Planetree International Development Limited — Proxy Solicitation & Information Statement 2006

Oct 23, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in YUGANG INTERNATIONAL LIMITED, you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

YUGANG INTERNATIONAL LIMITED （渝港國際有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 613)

VERY SUBSTANTIAL DISPOSAL (VERY SUBSTANTIAL ACQUISITION) AND

CONNECTED TRANSACTION

Financial adviser to Yugang International Limited

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

CIMB-GK Securities (HK) Limited

A letter from the Board is set out on pages 6 to 26 of this circular. A letter from CIMB-GK Securities (HK) Limited containing its advice to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Transaction is set out on pages 28 to 57 of this circular. The letter of recommendation from the Independent Board Committee to the Independent Shareholders in respect of the terms of the Transaction is set out on page 27 of this circular.

A notice convening the special general meeting of Yugang International Limited to be held at Grand Rooms I and II, Lobby, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on Monday, 6 November 2006 at 11:00 a.m. is set out on pages 298 to 299 of this circular. A form of proxy for use at the meeting is enclosed. Whether or not you intend to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of Yugang International Limited in Hong Kong, Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so desire.

20 October 2006

* For identification purposes only

CONTENTS

			Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			27
Letter from CIMB-GK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			28
Appendix I	–	Accountants’ report on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Appendix II	–	Additional financial information on the Group . . . . . . . . . . . . . .	145
Appendix III	–	Accountants’ report on the Subject Company . . . . . . . . . . . . . . . .	158
Appendix IV	–	Additional financial information on
		the Subject Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	202
Appendix V	–	Unaudited pro forma financial information on
		the Remaining Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	208
Appendix VI	–	Valuation on the property interests of the Group. . . . . . . . . . . . .	220
**Appendix VII **	–	Valuation on the property interests of
		the Subject Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	237
Appendix VIII–		General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	288
Notice of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			298

DEFINITIONS

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

“Acquisition”	the acquisition of the Sale Share by the Purchaser
	pursuant to the terms of the Acquisition Agreement
“Acquisition Agreement”	the sale and purchase agreement dated 22 September
	2006 entered into between the Vendor, the Purchaser,
	Qualipak and the Guarantor in relation to the
	Acquisition
“Announcement”	the joint announcement dated 28 September 2006
	issued by the Company and Qualipak in relation to,
	among other things, the Transaction
“associate(s)”	has the meaning ascribed to it under the Listing Rules
“Board”	the board of Directors
“Buildings”	approximately 110,000 sq.m. of commercial and
	residential properties in Chongqing, the PRC owned
	by the PRC Company resulting from the development
	of land tracts
“BVI”	the British Virgin Islands
“CIMB-GK”	CIMB-GK Securities (HK) Limited, which is licensed
	by the Securities and Futures Commission of Hong
	Kong for carrying out Types 1 (dealing in securities),
	4 (advising on securities) and 6 (advising on corporate
	finance) regulated activities under the SFO, being the
	independent financial adviser to the Independent
	Board Committee and the Independent Shareholders
	in respect of the terms of the Transaction
“Closing Date”	means three business days after the fulfillment of all
	the conditions precedent under the Placing Agreement
“Company” or “Yugang”	Yugang International Limited (渝港國際有限公司_*_;
	stock code: 613), a company incorporated in Bermuda
	with limited liability and the Shares of which are listed
	on the Stock Exchange
“Completion”	completion of the Acquisition pursuant to the terms
	and conditions of the Acquisition Agreement

• For identification purposes only

– 1 –

DEFINITIONS

“Completion Date”	the date when Completion shall take place, being the
	second business day after all the Conditions have been
	satisfied or waived (as the case may be) or such other
	date as may be agreed in writing between the Parties
“Conditions”	the conditions precedent to Completion
“connected person(s)”	has the same meaning as ascribed to it under the
	Listing Rules
“Consideration”	the consideration under the Acquisition Agreement
“Consideration Qualipak Shares”	1,600,000,000 Qualipak Shares, credited as fully paid-
	up and ranking pari passu with all other Qualipak
	Shares in issue on the Completion Date, to be issued
	at Completion by Qualipak to the Vendor (or as it
	may direct) as part of the Consideration
“Conversion Shares”	the Qualipak Shares to be issued by Qualipak upon
	exercise of the rights under the Convertible Note
“Convertible Note”	the HK$2,552,000,000 10-year 2% convertible note to
	be issued by Qualipak to the Vendor (or as it may
	direct) as part of the Consideration, the principal terms
	of which are set out in this circular and the form of
	the convertible note certificate is scheduled to the
	Acquisition Agreement
“Debts”	the debts in the aggregate amount of HK$67,553,298
	owed as at 30 June 2006 by the Guarantor and
	Chongqing Industrial Limited (中渝實業有限公司), a
	company incorporated in Hong Kong and an entity
	controlled by the Guarantor, to the Subject Company
	which are interest-free and repayable on demand
“Designated Stock Exchange”	a stock exchange which is an appointed stock exchange
	for the purposes of the Companies Act 1981 of
	Bermuda in respect of which the Shares are listed or
	quoted and where such appointed stock exchange
	deems such listing or quotation to be the primary
	listing or quotation of the Shares
“Director(s)”	the director(s) of the Company
“Group”	the Company and its subsidiaries before Completion
“Guarantor” or “Mr. Cheung”	Mr. Cheung Chung Kiu, the controlling Shareholder,
	a Director and the Chairman of the Company, who
	also owns 100% equity interest in the Vendor

– 2 –

DEFINITIONS

“HK Company”	Charm Best Investment Limited, a company
	incorporated in Hong Kong and a wholly-owned
	subsidiary of the Subject Company
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	an independent committee of the Board comprising
	Messrs. Wong Wai Kwong, David, Wong Yat Fai and
	Ng Kwok Fu, established to advise the Independent
	Shareholders in respect of the Transaction
“Independent Shareholders”	Shareholders other than those who are required under
	the Listing Rules to abstain from voting on the
	resolution in relation to the Transaction at the SGM
“Latest Practicable Date”	16 October 2006, being the latest practicable date prior
	to the printing of this circular for the purpose of
	ascertaining certain information for inclusion in this
	circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Party(ies)”	the party(ies) to the Acquisition Agreement
“Placing”	the best-endeavours placing of the Placing Shares by
	CLSA Limited pursuant to the Placing Agreement
“Placing Agreement”	the placing agreement dated 22 September 2006
	entered into between Qualipak and CLSA Limited in
	respect of the Placing
“Placing Shares”	up to 3,400,000,000 new Qualipak Shares to be issued
	by Qualipak and placed by CLSA Limited pursuant to
	the terms of the Placing Agreement
“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
“PRC Company”	重慶中渝物業發展有限公司(Chongqing Zhongyu
	Property Development Company Limited), a wholly-
	owned foreign enterprise organised and existing under
	the laws of the PRC, which is wholly-owned by the
	Subject Company

– 3 –

DEFINITIONS

“Properties”	11 parcels of land in Chongqing, the PRC owned by
	the PRC Company with a total site area of
	865,668.57 sq.m., the land title certificates of which
	are vested in the PRC Company
“Purchaser”	Marvel Leader Investments Limited, a company
	incorporated in the BVI with limited liability and
	wholly-owned by Qualipak
“Qualipak”	Qualipak International Holdings Limited (確利達國際
	控股有限公司_*_; stock code: 1224), a company
	incorporated in Bermuda with limited liability and the
	shares of which are listed on the Stock Exchange
“Qualipak Group”	Qualipak and its subsidiaries
“Qualipak Shareholder(s)”	holder(s) of the Qualipak Shares
“Qualipak Share(s)”	share(s) of HK$0.01 each in the issued share capital of
	Qualipak
“Receivables”	an aggregate amount of up to the equivalent of
	HK$250,000,000 in certain amounts receivables due
	from independent third parties to the PRC Company
	as set out in the Acquisition Agreement
“Remaining Group”	the Company and its subsidiaries immediately after
	Completion
“Sale Share”	the entire issued share capital of the Subject Company
	to be sold by the Vendor to the Purchaser pursuant to
	the terms and conditions under the Acquisition
	Agreement
“Savills”	Savills Valuation and Professional Services Limited,
	an independent valuer appointed by the Company and
	Qualipak
“SFO”	the Securities and Futures Ordinance (Chapter 571 of
	the Laws of Hong Kong)
“SGM”	the special general meeting of the Company to be
	convened and held to consider and, if thought
	appropriate, to approve the Transaction
“Share(s)”	share(s) of HK$0.01 each in the issued share capital of
	the Company

