The ageing analysis of the other payables is as follows: Within 3 months 3 to 6 months 6 to 12 months Over 1 year Others	30 June 2007 Unaudited HK$ — — — — — 14,076,457 14,076,457 30 June 2007 Unaudited HK$ — — — — — 220,500 220,500	31 December 2006 Audited HK$ — — — —
		— 21,050,850
		21,050,850

		31 December 2006 Audited HK$ — — — —
		— 314,509
		314,509

— 91 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Share capital

Authorized: 3,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 431,952,000 ordinary shares of HK$0.01 each	30 June 2007 Unaudited HK$ 30,000,000 4,319,520	31 December 2006 Audited HK$ 30,000,000

		4,319,520

Note:

Pursuant to a special resolution passed at the special general meeting held on 21 June 2007, 215,976,000 shares of HK$0.01 each in the share capital of the Company were issued on 13 July 2007 by way of an Open Offer to qualifying shareholders on the basis of one open offer share for every two shares held.

10. Reserves

Share Premium Contributed surplus Exchange fluctuation reserve Changes in fair value of available-for-sale financial assets Retained earnings/(Accumulated losses)	30 June 2007 Unaudited HK$ 169,564,710 100,383,317 — 4,694,212 69,729,555 344,371,794	31 December 2006 Audited HK$ 169,564,710 100,383,317 131,919 8,702,957 (34,007,728)
		244,775,175

11. Net asset value per share

Net asset value per share is computed based on the net assets of HK$348,691,314 (31 December 2006: HK$249,094,695) and the number of issued and fully paid up shares of 431,952,000 (31 December 2006: 431,952,000) as at 30 June 2007.

12. Comparative figures

Certain comparative figures have been reclassified in order to conform with current period’s presentation.

— 92 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. INDEBTEDNESS AND CONTINGENT LIABILITIES

As at the close of business on 31 December 2007 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular), the Group had no borrowing from any financial institution and any party, nor any contingent liabilities in respect of letters of guarantee issued by the Company, as a guarantor to its affiliated company.

Apart from intra-group liabilities, the Group did not have, at the close of business on 31 December 2007, 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.

5. WORKING CAPITAL

The Directors are of the opinion that after taking into account the present internal financial resources of the Group and the estimated net proceeds from the Open Offer, the Group has sufficient working capital for its present requirements for at least the next 12 months from the date of this circular.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position or outlook of the Group since 31 December 2006, the date to which the latest published audited consolidated financial statements of the Group were made up.

— 93 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCIAL AND BUSINESS REVIEW OF THE GROUP

Financial Review

For the year ended 31 December 2006, the turnover of the Group increased to approximately HK$138.11 million as compared to last year ended 31 December 2005 of approximately HK$51.37 million (restated). As compared to an audited net loss of HK$7.92 million (restated) in 2005, the Group recorded an audited profit attributable to Shareholders of approximately HK$9.67 million in year 2006. It was mainly due to the favourable economic growth and stock market performance in both the PRC and Hong Kong in 2006. As at 30 June 2007, the Group had cash balances of approximately HK$128.82 million (31 December 2006: approximately HK$76.33 million) and the total assets of the Group were approximately HK$350.29 million (31 December 2006: approximately HK$264.27 million). The net asset value per Share was 81 Hong Kong cents as at 30 June 2007.

Business Review

During 2007, the Company issued 215,976,000 new Existing Shares at HK$0.135 per Existing Share by way of open offer and raised approximately HK$27.95 million. In view of the favorable economic growth and stock market performance, the Group utilized the net proceeds in equity and equity related investments to achieve long-term capital appreciation of its assets. To capture the favorable economic climate, the Company entered an agreement on 17 August 2007 with CIF pursuant to which CIF issued 80,00,000 new shares of CIF to the Company at HK$0.276 per share, making an aggregate consideration of HK$22,080,000. In consideration of the issue of the new shares of CIF, the Company issued the CIF Option to CIF to subscribe for a maximum of 86,000,000 new Existing Shares. The Directors consider that the grant of the CIF Option will provide an alternative investment opportunity for the Group by means of the subscription for the new shares of CIF.

Future prospects of the Group

The Company is an investment holding company and its principal subsidiaries are engaged in the holding of equity or equity-related investments and the provision of management services to the investee companies. The Board is of the view that the business environment will remain challenging due to the recent volatility in international credit and the stock market in Hong Kong. The Group will continue to identify and pursue any investment opportunities and manage the existing investments in accordance with the Company’s investment objective and policies of achieving long term capital appreciation and growth in profits. The Board believes that the Group will continue to evaluate potential investments with a view to gaining high investment returns and yields for the Shareholders.

— 94 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Foreign exchange risk

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and cash flow and interest-rate risk. The activities of the Group are also exposed to foreign exchange risk arising from various foreign currency transactions, primarily with respect to the Hong Kong dollars, the United States of America dollars and Renminbi. The overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

— 95 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

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

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group prepared in accordance with Rule 4.29 of the Listing Rules is set out below to illustrate the effect of the Open Offer on the consolidated net tangible assets of the Group as if the Open Offer had taken place on 30 June 2007.

The unaudited pro forma statement of adjusted consolidated net tangible assets of the Group has been prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial position of the Group following the Open Offer.

The following unaudited pro forma statement of adjusted consolidated net tangible assets of the Group is based on the unaudited consolidated net tangible assets of the Group as at 30 June 2007 and adjusted to reflect the effect of the Open Offer:

Before completion of Open Offer After completion of Open Offer	Unaudited Unaudited pro consolidated forma net tangible estimated net assets of the proceeds from Group as at the Open 30 June 2007 Offer HK$’000 HK$’000 (Note 1) (Note 2) 348,691 348,691 33,216	Unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to the shareholders of Company after the Open Offer HK$’000 348,691 381,907	Unaudited pro forma adjusted consolidated net tangible assets of the Group per share HK$5.00 per share_(Note 3)_

			HK$3.65 per share_(Note 4)_

— 96 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

(1) The consolidated net tangible assets of the Group as at 30 June 2007 has been extracted from the unaudited financial statements of the Group as at 30 June 2007.
(2) The estimated net proceeds from the Open Offer are calculated based on 34,896,400 Offer Shares to be issued at the subscription price of HK$1.00 per Offer Share after deducting estimated expenses of approximately HK$1.68 million.
(3) The number of shares used for the calculation of this amount is 69,792,800 which was the number of Consolidated Shares in issue upon the Share Consolidation becoming effective.
(4) The number of shares used for the calculation of this amount is 104,689,200 which will be the total number of shares expected to be in issue after the completion of the Open Offer representing the aggregate of the 69,792,800 Consolidated Shares upon the Share Consolidation becoming effective and 34,896,400 Offer Shares to be issued pursuant to the Open Offer.

— 97 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. LETTER FROM THE REPORTING ACCOUNTANTS ON THE UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following is the text of the report, prepared for the sole purpose of incorporation in this circular received from the reporting accountants, H. H. Liu & Co., Certified Public Accountants, Hong Kong, in connection with the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group set out in this appendix:

==> picture [195 x 46] intentionally omitted <==

Rooms 1801-02, 18/F, China Insurance Group Bldg., 141, Des Voeux Road Central, Central, Hong Kong.

6 February 2008

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 statement of adjusted consolidated net tangible assets (the “Unaudited Pro Forma Consolidated Net Tangible Assets”) of Prosperity Investment Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the (1) proposed share consolidation and (2) proposed open offer of 34,896,400 offer shares at HK$1.00 per offer share on the basis of one offer share for every two consolidated shares held on the record date payable in full on application (the “Transactions”) might have affected the financial information presented, for inclusion in Section 1 of Appendix II to the circular dated 6 February 2008 (the “Circular”). The basis of preparation of the Unaudited Pro Forma Consolidated Net Tangible Assets is set out on pages 96 and 97 to the Circular.