* For identification purposes only

– 4 –

DEFINITIONS

“Shareholder(s)”	holder(s) of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subject Company”	Starthigh International Limited, a company
	incorporated in the BVI with limited liability, which
	is wholly-owned by the Vendor
“Subject Group”	the Subject Company and its subsidiaries
“Suspension”	the suspension of the trading in the Shares and the
	Qualipak Shares on the Stock Exchange with effect
	from 9:30 a.m. on Monday, 25 September 2006 up to
	9:30 a.m. on Friday, 29 September 2006 pending the
	release of the Announcement
“Transaction”	the Acquisition and the transactions contemplated
	thereunder including the issue of the Consideration
	Qualipak Shares and the issue of the Convertible Note
	as contemplated by the Acquisition Agreement
“Vendor”	Thrivetrade Limited, a company incorporated in the
	BVI with limited liability and wholly-owned by the
	Guarantor
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“US$”	United States dollars, the lawful currency of the United
	States of America
“%”	per cent.
“sq.ft”	square feet
“sq.m.”	square metre(s)

For the purpose of illustration only, amounts denominated in RMB and US$ in this circular have been translated into HK$ at the rates of HK$1.00 = RMB1.02 and US$1.00 = HK$7.79 respectively unless the context requires otherwise. Such translation should not be construed as a representation that the amounts in question have been, could have been or could be converted at any particular rate or at all.

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

– 5 –

LETTER FROM THE BOARD

YUGANG INTERNATIONAL LIMITED （渝港國際有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 613)

Executive Directors: Mr. Cheung Chung Kiu (Chairman) Mr. Yuen Wing Shing (Managing Director) Mr. Zhang Qing Xin Mr. Lam Hiu Lo Mr. Liang Kang

Non-executive Director:

Mr. Lee Ka Sze, Carmelo

Independent non-executive Directors: Mr. Wong Wai Kwong, David Mr. Wong Yat Fai Mr. Ng Kwok Fu

Registered Office: Clarendon House Church Street Hamilton HM 11 Bermuda

Head Office and Principal Place of Business in Hong Kong Rooms 3301-3307 China Resources Building 26 Harbour Road Wanchai Hong Kong

20 October 2006

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL (VERY SUBSTANTIAL ACQUISITION) AND CONNECTED TRANSACTION

INTRODUCTION

On 28 September 2006, the Board announced that on 22 September 2006, the Acquisition Agreement had been entered into among the Vendor, the Purchaser, Qualipak and the Guarantor.

The details of the Transaction were already set out in the Announcement. The purpose of this circular is to give you (i) further information regarding the Transaction; (ii) the notice of the SGM; (iii) the letter of advice from CIMB-GK to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Transaction; (iv) the letter of recommendation of the Independent Board Committee to the Independent Shareholders in respect of the terms of the Transaction; and (v) other information as required under the Listing Rules.

* For identification purposes only

– 6 –

LETTER FROM THE BOARD

THE ACQUISITION AGREEMENT

Date: 22 September 2006

Parties: (i) Vendor : Thrivetrade Limited, a company wholly-owned by the Guarantor (ii) Purchaser : Marvel Leader Investments Limited, a wholly-owned subsidiary of Qualipak (iii) Qualipak : Qualipak International Holdings Limited (iv) Guarantor : Mr. Cheung, as guarantor of the obligations of the Vendor

At the Latest Practicable Date, the Group held a total of 2,542,396,360 Qualipak Shares, representing approximately 64.54% of the issued share capital of Qualipak. The Guarantor holds the entire issued share capital of the Vendor, an investment holding company whose only asset is its 100% interest in the Subject Company. The Vendor and the Guarantor are connected persons of the Company and Qualipak.

Assets to be acquired

Sale Share

One share of US$1.00 (or approximately HK$7.79) in the share capital of the Subject Company, representing the entire issued share capital of the Subject Company. The Sale Share is currently owned by the Vendor.

Consideration

The aggregate value of consideration for the sale and purchase of the Sale Share is HK$3,317,553,298 being as to:

• (i) HK$448,000,000 to be satisfied by the issue of the Consideration Qualipak Shares at Completion;

• (ii) HK$2,552,000,000 to be satisfied by the issue of the Convertible Note;

• (iii) a sum representing such amount of the Receivables up to the equivalent of HK$250,000,000, as may be recovered by the Qualipak Group, which will only be due and payable by the Purchaser to the Vendor on a dollar-for-dollar basis (but net of all taxes, costs and expenses) within 30 days after the later of (A) the Completion Date and (B) receipt by the PRC Company from time to time. The Purchaser is expected to settle the sum by cash out of the proceeds recovered (if any) from the Receivables or from the internal resources of the Qualipak Group; and

– 7 –

LETTER FROM THE BOARD

• (iv) HK$67,553,298 to be satisfied by the assumption by the Purchaser of the obligations to repay the Debts.

As at 31 August 2006, the market value of the Properties and Buildings of the PRC Company was appraised at RMB6,729,361,500 (or approximately HK$6,597,413,000) by Savills, an independent valuer. The Consideration was determined with reference to the unaudited combined net tangible assets of the Subject Company of approximately HK$4,282,443,000, adjusted for the difference between the market value (net of deferred tax effect) and the net carrying amount of the Properties and the Buildings of the PRC Company of approximately HK$4,039,005,000 as at 31 August 2006.

The Consideration represents a discount of approximately 49.71% to the market value of the Properties and the Buildings of the PRC Company and a discount of approximately 22.53% to the unaudited adjusted combined net tangible assets of the Subject Company. The Consideration has been determined after arm’s length negotiations between the Company, Qualipak and the Vendor.

(i) The Consideration Qualipak Shares

At Completion, 1,600,000,000 Qualipak Shares credited as fully paid-up will be issued by Qualipak at the issue price of HK$0.28 per Consideration Qualipak Share, which is determined with reference to the unaudited consolidated net tangible assets of the Qualipak Group of approximately HK$0.151 per Qualipak Share as at 30 June 2006 and the prevailing market price of the Qualipak Shares. The Consideration Qualipak Shares will rank pari passu in all respects with the Qualipak Shares in issue at Completion. The issue price also represents:

• (i) a discount of approximately 8.20% to HK$0.305, the closing price of the Qualipak Shares as quoted on the Stock Exchange on 22 September 2006, being the last trading day of the Qualipak Shares on the Stock Exchange prior to the Suspension;

• (ii) a discount of approximately 7.89% to the average closing price of approximately HK$0.304 per Qualipak Share for the five consecutive trading days up to and including 22 September 2006 as quoted on the Stock Exchange;

• (iii) a discount of approximately 8.50% to the average closing price of approximately HK$0.306 per Qualipak Share for the 10 consecutive trading days up to and including 22 September 2006 as quoted on the Stock Exchange;

• (iv) a premium of approximately 90.48% over the audited consolidated net assets value of the Qualipak Group of approximately HK$0.147 per Qualipak Share as at 31 December 2005;

• (v) a premium of approximately 85.43% over the unaudited consolidated net assets value of the Qualipak Group of approximately HK$0.151 per Qualipak Share as at 30 June 2006; and

– 8 –

LETTER FROM THE BOARD

• (vi) a discount of approximately 20.00% to HK$0.350, the closing price of the Qualipak Shares as quoted on the Stock Exchange as at the Latest Practicable Date.

The Consideration Qualipak Shares represent approximately 40.61% of the existing issued share capital of Qualipak as at the Latest Practicable Date and approximately 28.88% of the enlarged issued share capital of Qualipak immediately after Completion (assuming that there is no change in the issued share capital of Qualipak from the Latest Practicable Date to Completion save for the issue of the Consideration Qualipak Shares at Completion). Application has been made by Qualipak to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Consideration Qualipak Shares.

(ii) Principal terms of the Convertible Note

The terms of the Convertible Note were negotiated between Qualipak and the Vendor on an arm’s length basis and the principal terms are summarised below:

Principal amount: HK$2,552,000,000

Maturity date:

Qualipak shall repay the principal amount outstanding under the Convertible Note to the holder of the Convertible Note together with all interest accrued on the tenth anniversary of the date of issue of the Convertible Note.