— 98 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Consolidated Net Tangible Assets in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

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

Basis of opinion

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

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

The Unaudited Pro Forma Consolidated Net Tangible Assets has been prepared on the basis set out on pages 96 to 97 under the heading of “Unaudited Pro Forma Financial Information” of the Group in Appendix II of the Circular is for illustrative purposes only and based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 30 June 2007 had the Transactions actually been completed on that date or at any future date.

— 99 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Opinion

In our opinion:

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

Yours faithfully, H. H. Liu & Co., Certified Public Accountants Hong Kong

— 100 —

GENERAL INFORMATION

APPENDIX III

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 jointly and severally 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, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement herein misleading.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows:

Authorised: 3,000,000,000 Existing Shares Issued and fully paid: 697,928,000 Existing Shares	HK$ 30,000,000

	6,979,280

The authorised and issued share capital of the Company upon the Share Consolidation becoming effective and the completion of the Open Offer are as follows:

Authorised: 300,000,000 Consolidated Shares upon the Share Consolidation becoming effective and the completion of the Open Offer Issued and fully paid: Consolidated Shares upon the Share 69,792,800 Consolidation becoming effective 34,896,400 Offer Shares to be issued 104,689,200 Consolidated Shares upon completion of the Open Offer	HK$ 30,000,000

	6,979,280 3,489,640
	10,468,920

— 101 —

APPENDIX III

GENERAL INFORMATION

As at the Latest Practicable Date, the subscription right attaching to the CIF Option entitling CIF to subscribe for up to an aggregate of 36,000,000 Existing Shares (or 3,600,000 Consolidated Shares upon the Share Consolidation becoming effective) at a subscription price of HK$0.20 per Existing Share remains outstanding. CIF has executed the CIF Undertaking Letter in which it has irrevocably undertaken to the Company and the Underwriter that it will not exercise the remaining subscription right attaching to the CIF Option on or before the Record Date.

Save for the remaining subscription right attaching to the CIF Option mentioned above, there were no outstanding options, warrants, derivatives or convertible securities which may confer any right to the holder thereof to subscribe for, convert or exchange into new Existing Shares as at the Latest Practicable Date.

All the Existing Shares in issue and the Consolidated Shares and the Offer Shares (when allotted and fully paid) to be issued rank pari passu in all respects with each other including as regards to dividends and voting rights.

The issued Existing Shares are listed on the Stock Exchange. No part of the securities of the Company is listed or dealt in, nor is listing or permission to deal in the securities of the Company being or proposed to be sought, on any other stock exchange.

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

No share or loan capital of the Company or any members of the Group has been put under option or agreed conditionally or unconditionally to be put under option and no warrant or conversion right affecting the Existing Shares has been issued or granted or agreed conditionally, or unconditionally to be issued or granted.

— 102 —

GENERAL INFORMATION

APPENDIX III

DISCLOSURE OF INTERESTS BY DIRECTORS

Saved as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had, or was deemed to have, any interests and short positions of in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to section 352 of the SFO to be entered into the register referred to therein; or (c) were required pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers to be notified to the Company and the Stock Exchange:

Long position in Consolidated Shares

			Approximate %
			of the Company’s
			issued share capital
		Number of	(as enlarged by
	Capacity &	Consolidated	the issue of the
Name of Director	nature of interest	Shares	Offer Shares)
Mr. Lam	Interest held through	70,297,466	67.15%
	controlled corporation	(Note)

Note: The 70,297,466 Consolidated Shares (equivalent to 702,974,660 Existing Shares) are held through the Underwriter, which is wholly-owned by Mr. Lam. On 15 January 2008 and 17 January 2008, the Underwriter entered into the Underwriting Agreement and the Supplemental Agreement with the Company respectively, pursuant to which the Underwriter agreed to underwrite 17,195,868 Offer Shares. The Underwriter is interested or deemed to be interested in the above 70,297,466 Consolidated Shares (equivalent to 702,974,660 Existing Shares), which comprise 35,401,066 Consolidated Shares (equivalent to 354,010,656 Existing Shares) held by the Underwriter as at the Latest Practicable Date, 17,195,868 underwritten Offer Shares and 17,700,532 Offer Shares agreed to be taken up by the Underwriter as a Shareholder under the Open Offer.

— 103 —

GENERAL INFORMATION

APPENDIX III

DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

Saved as disclosed below, as at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, no other person (not being a Director or chief executive of the Company) had an interest or short position in the Shares and 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 who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had an option in respect of such capital:

Long position in Consolidated Shares

			Approximate %
			of the Company’s
			issued share capital
		Number of	(as enlarged by
	Capacity &	Consolidated	the issue of the
Name of Shareholder	nature of interest	Shares	Offer Shares)
The Underwriter_(Note)_	Beneficial owner	70,297,466	67.15%

Note: On 15 January 2008 and 17 January 2008, the Underwriter entered into the Underwriting Agreement and the Supplemental Agreement with the Company respectively, pursuant to which the Underwriter agreed to underwrite 17,195,868 Offer Shares. The Underwriter is interested or deemed to be interested in the above 70,297,466 Consolidated Shares (equivalent to 702,974,660 Existing Shares), which comprise 35,401,066 Consolidated Shares (equivalent to 354,010,656 Existing Shares) held by the Underwriter as at the Latest Practicable Date, 17,195,868 underwritten Offer Shares and 17,700,532 Offer Shares agreed to be taken up by the Underwriter as a Shareholder under the Open Offer.

DIRECTORS’ SERVICE CONTRACTS

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

— 104 —

GENERAL INFORMATION

APPENDIX III

INTERESTS IN CONTRACT OR ARRANGEMENT

The Company entered into a new investment agreement with Sinox Fund Management Limited, the investment manager of the Company, on 31 August 2007 for a period of three years commencing from 1 September 2007 to 31 August 2010 unless either party provides written termination notice of at least six months to the other. The rate of investment management fee is 1.90% per annum of the consolidated net asset value of the Company and the tenor has been revised from the period from 1 April 2006 to 31 March 2009 to the period from 1 September 2007 to 31 August 2010. Mr. Lam, an executive Director, has an interest of 80% in Sinox Fund Management Limited.

Save as disclosed above, none of the Directors is materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.

INTERESTS IN ASSETS OF THE GROUP

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by or leased to, the Company or any of its subsidiaries since 31 December 2006, being the date to which the latest published audited consolidated financial statements of the Company were made up.

COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business which competes or is likely to compete, either directly or indirectly, with any business of the Group.

LITIGATION

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

— 105 —

GENERAL INFORMATION

APPENDIX III

EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions in this circular:

Name

Qualification

Nuada

a licensed corporation for Type 6 (advising on corporate finance) regulated activity under the SFO

H. H. Liu & Co.

Certified Public Accountants (Practising)

Each of Nuada and H. H. Liu & Co. has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter/report and/or references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, none of Nuada and H. H. Liu & Co. had any shareholding in any member of the Group nor the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

None of Nuada and H. H. Liu & Co. had any interest, either directly or indirectly, in any assets which have been, since 31 December 2006, being the date to which the latest published audited financial statements of the Company 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.

MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, have been entered into by the Group within the two years immediately preceding the issue of this circular:

the underwriting agreement dated 9 May 2007 entered into between the Underwriter and the Company in relation to the underwriting of the open offer of 215,976,000 Existing Shares at HK$0.135 per Existing Share as announced by the Company on 14 May 2007;
the agreement dated 17 August 2007 entered into between CIF and the Company in respect of, among other things, the issue of 80,000,000 new CIF shares to the Company and the grant of the CIF Option by the Company to CIF for the allotment and issue of 86,000,000 new Existing Shares, details of which are set out in the joint announcement of the Company and CIF dated 23 August 2007;
the Underwriting Agreement; and
the Supplemental Agreement.