Conversion price:

Subject to adjustments in certain events including share consolidation, share subdivision, capitalization issue, capital distribution, rights issue and issue of convertible securities by Qualipak and other dilutive events, the Conversion Shares shall, in respect of a conversion notice served on Qualipak during each period set out below, be issued at the following conversion prices:

Period from date of
issue of the	HK$ per
Convertible Note	Conversion Share
First Year	0.280
Second Year	0.310
Third Year	0.326
Fourth Year	0.341
Fifth Year	0.357
Sixth Year	0.372
Seventh Year	0.388
Eighth Year	0.403
Ninth Year	0.419
Tenth Year	0.434

– 9 –

LETTER FROM THE BOARD

If at any time and from time to time during the First Year there is any change in the aggregate percentage of issued share capital of Qualipak which is not in public hands (within the meaning of the Listing Rules) such that such percentage falls below 75% (a “Change”), Qualipak shall, upon becoming aware of the same, promptly inform the holder of the Convertible Note in writing of particulars of the Change (“Notice of Change”). On the expiry of the period of 14 days after the date of receipt of a Notice of Change, the conversion price for the Unconverted Portion (as hereafter defined) during the First Year shall become HK$0.31 per Conversion Share (being the conversion price of the Convertible Note in the Second Year), subject to adjustments. “Unconverted Portion” means such portion of the then outstanding principal amount of the Convertible Note which upon conversion would result in the aggregate percentage of issued share capital of Qualipak which is not in public hands rising back up to 75% (rounded down to the nearest whole number of Qualipak Shares where applicable) which remains unconverted on the expiry of the period of 14 days after the date of receipt of a Notice of Change by the holder of the Convertible Note or (if the then outstanding principal amount of the Convertible Note is insufficient to make up such 75%) the outstanding principal amount of the Convertible Note which remains unconverted on the expiry of the period of 14 days after the date of receipt of a Notice of Change by the holder of the Convertible Note. Accordingly, whenever and to the extent that the Convertible Note may be converted without breaching the public float requirement of the Listing Rules during the First Year and the holder does not so convert, the conversion price will be increased to HK$0.31 per Conversion Share, subject to adjustments.

Interest rate:

Interest-free from the date of issue of the Convertible Note to the date which is the second anniversary of the date of the issue of the Convertible Note and at a rate of 2% per annum, accrued on a day to day basis on the principal amount of the Convertible Note outstanding commencing on the day immediately following the second anniversary of the date of issue of the Convertible Note. Payment by Qualipak of all or any part of the interest accrued from time to time can only be made in arrears on one or more anniversaries (commencing from the third anniversary) of the date of the issue of the Convertible Note as elected by Qualipak, provided that all accrued and unpaid interest will be paid on the tenth anniversary.

– 10 –

LETTER FROM THE BOARD

Prepayment:

Qualipak may at any time after the second anniversary of the Convertible Note give not less than one month’s notice in writing to the holder of the Convertible Note to prepay such part or whole of the principal amount outstanding on the Convertible Note together with interest accrued until the date of actual prepayment. The holder of the Convertible Note may however at any time after the receipt of such notice but before actual prepayment still convert the whole or any amount to be prepaid into Conversion Shares.

Transferability: Subject to any requirements and/or conditions of the Stock Exchange, the Convertible Note is fully transferable in whole or in part at any time.

Conversion period: The holder of the Convertible Note has the right to convert the whole or part of the principal amount outstanding under the Convertible Note into the Conversion Shares at any time from the date of issue of the Convertible Note up to (and including) the maturity date of the Convertible Note at the relevant conversion price provided that the amount of the Convertible Note converted on each occasion shall not be less than HK$1,000,000, unless the principal amount outstanding under the Convertible Note is less than HK$1,000,000, in which case the whole of the principal amount outstanding under the Convertible Note may be converted.

• Voting: The holder of the Convertible Note will not be entitled to receive notices of, attend or vote at any meetings of Qualipak by reason only of it being a holder of the Convertible Note.

Listing: No application will be made for the listing of the Convertible Note on the Stock Exchange or any other stock exchanges. An application has been made by Qualipak to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares to be issued as a result of the exercise of the conversion rights attached to the Convertible Note.

Ranking:

The Conversion Shares will rank pari passu in all respects with all other Qualipak Shares outstanding on the date on which the holder of the Convertible Note gives notice to exercise the conversion rights attached to the Convertible Note.

– 11 –

LETTER FROM THE BOARD

The Vendor has undertaken to Qualipak that, upon Completion, the Vendor will not exercise the Convertible Note to such an extent that if as a result of such exercise there is insufficient public float on the date of issue of the Conversion Shares. Upon Completion, Qualipak will undertake to the Stock Exchange that it will ensure that there will not be insufficient public float on the date of issue of Conversion Shares arising from the conversion of the Convertible Note.

On the basis that the Convertible Note is fully converted at the conversion price of HK$0.28 per Conversion Share, a total of 9,114,285,714 Conversion Shares under the Convertible Note will be issued, representing approximately 231.35% of the existing issued share capital of Qualipak as at the Latest Practicable Date and approximately 62.20% of the issued share capital of Qualipak as enlarged by the Consideration Qualipak Shares and the issue of such Conversion Shares (assuming that there is no change in the issued share capital of Qualipak from the Latest Practicable Date until then save for the issue of the Consideration Qualipak Shares at Completion and the issue of the Conversion Shares). Application has been made by Qualipak to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Conversion Shares. No application will be made by Qualipak for the listing of and permission to deal in the Convertible Note on the Stock Exchange or any other stock exchanges.

The initial conversion price of HK$0.28 per Conversion Share during the first year of the conversion period represents:

• (i) a discount of approximately 8.20% to HK$0.305, the closing price of the Qualipak Shares as quoted on the Stock Exchange on 22 September 2006, being the last trading day of the Qualipak Shares on the Stock Exchange prior to the Suspension;

• (ii) a discount of approximately 7.89% to the average closing price of approximately HK$0.304 per Qualipak Share for the five consecutive trading days up to and including 22 September 2006 as quoted on the Stock Exchange;

• (iii) a discount of approximately 8.50% to the average closing price of approximately HK$0.306 per Qualipak Share for the 10 consecutive trading days up to and including 22 September 2006 as quoted on the Stock Exchange;

• (iv) a premium of approximately 90.48% over the audited consolidated net assets value of the Qualipak Group of approximately HK$0.147 per Qualipak Share as at 31 December 2005;

• (v) a premium of approximately 85.43% over the unaudited consolidated net assets value of the Qualipak Group of approximately HK$0.151 per Qualipak Share as at 30 June 2006; and

• (vi) a discount of approximately 20.00% to HK$0.350, the closing price of the Qualipak Shares as quoted on the Stock Exchange as at the Latest Practicable Date.

– 12 –

LETTER FROM THE BOARD

Guarantee

The due and punctual performance and discharge by the Vendor of all its obligations (whether present or future, actual or contingent) under the Acquisition Agreement are guaranteed by the Guarantor.

Conditions of Completion

Completion of the Acquisition and the assumption by the Purchaser of the obligations to repay the Debts under the Acquisition Agreement are conditional upon the fulfillment (or waiver, in certain cases as stated below) of the following Conditions:

• (i) the approval of the Acquisition Agreement and the transactions contemplated thereunder by the Shareholders at the SGM (where the Guarantor and his associates will abstain from voting) taken on a poll;

• (ii) the approval of the Acquisition Agreement and the transactions contemplated thereunder (including, in particular, the issue and allotment of the Consideration Qualipak Shares and the issue of the Convertible Note) by the Qualipak Shareholders at a special general meeting (where the Guarantor, Yugang and their respective associates will abstain from voting) taken on a poll;

• (iii) approval being granted or agreed to be granted by the Stock Exchange for the listing of, and permission to deal in, all the Consideration Qualipak Shares and the Conversion Shares on terms and conditions satisfactory to the Vendor and Qualipak;

• (iv) approval of the increase in the authorised share capital of Qualipak from HK$100,000,000 to HK$500,000,000 by the Qualipak Shareholders at a special general meeting; and

• (v) if so required, approval being granted by the Bermuda Monetary Authority for the issue of the Consideration Qualipak Shares and the further issue by Qualipak of all unissued shares within its authorised share capital of HK$500,000,000, and the subsequent transfer of all such shares issued.

In the event that any of the Conditions has not been fulfilled on or before 31 December 2006 (or such later date as is otherwise agreed between the Parties in writing), the Acquisition Agreement shall cease and determine and be of no further effect, and no Party shall be entitled to any rights or benefits or be under any obligation under or in respect of the Acquisition Agreement or have any liability to any other Party, save in respect of any antecedent breach.

Upon Completion, the Guarantor and the Vendor will undertake in favour of the Company that so long as the Guarantor and the Vendor and/or any of their respective associates hold in aggregate 30% or more of the voting rights of Qualipak, at the request

– 13 –

LETTER FROM THE BOARD

of the Company upon giving reasonable notice, the Guarantor and the Vendor will (i) propose person(s) nominated by the Company (“Nominees”) to be elected to the board of Qualipak at the next annual general meeting of Qualipak following such request so that such Nominees may constitute at least one-quarter of the directors of Qualipak, and (ii) to vote in favour of electing the Nominees at such annual general meeting. The undertaking will cease to have any effect and will terminate once the Company holds less than 10% of the voting rights of Qualipak.

Completion

The Acquisition Agreement provides that Completion will take place on the Completion Date. The Directors expect that the Completion Date would be before 31 December 2006 after fulfillment (or waiver) of the Conditions.

THE PLACING

On 22 September 2006, Qualipak also entered into the Placing Agreement with CLSA Limited. Pursuant to the Placing Agreement, CLSA Limited, the placing agent for the Placing, will procure, on a best endeavor basis, professional and institutional investors who are independent of and not connected with Qualipak or any of its connected persons to subscribe for up to 3,400,000,000 Placing Shares at the placing price of HK$0.28 per Placing Share. Completion of the Placing Agreement is conditional upon Completion, the grant of the listing of and permission to deal in the Placing Shares by the Listing Committee of the Stock Exchange, the approval of the Bermuda Monetary Authority for the issue of the Placing Shares (if required), and will be subject to the approval of the Qualipak Shareholders at the special general meeting of Qualipak. The Placing Shares represent approximately 86.30% of the existing issued share capital of Qualipak as at the Latest Practicable Date and approximately 38.03% of the issued share capital of Qualipak as enlarged by the Consideration Qualipak Shares and the Placing Shares (assuming that there is no change in the issued share capital of Qualipak from the Latest Practicable Date to the completion of the Placing save for the issue of the Consideration Qualipak Shares at Completion and the Placing Shares). Application has been made by Qualipak to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Placing Shares.

Since the Placing is not underwritten, there is no assurance that the Placing will be completed. The Acquisition is however not conditional upon completion of the Placing. Assuming all the Placing Shares are successfully placed by CLSA Limited, the estimated net proceeds will be approximately HK$930 million. It is currently intended that the net proceeds from the Placing will be used to finance the development costs of the Properties, potential acquisition of future development projects and general working capital.

CORPORATE CHARTS

The following diagrams illustrate the corporate and shareholding structure (taking no account of wholly-owned intermediate holding companies) of the Company, Qualipak and the Subject Company (a) as at the Latest Practicable Date, (b) immediately after

– 14 –

LETTER FROM THE BOARD

Completion (on the basis that the Placing Agreement is not completed and there is no conversion of the Convertible Note), (c) immediately after Completion (on the basis that all the Placing Shares have been successfully placed and there is no conversion of the Convertible Note), (d) immediately after Completion (on the basis that the Convertible Note is fully converted at the conversion price of HK$0.28 per Conversion Share and the Placing Agreement is not completed), and (e) immediately after Completion (on the basis that all the Placing Shares have been successfully placed and the Convertible Note is fully converted at the conversion price of HK$0.28 per Conversion Share):

As at the Latest Practicable Date

==> picture [342 x 357] intentionally omitted <==

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

Guarantor
100%
Guarantor and
Vendor
his associates
42.25% 100%
Directors (including 0.15%
Publ ic Yugang owned by a dir ector who Subject
56.80% 0.95% is the father of Mr. Cheung) Company
64.54% 100%
Publ ic Qualipak Direc tors of HK Company
35.24% 0.22% Qualipak
100% 100%
Purchaser PRC Company
100%
The Properties and
the Buildings
----- End of picture text -----

– 15 –

LETTER FROM THE BOARD

Immediately after Completion (on the basis that the Placing Agreement is not completed and there is no conversion of the Convertible Note)

==> picture [336 x 450] intentionally omitted <==

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

Guarantor 100%
Guarantor and
Vendor
his associates
42.25% 28.88%
56.80%
Public Yugang Directors
0.95%
45.90%
25.07% Directors of
Public Qualipak Qualipak
0.15%
100%
Purchaser
100%
Subject Company
100%
HK Company
100%
PRC Company
100%
The Properties
and the Buildings
----- End of picture text -----

– 16 –

LETTER FROM THE BOARD

Immediately after Completion (on the basis that all the Placing Shares have been successfully placed and there is no conversion of the Convertible Note)

==> picture [336 x 450] intentionally omitted <==

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

Guarantor 100%
Guarantor and
Vendor
his associates
42.25% 17.90%
56.80%
Public Yugang Directors
0.95%
28.44%
15.54%
Public
Directors of
Qualipak
0.09% Qualipak
Placees 38.03%
100%
Purchaser
100%
Subject Company
100%
HK Company
100%
PRC Company
100%
The Properties
and the Buildings
----- End of picture text -----

– 17 –

LETTER FROM THE BOARD

Immediately after Completion (on the basis that the Convertible Note is fully converted at the conversion price of HK$0.28 per Conversion Share and the Placing Agreement is not completed)

==> picture [336 x 450] intentionally omitted <==

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

Guarantor 100%
Guarantor and
Vendor
his associates
42.25% 73.12%
56.80%
Public Yugang Directors of Yugang
0.95%
17.35%
9.47%
Public Qualipak Directors
0.06%
100%
Purchaser
100%
Subject Company
100%
HK Company
100%
PRC Company
100%
The Properties
and the Buildings
----- End of picture text -----

– 18 –

LETTER FROM THE BOARD

Immediately after Completion (on the basis that all the Placing Shares have been successfully placed and the Convertible Note is fully converted at the conversion price of HK$0.28 per Conversion Share)

==> picture [336 x 450] intentionally omitted <==

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

Guarantor 100%
Guarantor and
Vendor
his associates
42.25% 59.35%
56.80%
Public Yugang Directors
0.95%
14.08%
7.69%
Public
Directors of
Qualipak
0.05% Qualipak
Placees 18.83%
100%
Purchaser
100%
Subject Company
100%
HK Company
100%
PRC Company
100%
The Properties
and the Buildings
----- End of picture text -----

– 19 –

LETTER FROM THE BOARD

INFORMATION ON THE SUBJECT COMPANY

Overview

The Subject Company is a company incorporated in the BVI on 17 March 2006 with limited liability, and is a wholly-owned subsidiary of the Vendor. The only assets of the Subject Company are its 100% interest in the registered equity capital of the PRC Company (held via the HK Company) and the Debts.

The HK Company

The HK Company was incorporated in Hong Kong on 30 March 2006. Its sole director is the Guarantor. The HK Company is an investment holding company and its sole asset is its 100% interest in the PRC Company.

The PRC Company

The PRC Company is a wholly-owned foreign enterprise organised and existing under the laws of the PRC and was incorporated in the PRC on 11 June 1992. The PRC Company is one of the largest property developers in Chongqing with national class I certification from the Ministry of Construction, the PRC, and is principally engaged in the development, sale, leasing and management of high quality residential, commercial and retail properties.

Up to the Latest Practicable Date, the PRC Company has completed various property development projects of over one million sq.m.. The registered capital of the PRC Company is US$31,000,000 (or approximately HK$241,490,000).

The Properties

The Properties comprise 11 parcels of land, 10 of which are adjoining sites, and are situated right at the heart of the Yubei District of Chongqing, a district where the central government administration region, major highway junctions and a new rail transportation hub are located. The remaining parcel of land, albeit separate, is situated close to the new rail transportation hub. All these parcels of land have been earmarked for development as separate projects, consisting of hotels, commercial and residential complexes.