— 106 —

GENERAL INFORMATION

APPENDIX III

CORPORATE INFORMATION AND PARTIES INVOLVED IN THE OPEN OFFER

Registered office

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business in Hong Kong

Room A, 11th Floor Fortune House 61 Connaught Road Central Hong Kong

Authorised representatives

Cheuk Yuk Lung Room A, 11th Floor Fortune House 61 Connaught Road Central Hong Kong

Tsui Yee Ni Room A, 11th Floor Fortune House 61 Connaught Road Central Hong Kong

Company secretary

Lee Yip Wah, Peter, practising solicitor in Hong Kong

Qualified accountant

Cheuk Yuk Lung, CPA FCCA

Financial adviser

Baron Capital Limited 4/F, Aon China Building 29 Queen’s Road Central Hong Kong

— 107 —

GENERAL INFORMATION

APPENDIX III

Legal advisers to the Company


Legal advisers to the Company	As to Hong Kong law:
	Vincent T. K. Cheung, Yap & Co.
	15th Floor, Alexandra House
	18 Chater Road
	Central
	Hong Kong
	As to Bermuda law:
	Conyers Dill & Pearman
	2901, One Exchange Square
	8 Connaught Place
	Central
	Hong Kong
Auditors and reporting accountants	H. H. Liu & Co.
	Certified Public Accountants
	Room 1801-02, 18th Floor
	China Insurance Group Building
	141 Des Voeux Road Central
	Hong Kong
Underwriter	Favor Hero Investments Limited
	P.O. Box 957
	Offshore Incorporation Centre
	Road Town
	Tortola
	British Virgin Islands
Principal share registrar in Bermuda	The Bank of Bermuda Limited
	The Bank of Bermuda Building
	6 Front Street, Hamilton HM 11
	Bermuda
Branch share registrar in Hong Kong	Tricor Secretaries Limited
	26th Floor, Tesbury Centre
	28 Queen’s Road East
	Wanchai
	Hong Kong
Principal banker	ICBC (Asia)
	33th Floor, ICBC Tower
	3 Garden Road
	Central
	Hong Kong

— 108 —

GENERAL INFORMATION

APPENDIX III

EXPENSES

The expenses in connection with the Open Offer, including financial advisory fees, underwriting commission, printing, registration, translation, legal and accountancy charges are estimated to amount to approximately HK$1.68 million and are payable by the Company.

MISCELLANEOUS

The English texts of this circular and the form of proxy shall prevail over their Chinese texts.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (public holidays excepted) at the principal place of business in Hong Kong of the Company at Room A, 11th Floor, Fortune House, 61 Connaught Road Central, Hong Kong from the date of this circular up to and including 26 February 2008:

i. the memorandum of association and bye-laws of the Company;
ii. the annual reports of the Company for the two years ended 31 December 2006;
iii. the letter from the Independent Board Committee, the text of which is set out on page 28 of this circular;
iv. the letter from Nuada, the text of which is set out on pages 29 to 42 of this circular;
v. the material contracts referred to under the paragraph headed “Material Contracts” in this appendix;
vi. the report on the unaudited pro forma statement of adjusted consolidated net tangible assets of the Group from H. H. Liu & Co., the text of which is set out on pages 98 to 100 of this circular;
vii. the consent letters from Nuada and H. H. Liu & Co. referred to under the paragraph headed “Experts and consents” in this appendix; and
viii. this circular.