The Properties have a total site area of 865,668.57 sq.m. with a total buildable gross floor area of approximately 3.07 million sq.m.. All land premiums have been fully paid and land use certificate for every parcel of land has been obtained as at the Latest Practicable Date. In addition, Building Ownership Certificate and/or Real Estate Title Certificate for each of the Buildings has been obtained as at the Latest Practicable Date. The market value of the Properties as at 31 August 2006 was valued at RMB6,524,614,000 (or approximately HK$6,396,680,000) by Savills, an independent valuer.

– 20 –

LETTER FROM THE BOARD

The Buildings

In addition to the holding of the Properties, the PRC Company also currently owns the Buildings as either its fixed assets or as rental properties. The market value of the Buildings as at 31 August 2006 was valued at RMB204,747,500 (or approximately HK$200,733,000) by Savills, an independent valuer.

Financial information

Based on the audited combined income statements of the Subject Company prepared in accordance with Hong Kong Financial Reporting Standards for the two years ended 31 December 2005 and the six months ended 30 June 2006, its audited combined profit/(loss) before tax, audited combined tax, and audited combined profit/(loss) for the year/period were as follows:–

	Year ended	Year ended	Six months
	31 December	**31 December **	ended 30 June
	2004	2005	2006
	(RMB’000)	(RMB’000)	(RMB’000)
Profit/(Loss) before tax	54,382	16,951	(15,450)
Tax	(20,860)	(8,584)	4,699
Profit/(Loss) for the year/period	33,522	8,367	(10,751)

GAIN ON DEEMED DISPOSAL BY THE GROUP

Immediately upon Completion and assuming that there will be no change in the issued share capital of Qualipak from the Latest Practicable Date and up to Completion (save for the issue of the Consideration Qualipak Shares), the Group’s interest in Qualipak will be diluted from approximately 64.54% to approximately 45.90%. Accordingly, the Transaction will constitute a deemed disposal by the Company of its interest in Qualipak under the Listing Rules.

The Group’s gain on the above deemed disposal of its equity interest in Qualipak is estimated to be approximately HK$1,096 million. Such estimated gain is calculated on the basis of the net estimated increase in the Group’s share of Qualipak’s consolidated net assets resulting from the Acquisition. The actual amount to be recognised in the Group’s consolidated income statement will be adjusted based on, among other things, the fair value of the Consideration and the consolidated net assets value of the Qualipak Group at the date of Completion.

Immediately after Completion, Qualipak will no longer be a subsidiary of the Company but will remain as an associated company of the Company, and its results, assets and liabilities will be accounted for by the equity method of accounting in the consolidated financial statements of the Remaining Group.

– 21 –

LETTER FROM THE BOARD

CHANGES TO THE SHAREHOLDING IN QUALIPAK

Upon Completion, Qualipak will cease to be a subsidiary of the Company as a result of the issue of the Consideration Qualipak Shares. The simplified shareholding structures of Qualipak (a) as at the Latest Practicable Date; (b) immediately after Completion (on the basis that the Placing is not completed and there is no conversion of the Convertible Note); (c) immediately after Completion and all the Placing Shares have been successfully placed (on the basis that there is no conversion of the Convertible Note); (d) immediately after Completion and full conversion of the Convertible Note but before the Placing, and (e) immediately after Completion, all the Placing Shares have been successfully placed and full conversion of the Convertible Note are shown in the table below (in each case assuming that there is no other change in the issued share capital of Qualipak from the Latest Practicable Date and assuming that the Convertible Note is converted at the conversion price of HK$0.28 per Conversion Share):

As at the Latest Practicable Date No. of Qualipak Shares Regulator Holdings Limited1 2,542,396,360 Lam How Mun Peter 110,000 Leung Chun Cheong 7,410,000 Poon Ho Yee Agnes 1,040,000 Vendor – Placees and public2 1,388,580,510 Placees under the Placing – Other public Qualipak Shareholders 1,388,580,510 3,939,536,870	Percentage of issued share Immediately capital of after Qualipak Completion No. of Qualipak Shares 64.54% 2,542,396,360 0.00% 110,000 0.19% 7,410,000 0.03% 1,040,000 0.00% 1,600,000,000 35.24% 1,388,580,510 0.00% – 35.24% 1,388,580,510 100% 5,539,536,870	Percentage of issued share capital of Immediately Qualipak after Immediately immediately Completion Percentage of after after and full issued share Completion Completion conversion capital of and all the and all the of the Qualipak Placing Shares Placing Shares Convertible immediately have been have been Note after successfully successfully but before Completion placed placed the Placing No. of Qualipak No. of Qualipak Shares Shares 45.90% 2,542,396,360 28.44% 2,542,396,360 0.00% 110,000 0.00% 110,000 0.13% 7,410,000 0.08% 7,410,000 0.02% 1,040,000 0.01% 1,040,000 28.88% 1,600,000,000 17.90% 10,714,285,714 25.07% 4,788,580,510 53.57% 1,388,580,510 0.00% 3,400,000,000 38.03% – 25.07% 1,388,580,510 15.54% 1,388,580,510 100% 8,939,536,870 100% 14,653,822,584	Percentage of issued share Percentage of capital of issued share Qualipak capital of Immediately immediately Qualipak after after immediately Completion, Completion, after all the all the Completion Placing Shares Placing Shares and full have been have been conversion successfully successfully of the placed and full placed and full Convertible conversion conversion Note of the of the but before Convertible Convertible the Placing Note Note No. of Qualipak Shares 17.35% 2,542,396,360 14.08% 0.00% 110,000 0.00% 0.05% 7,410,000 0.04% 0.01% 1,040,000 0.01% 73.12% 10,714,285,714 59.35% 9.47% 4,788,580,510 26.52% 0.00% 3,400,000,000 18.83% 9.47% 1,388,580,510 7.69% 100% 18,053,822,584 100%	Percentage of issued share Percentage of capital of issued share Qualipak capital of Immediately immediately Qualipak after after immediately Completion, Completion, after all the all the Completion Placing Shares Placing Shares and full have been have been conversion successfully successfully of the placed and full placed and full Convertible conversion conversion Note of the of the but before Convertible Convertible the Placing Note Note No. of Qualipak Shares 17.35% 2,542,396,360 14.08% 0.00% 110,000 0.00% 0.05% 7,410,000 0.04% 0.01% 1,040,000 0.01% 73.12% 10,714,285,714 59.35% 9.47% 4,788,580,510 26.52% 0.00% 3,400,000,000 18.83% 9.47% 1,388,580,510 7.69% 100% 18,053,822,584 100%
				100%

– 22 –

LETTER FROM THE BOARD

Notes:

1. Regulator Holdings Limited (“Regulator”) is an indirect wholly-owned subsidiary of the Company, which is, in turn, owned by Chongqing Industrial Limited (“Chongqing”), Timmex Investment Limited (“Timmex”) and the Guarantor in aggregate as to 42.25%. The Guarantor, Peking Palace Limited, Miraculous Services Limited and Prize Winner Limited have a 35%, 30%, 5% and 30% equity interest in Chongqing respectively. Peking Palace Limited and Miraculous Services Limited are beneficially owned by Palin Discretionary Trust, a family discretionary trust, the objects of which included the Guarantor and his family. Prize Winner Limited is beneficially owned by the Guarantor and his associates. The Guarantor is deemed to be interested in the same number of shares held by Regulator by virtue of his indirect shareholding interests in Chongqing. As the Guarantor has 100% beneficial interest in Timmex, he is also deemed to be interested in the same number of shares held by Timmex through Regulator.

2. Upon Completion, Qualipak will undertake to the Stock Exchange that it will ensure that there will not be insufficient public float on the date of issue of Conversion Shares arising from the conversion of the Convertible Note.

After Completion, if there is no further change in the issued share capital of Qualipak other than the issue of the Consideration Qualipak Shares and assuming full conversion of the Convertible Note but before the Placing, the Company’s interest in Qualipak will be further diluted from approximately 45.90% to approximately 17.35%. The Vendor has undertaken to Qualipak that, upon Completion, the Vendor will not exercise the Convertible Note to such an extent that if as a result of such exercise there is insufficient public float on the date of issue of the Conversion Shares. Upon Completion, Qualipak will undertake to the Stock Exchange that it will ensure that there will not be insufficient public float on the date of issue of Conversion Shares arising from the conversion of the Convertible Note.

BUSINESSES OF THE GROUP AND THE QUALIPAK GROUP

The Group (other than the Qualipak Group) is principally engaged in trading in the PRC, treasury investments, and property and other investments. The Company has substantial investments in property and infrastructure businesses through its associated companies, Y.T. Realty Group Limited and The Cross-Harbour Holdings Limited.

The Qualipak Group is principally engaged in the businesses of manufacturing and trading of watch boxes, gift boxes, spectacle cases and bags and pouches, treasury investment activities, and the design, manufacturing and sale of soft baggage, travel bags, back-packs and brief cases. The audited consolidated net profit before taxation and audited consolidated net profit attributable to the Qualipak Shareholders for the two years ended 31 December 2005 are set out below:

	Year ended 31 December	Year ended 31 December
	2004	2005
	(HK$’000)	(HK$’000)
Profit before taxation	57,389	47,395
Profit attributable to the Qualipak Shareholders	42,112	41,203

As at 30 June 2006, the unaudited consolidated net assets value attributable to equity holders of Qualipak amounted to approximately HK$593.6 million.

– 23 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Acquisition will enable the Group to further enlarge its asset base due to the increase in net assets attributable to the Group resulting from the substantial increase in the net assets value of the Qualipak Group. Based on the “Unaudited pro forma financial information on the Remaining Group” as set out in Appendix V to this circular, the consolidated net assets value of the Group attributable to equity holders of Yugang will increase from approximately HK$2,184 million to approximately HK$3,280 million immediately after Completion, which will also constitute a deemed disposal by the Company of its interest in Qualipak with an estimated gain of approximately HK$1,096 million.

The Acquisition provides Qualipak with an opportunity to benefit from the PRC Company’s strategic location and the early entry advantage in the property market to diversify its business into property development and investment. Also, the growth in the economy and the income level in the PRC is expected to result in an increase in demand in the real estate markets. Given the current property price, the trend of the supply of and demand for real estates in Chongqing and the prosperous outlook of the Chongqing economy, the Directors are optimistic on the prospects of Qualipak’s property development business and expect the business to achieve a rapid growth rate in the coming years. The Directors believe that the terms of the Transaction are fair and reasonable and in the interests of the Group and the Independent Shareholders as a whole. Whilst the Company’s interest in Qualipak will be diluted from approximately 64.54% to approximately 45.90% immediately after the issue of the Consideration Qualipak Shares but before the Placing and any conversion of the Convertible Note, the Directors expect that the contribution of Qualipak to the Group will be significantly increased.

Based on the “Unaudited pro forma financial information on the Remaining Group” as set out in Appendix V to this circular, (i) the unaudited pro forma consolidated total assets of the Remaining Group immediately after Completion would be approximately HK$3,344.7 million, as compared with the audited consolidated total assets of the Group of approximately HK$2,671.0 million as at 30 June 2006; and (ii) the unaudited pro forma consolidated total liabilities of the Remaining Group immediately after Completion would be approximately HK$64.4 million, as compared with the audited consolidated total liabilities of the Group of approximately HK$273.7 million as at 30 June 2006. The Board is of the view that the Remaining Group’s interest in the enlarged Qualipak Group would contribute to the earnings of the Remaining Group after Completion.

Based on the unaudited pro forma financial information on the enlarged Qualipak Group as set out in Appendix V to the circular dated 20 October 2006 issued by Qualipak, (i) the unaudited pro forma profit attributable to the equity holders of the enlarged Qualipak Group for the six months ended 30 June 2006 would be approximately HK$912.2 million; (ii) upon Completion, the unaudited pro forma consolidated net assets value of the enlarged Qualipak Group attributable to the equity holders will be increased to approximately HK$3,222.7 million (equivalent to approximately HK$0.582 per Share, based on 5,539,536,870 Shares in issue upon Completion), as compared with the unaudited consolidated net assets value of approximately HK$593.6 million as at 30 June 2006

– 24 –

LETTER FROM THE BOARD

(equivalent to approximately HK$0.151 per Share, based on 3,939,536,870 Shares in issue as at 30 June 2006); (iii) the unaudited pro forma consolidated total loans of the enlarged Qualipak Group (including the liability portion of the Convertible Note of approximately HK$1,315.8 million) would amount to approximately HK$2,141.0 million, and (iv) the Qualipak’s equity attributable to its equity holders would be approximately HK$3,222.7 million, and (v) the unaudited pro forma consolidated cash and bank balance of the enlarged Qualipak Group (including short term bank deposits, pledged deposits, and deposits with brokerage companies) would amount to approximately HK$335.2 million; and (vi) the unaudited pro forma consolidated investment held for trading of the enlarged Qualipak Group would amount to approximately HK$91.0 million. In addition, the enlarged Qualipak Group will have unaudited pro forma consolidated net current liabilities of approximately HK$279.6 million, of which interest bearing bank loans will amount to approximately HK$675 million.

On the basis that there is no conversion and repayment of the Convertible Note before the maturity date and the effective interest rate of the Convertible Note is 9% per annum as determined by reference to the assessment made by Grant Sherman Appraisal Limited, an independent valuer, the total interest expenses on the Convertible Note will be approximately HK$1,645 million, which will be recorded by the Group during the period from the date of the issue of the Convertible Note to the tenth anniversary of the date of the issue of the Convertible Note. Among the aforesaid interest expenses of HK$1,645 million, however, only approximately HK$409 million will be the actual interest expenses payable to the holder of the Convertible Note according to the terms of the Convertible Note given the fact that the remaining interest expenses of approximately HK$1,236 million are not the interest expenses payable to the holder of the Convertible Note according to the terms of the Convertible Note but are only required to be recorded in the consolidated income statement of the Qualipak Group in accordance with Hong Kong Accounting Standard 32. In addition, if the Convertible Note is partly or fully converted and/or repaid before its maturity, the amount of the aforesaid interest expenses will be reduced.

REQUIREMENTS UNDER THE LISTING RULES

Upon Completion and the issue of the Consideration Qualipak Shares, Qualipak will cease to be a subsidiary of the Company. Besides, the Vendor and the Guarantor are the connected persons of the Company. Hence, for the purpose of Rules 14.06 and 14A.13 of the Listing Rules, the Transaction constitutes a very substantial disposal and a connected transaction for the Company. As Qualipak is currently a subsidiary of the Company, the entering into of the Acquisition Agreement by Qualipak also constitutes a very substantial acquisition for the Company under the Listing Rules. Pursuant to Rules 14.49 and 14A.18 of the Listing Rules, the Transaction is therefore subject to the approval by the Independent Shareholders. The Guarantor and his respective associates (who held in aggregate approximately 42.40% of the issued share capital of the Company as at the Latest Practicable Date) will be required to abstain from voting by virtue of their material interest in the Transaction. Voting on the Transaction by the Independent Shareholders will be conducted by way of poll.

– 25 –

LETTER FROM THE BOARD

The Independent Board Committee, comprising Messrs. Wong Wai Kwong, David, Wong Yat Fai and Ng Kwok Fu, being the independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the terms of the Transaction. CIMB-GK has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders to provide advice in respect of the terms of the Transaction.

SGM

Set out on pages 298 to 299 of this circular is a notice convening the SGM which will be held at Grand Rooms I and II, Lobby, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on Monday, 6 November 2006 at 11:00 a.m. at which an ordinary resolution will be proposed to approve the Transaction.

The Board recommends the Independent Shareholders to vote in favour of the ordinary resolution in respect of the Transaction to be proposed at the SGM. The recommendation from the Independent Board Committee to the Independent Shareholders in respect of the terms of the Transaction is set out on page 27 of this circular.

The form of proxy for use by the Independent Shareholders at the SGM is enclosed with this circular. Whether or not you intend to attend the SGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible, and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of a form of proxy shall not preclude you from attending and voting in person at the SGM or any adjournment thereof should you so desire.

ADDITIONAL INFORMATION

Your attention is drawn to the letter of advice from CIMB-GK to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Transaction, the letter of recommendation from the Independent Board Committee to the Independent Shareholders in respect of the terms of the Transaction and the information set out in the appendices to this circular.

As Completion and completion of the Placing are subject to the fulfilment of a number of conditions precedent, the Transaction or the Placing may or may not proceed. Shareholders and potential investors are reminded to exercise caution when dealing in the Shares.