— 109 —

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 OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “ SGM ”) of the shareholders 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 at 11:00 a.m. on Tuesday, 26 February 2008 for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting the listing of and permission to deal in the shares of the Company in their consolidated form, every ten shares of HK$0.01 each in the issued and unissued share capital of the Company be consolidated into one share of HK$0.10 (the “ Share Consolidation ”) with effect from 9:30 a.m. on the business day (not being a Saturday) immediately following the date on which this resolution is passed and the directors of the Company be and are hereby authorized to execute or authorize such things and such documents as they may consider necessary or desirable in connection therewith.”
“ THAT , conditional upon resolution no. 1 set out above duly passed and subject to the fulfillment or waiver of the conditions, including the Listing Committee of the Stock Exchange granting or agreeing to grant in principle (subject to allotment) and not having withdrawn or revoked listing of and permission to deal in the Offer Shares (as defined below) in their fully paid forms to be allotted and issued to the shareholders of the Company (the “ Shareholders ”) pursuant to the terms and conditions of the Open Offer (as defined below), as set out in the underwriting agreement dated 15 January 2008 as amended by the supplemental agreement dated 17 January 2008 (collectively the “ Underwriting Agreement ”, copies of which have been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification) both between the Company and Favor Hero Investments Limited (the “ Underwriter ”)

* For identification purpose only

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NOTICE OF SGM

and the Underwriting Agreement not being terminated in accordance with the terms thereof prior to 4:00 p.m. on the second business day after the last day for acceptance of the Offer Shares:

(i) the issue by way of open offer (the “ Open Offer ”) of 34,896,400 shares (the “ Offer Shares ”) of HK$0.10 each in the share capital of the Company to the Shareholders whose names appear on the register of members of the Company on 26 February 2008 (excluding those Shareholders (the “ Excluded Shareholders ”) with registered addresses as shown in the register of members of the Company on that date are outside Hong Kong whom the board of directors (the “ Directors ”) of the Company consider it necessary or expedient to exclude after making the relevant enquiries regarding the legal restrictions under the laws of the relevant place and the requirements of the relevant regulatory body or stock exchange in the place where those overseas Shareholders reside) on the basis of one Offer Share for every two shares of HK$0.10 each in the issued share capital of the Company held upon the Share Consolidation becoming effective and otherwise pursuant to and in accordance with the terms and conditions set out in the circular dated 6 February 2008 (the “ Circular ”, a copy of which has been produced to the meeting marked “B” and signed by the chairman of the meeting for the purpose of identification) despatched by the Company to the Shareholders be and is hereby approved;
(ii) the Directors be and are hereby authorized to allot and issue the Offer Shares pursuant to and in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing Shareholders and, in particular, the Directors be and are hereby authorized to make such exclusions or other arrangements in relation to fractional entitlements or Excluded Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory outside Hong Kong applicable to the Company;
(iii) the Underwriting Agreement and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(iv) the absence of any arrangement for application for Offer Shares by Shareholders in excess of their entitlements be and the same is hereby confirmed and approved; and

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NOTICE OF SGM

(v) the Directors be and are hereby authorized to sign and execute such documents and do all such acts and things incidental to the Open Offer or as they consider necessary, desirable or expedient in connection with the implementation of or giving effect to the Open Offer, the Underwriting Agreement and the transactions contemplated thereunder.”

By order of the board of Prosperity Investment Holdings Limited Cheuk Yuk Lung Managing Director

Hong Kong, 6 February 2008

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

Principal place of business in Hong Kong: Room A, 11th Floor Fortune House

61 Connaught Road Central Hong Kong

Notes:

(1) A member entitled to attend and vote at the SGM is entitled to appoint one or more proxy (if he/she is the holder of two or more Shares) to attend and, subject to the provisions of the bye-laws of the Company, to vote on his/her behalf. A proxy need not be a member of the Company but must be present in person at the SGM to represent the member. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
(2) Whether or not you intend to attend the SGM in person, you are required to complete and return the form of proxy in accordance with the instructions printed thereon. Completion and return of a form of proxy will not preclude a member from attending in person and voting at the SGM or any adjournment thereof, should you so wish.
(3) In order to be valid, the form of proxy together with the power of attorney or other authority (if any, under which it is signed or a certified copy of that power or authority) must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof.
(4) In the case of joint holders of shares, any one of such holders may vote at the SGM, either personally or by proxy, in respect of such shares as if he/she was solely entitled thereto, but if more than one of such joint holder are present at the SGM personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.