Yours faithfully, By Order of the Board of Yugang International Limited Yuen Wing Shing Managing Director

– 26 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

YUGANG INTERNATIONAL LIMITED （渝港國際有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 613)

20 October 2006

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL (VERY SUBSTANTIAL ACQUISITION) AND CONNECTED TRANSACTION

We refer to the circular dated 20 October 2006 issued by Yugang International Limited of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the circular, unless the context otherwise requires. We have been appointed by the Board as the Independent Board Committee to give you a recommendation in respect of the terms of the Transaction.

We wish to draw your attention to the letter from the Board as set out on pages 6 to 26 of this circular which sets out, among other things, information relating to the Transaction and the letter from CIMB-GK as set out on pages 28 to 57 of the circular which contains its advice to us and to you in relation to the Transaction.

Having considered the terms of the Transaction and taken into account the advice of CIMB-GK , we consider that the terms of the Transaction are in the interests of the Group and the Independent Shareholders as a whole and are fair and reasonable so far as the Group and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Transaction.

Yours faithfully,

Independent Board Committee Wong Wai Kwong, David Wong Yat Fai Ng Kwok Fu Independent Independent Independent non-executive Director non-executive Director non-executive Director

* For identification purposes only

– 27 –

LETTER FROM CIMB-GK

The following is the text of a letter of advice from CIMB-GK to the Independent Board Committee and the Independent Shareholders dated 20 October 2006 in relation to the terms of the Transaction prepared for the purpose of incorporation in this circular:

CIMB-GK Securities (HK) Limited

25/F., Central Tower 28 Queen’s Road Central Hong Kong

20 October 2006

To the Independent Board Committee

and the Independent Shareholders

Dear Sirs,

VERY SUBSTANTIAL DISPOSAL (VERY SUBSTANTIAL ACQUISITION) IN RELATION TO THE DEEMED DISPOSAL OF QUALIPAK AND CONNECTED TRANSACTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee in relation to the Transaction, details of which are contained in a circular (the “Circular”) to the Shareholders dated 20 October 2006, of which this letter forms part. Expressions used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

An independent board committee comprising Messrs. Wong Wai Kwong David, Wong Yat Fai and Ng Kwok Fu, being the independent non-executive Directors, has been formed to advise the Independent Shareholders in relation to the Transaction. Any vote of the Independent Shareholders at the SGM shall be taken by poll. The Guarantor and his associates will abstain from voting in the SGM on resolutions in relation to the approval of the Transaction.

In formulating our recommendation, we have relied on the information and facts contained or referred to in the Circular. The Directors have declared in a responsibility statement set out in Appendix VIII to the Circular that they collectively and individually accept full responsibility for the accuracy of the information contained in the Circular. We have assumed that the information and representations contained or referred to in the Circular were true and accurate at the time they were made and continue to be so up to the date of the SGM. We have no reason to doubt the truth, accuracy and completeness of

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the information and representations provided to us by the Directors. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular.

We consider that we have reviewed sufficient information to reach an informed view and to provide a reasonable basis for our recommendation. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of Yugang, Qualipak, the Subject Company or any of their respective subsidiaries or associates.

I. BACKGROUND

(A) The Transaction and the Deemed Disposal by Yugang

On 22 September 2006, the Purchaser, a wholly-owned subsidiary of Qualipak, entered into the Acquisition Agreement with the Vendor for the purchase of the Sale Share (representing the entire issued share capital of the Subject Company) for a consideration of HK$3,317,553,298. The Consideration is to be satisfied by (i) the Consideration Qualipak Shares; (ii) the Convertible Note; (iii) a sum representing such amount of the Receivables due to the PRC Company as may be recovered by the Qualipak Group; and (iv) the assumption by the Purchaser of the obligations to repay the Debts.

As at the Latest Practicable Date, Yugang owned approximately 64.54% of the shareholding interest of Qualipak. Immediately after the issue of the Consideration Qualipak Shares upon Completion, Yugang’s shareholding in Qualipak will be diluted to approximately 45.90%. Yugang’s shareholding in Qualipak will be further diluted to 14.08% assuming completion of the Placing in full and full conversion of the Convertible Note at the Initial Conversion Price. Accordingly, for the purpose of the Listing Rules, the Transaction, which constitutes a very substantial acquisition for Qualipak, constitutes a very substantial acquisition and a very substantial disposal (deemed disposal) of interest in Qualipak by Yugang. As the Vendor is a connected person of Yugang, the Transaction also constitutes a connected transaction of Yugang.

(B) The Yugang Group

Yugang is an investment holding company with diversified investment in several different business sectors. Through its subsidiaries, associated companies and investments, Yugang is engaged in the following businesses:

(i) Property investment business

Yugang engages in the property investment business mainly through its 34.14% owned associate, Y.T. Realty Group Limited (“Y.T. Realty”). Y.T. Realty is a company listed on the main board of the Stock Exchange and is principally engaged in property investment and property trading. The major investment properties currently held by Y.T. Realty include the whole block of Century

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Square and Prestige Tower situate in the core of Central District and Tsimshatsui. Y.T. Realty’s audited net profits for the two years ended 31 December 2005 were approximately HK$94.4 million (as restated) and HK$250.7 million respectively and, as advised by the Directors, Y.T. Realty’s contribution to Yugang for the two financial years ended 31 December 2005 were approximately HK$43.1 million and HK$84.9 million respectively, representing approximately 19.3% of Yugang’s audited consolidated net profit for the year ended 31 December 2004 (no comparative figure for the year ended 31 December 2005 as Yugang had recorded a loss for the year). As noted from Yugang’s interim report for the six months ended 30 June 2006, Y.T. Realty recorded an unaudited consolidated net profit of approximately HK$155.7 million for the six months ended 30 June 2006 and Y.T. Realty’s contribution to Yugang was approximately HK$55.7 million, representing approximately 44.4% of Yugang’s unaudited consolidated net profit for the period.

(ii) Packaging and luggage business

Through its shareholding in Qualipak, Yugang engages in the packaging and luggage business. For further information, please refer to the sub-section headed “The Qualipak Group” below.

(iii) Infrastructure business

Yugang invests in the infrastructure business through Y.T. Realty’s 40.95% holdings in The Cross-Harbour (Holdings) Limited (“Cross-Harbour”). Cross-Harbour is a company listed on the main board of Stock Exchange and is principally engaged in the investment and management of tunnels and highways, motoring schools and electronic toll collection system. For the past few years, Cross-Harbour had recorded satisfactory growth in its net profit. As noted from Cross-Harbour’s annual report for the year ended 31 December 2005, Cross-Harbour reported a net profit after tax and minority interests of approximately HK$135 million and HK$162 million for the two years ended 31 December 2005 respectively. As noted from Cross-Harbour’s interim report for the six months ended 30 June 2006, due to the significant rise of daily throughput of the Western Harbour Tunnel, Cross-Harbour recorded a net profit after tax and minority interests of approximately HK$85.4 million in the first half of 2006, representing an increase of approximately 17.1% from the last corresponding period.

(iv) Treasury investment business

Yugang engages in the treasury investment business. As extracted from the respective annual and interim reports of Yugang, the treasury investment business, which performance is volatile by nature, recorded a net loss of approximately HK$69.3 million for the year ended 31 December 2005 and a net profit of approximately HK$56.3 million for the six months ended 30 June 2006.

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(v) Trading business in the PRC

Since 1993, Yugang has engaged in the trading business in the PRC. For the first half of 2006, its trading business in the PRC recorded a turnover and net loss of approximately HK$20.3 million and HK$1.7 million respectively.