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NOTICE OF SGM

(5) The register of members of the Company will be closed from Thursday, 21 February 2008 to Tuesday, 26 February 2008 (both dates inclusive), during which period no transfer of Shares can be registered. In order to qualify for attending the SGM to be held on Tuesday, 26 February 2008, all properly completed transfer form(s) accompanies by the relevant share certificate(s) must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:00 p.m. on Wednesday, 20 February 2008.

As at the date of this notice, the executive directors of the Company are Mr. Lam Kwing Wai, Alvin, Mr. Cheuk Yuk Lung and Ms. Tsui Yee Ni and the independent non-executive directors of the Company are Mr. Chan Siu Wing, Raymond, Mr. Yan Mou Keung, Ronald and Mr. Chan Fai Yue, Leo.

— 113 —

AI assistant

Pacific Online Limited — Proxy Solicitation & Information Statement 2008

49284_rns_2008-02-05_da6fe910-f36e-4bca-9f05-452eeb73400e.pdf

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

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

(i) there occurs:

EXPECTED TIMETABLE

EXPECTED TIMETABLE

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

INTRODUCTION

LETTER FROM THE BOARD

PROPOSED SHARE CONSOLIDATION

Effects of the Share Consolidation

Conditions of the Share Consolidation

Reasons for the Share Consolidation

Arrangement for odd lot trading

Trading arrangements for the Consolidated Shares

Free exchange of share certificates

PROPOSED OPEN OFFER

Issue statistics

LETTER FROM THE BOARD

Qualifying Shareholders

Closure of register of members

Subscription Price

Status of the Open Offer Shares

Fractions of the Offer Shares

Certificates of the fully-paid Offer Shares

Rights of Overseas Shareholders

No application for excess Offer Shares

Application for listing

UNDERWRITING ARRANGEMENTS

Underwriting Agreement (as amended by the Supplemental Agreement)

Undertaking

Termination of the Underwriting Agreement

Conditions of the Underwriting Agreement

WARNING OF THE RISK OF DEALINGS IN THE EXISTING SHARES

SHAREHOLDING STRUCTURE OF THE COMPANY

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES OF THE COMPANY IN THE LAST TWELVE MONTHS

LETTER FROM THE BOARD

Note:

ADJUSTMENTS IN RELATION TO THE CIF OPTION

SGM

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL

LETTER FROM THE BOARD

RECOMMENDATION

GENERAL

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

Dear Sir or Madam,

Yours faithfully, Independent Board Committee of Prosperity Investment Holdings Limited

PROPOSED OPEN OFFER OF 34,896,400 OFFER SHARES AT HK$1.00 PER OFFER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO CONSOLIDATED SHARES HELD ON THE RECORD DATE

INTRODUCTION

LETTER FROM NUADA

BASIS OF OUR OPINION

LETTER FROM NUADA

PRINCIPAL FACTORS AND REASONS CONSIDERED

Reasons for the Open Offer

Financial results and position of the Group

LETTER FROM NUADA

Terms of the Open Offer

LETTER FROM NUADA

Historical Share price performance

LETTER FROM NUADA

LETTER FROM NUADA

Liquidity of the Shares

Historical trading volume of the Shares

Comparison with other open offers

LETTER FROM NUADA

LETTER FROM NUADA

Alternative to the Open Offer

Absence of arrangement for application for excess Offer Shares

Pacific Online Limited Proxy Solicitation & Information Statement 2008

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

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

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