Set out below is the audited and unaudited financial results of Yugang for the two years ended 31 December 2005 and the two interim periods ended 30 June 2006:

	Year ended	Year ended	Six months	Six months
	31 December	31 December	ended	ended
	2004	2005	30 June	30 June
	(Restated)		2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	392,766	436,334	123,889	428,466
Gross Profit	192,051	62,205	21,555	82,196
Net profit/(loss) attributable
to shareholders	223,953	(26,579)	114,966	125,435

For the year ended 31 December 2005 (“FY2005”), Yugang recorded a turnover of approximately HK$436.3 million, representing a growth of approximately 11.1% as compared to the previous year. The growth was mainly due to the consolidation of the turnover of Hoi Tin Universal Limited (“Hoi Tin”) into the Yugang Group’s account following completion of the acquisition of 60% interest of Hoi Tin by the Qualipak Group in July 2005. Despite the growth in turnover, the gross profit of FY2005 dropped by approximately 67.6% from approximately HK$192.1 million for the year ended 31 December 2004 (“FY2004”) to approximately HK$62.2 million for FY2005. The decrease in gross profit was due to the loss on disposal of certain listed equity investments for FY2005 as compared to the significant gain on disposal for the last corresponding period. Yugang recorded a net loss attributable to shareholders of approximately HK$26.6 million for FY2005 compared to a net profit attributable to shareholders of approximately HK$224.0 million for FY2004. As referred to in the annual report of Yugang for FY2005, such decline in profit was principally a result of the significant drop in gross profit as explained above.

Yugang achieved a turnover of approximately HK$428.5 million for the six months ended 30 June 2006, representing a growth of approximately 245.8% as compared to the six months ended 30 June 2005. Gross profit also rose by approximately 281.3% to approximately HK$82.2 million during the six months ended 30 June 2006. The increase in turnover and gross profit were mainly attributable to the increase in net profit from securities trading of HK$36.3 million and the contribution from Hoi Tin. Despite the significant increase in gross profit, net profit attributable to shareholders for the six months ended

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30 June 2006 only marginally increased by approximately 9.1% to HK$125.4 million compared to the six months ended 30 June 2005 because of the decrease in the profit contribution from an associated company by an amount of approximately HK$35.1 million.

As provided by the management of Yugang, set out below are the net profit and net assets of various business sectors attributable to Yugang for the two years ended 31 December 2005 and the six months ended 30 June 2006:

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December	For the six	months
	2004		2005		ended 30 June 2006
	Contribution	to Yugang	Contribution	to Yugang	Contribution	to Yugang
	Profit	Net Asset	Profit	Net Asset	Profit	Net Asset
	HK$million	HK$million	HK$million	HK$million	HK$million	HK$million
Y.T. Realty_(NB1 & 2)_	43.1	659.9	84.9	797.6	55.7	846.7
Qualipak_(NB3)_	46.9	417.5	50.2	398.0	17.0	399.0
Treasury Investment_(NB4)_	183.4	842.4	(69.6)	735.3	32.3	798.7
Trading business	(14.2)	25.0	(4.1)	3.8	(1.7)	13.0

• NB1: Profit contribution from Y.T. Realty was extracted from “share of results of associates” of the segment information set out in the notes to accounts of the respective annual and interim report of Yugang and adjusted for the share of results of unrelated associates.

• NB2: Includes contribution from Cross-Harbour, as Cross-Harbour is an associate of Y.T. Realty.

• NB3: Profit contribution from Qualipak was extracted from “segment results” of the segment information set out in the notes to accounts of the respective annual and interim report of Yugang and adjusted for the share of results of an associate of Qualipak.

• NB4: Excludes contribution from Qualipak’s treasury investment business.

As illustrated in the above table, Yugang is an investment holding company with a diversified source of profit and the majority of the Yugang Group’s assets are treasury investment, property and infrastructure related.

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(C) The Qualipak Group

The Qualipak Group is principally engaged in the businesses of manufacturing and trading of watch boxes, gift boxes, spectacle cases and bags and pouches, the design, manufacturing and sale of soft baggage, travel bags, back-packs and brief cases and treasury investment activities. Set out below is a summary of the audited consolidated results of the Qualipak Group for the two years ended 31 December 2005 and the unaudited consolidated results of the Qualipak Group for the six months ended 30 June 2005 and 30 June 2006:

	Year ended	Year ended	Six months	Six months
	31 December	31 December	ended	ended
	2004	2005	30 June	30 June
	(Restated)		2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	294,351	445,248	128,374	391,558
Gross Profit	93,636	72,138	26,040	65,205
Net profit/(loss) attributable
to shareholders	42,112	41,203	17,148	37,518

For FY2005, Qualipak recorded a turnover of approximately HK$445.2 million, representing a growth of approximately 51.3% as compared to the previous year, which was due to the contribution from Hoi Tin. The gross profit of FY2005 showed a decline of approximately 23.0% from approximately HK$93.6 million for the FY2004 to approximately HK$72.1 million for FY2005. Such decline was due to the fluctuation in raw material prices, the increased labour costs and the decline in profit generated from treasury investment. Qualipak recorded a net profit attributable to shareholders of approximately HK$42.1 million and HK$41.2 million for FY2004 and FY2005 respectively. As advised by the Directors, despite the decrease in gross profit, Qualipak was able to maintain the net profit at approximately HK$41.2 million mainly due to the contribution of the newly-acquired associates and non-recurring income arising from writing back provision for doubtful debts.

For the six months ended 30 June 2006, Qualipak achieved a turnover of approximately HK$391.6 million, representing a growth of approximately 205.0% as compared to the six months ended 30 June 2005. The substantial increase in turnover was mainly due to the contribution from Hoi Tin and a 17.4% increase in the packaging business as compared to the relevant period in the previous year. In line with the increase in turnover, the gross profit rose by approximately 150.4% to approximately HK$65.2 million. Net profit attributable to shareholders for the six months ended 30 June 2006 increased by approximately 118.8% to HK$37.5 million compared to the six months ended 30 June 2005. We are advised by the Directors that the increase in net profit was a result of the combined effect of an increase in gross profit and a gain of HK$17.2 million in respect of a convertible bond held for investment purpose.

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(D) The Subject Company and the Properties

The Subject Company

As referred to in the Letter from the Board of the Circular, the Subject Company is a company incorporated in the BVI on 17 March 2006 with limited liability, and is a wholly-owned subsidiary of the Vendor. The only assets of the Subject Company are its 100% interest in the registered equity capital of the PRC Company held via the HK Company and the Debts.

With reference to Appendix III of the Circular, the combined financial results of the Subject Company prepared in accordance with Hong Kong Financial Reporting Standards for the three years ended 31 December 2005 and the six months ended 30 June 2005 and 30 June 2006 were as follows:

				Six months	Six months
Year ended		Year ended	Year ended	ended	ended
31	December	31 December	31 December	30 June	30 June
	2003	2004	2005	2005	2006
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
	(audited)	(audited)	(audited)	(unaudited)	(audited)
Turnover	152,243	235,359	214,598	158,026	10,202
(Loss)/Profit before taxation	(17,792)	54,382	16,951	8,950	(15,450)
Taxation	3,958	(20,860)	(8,584)	(3,669)	4,699
(Loss)/Profit after taxation	(13,834)	33,522	8,367	5,281	(10,751)

For the year ended 31 December 2004, the Subject Company recorded a turnover of approximately RMB235.4 million, which was mainly derived from sales of properties and a construction site, and represented a significant growth of approximately 54.6% over the turnover recorded in the previous financial year. The consolidated profit attributable to shareholders for the period was approximately RMB33.5 million due to the significant increase in turnover as mentioned above.

For the year ended 31 December 2005, the Subject Company recorded a turnover of approximately RMB214.6 million, which was mainly derived from sales of properties and rental income from investment properties and was slightly below the turnover recorded in the previous financial year. The consolidated profit attributable to shareholders was substantially reduced to approximately RMB8.4 million due to significant increase in finance, administrative and other operating expenses and drop in fair value gains on investment properties.

As referred to in Appendix III to the Circular, for the first half of 2006, the turnover recorded for the period of approximately RMB10.2 million was substantially below the turnover as recorded in the corresponding period in 2005 as the Subject Company focused on corporate planning and no new property development was embarked. Revenue from property sales was approximately RMB2.2 million while rental income amounted to approximately RMB8.5 million. The loss of approximately RMB10.8 million recorded during the period was mainly a result of the substantial decrease in turnover as mentioned above.

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The HK Company

The HK Company, a wholly-owned subsidiary of the Subject Company, was incorporated in Hong Kong on 30 March 2006. Its sole director is the Guarantor. The HK Company is an investment holding company and its sole asset is its 100% interest in the PRC Company.

The PRC Company

As disclosed in the Letter from the Board, the PRC Company is a wholly owned foreign enterprise organized and existing under the laws of the PRC and was incorporated in Chongqing on 11 June 1992 with a registered capital of US$31,000,000.

The PRC Company is a property developer in Chongqing with national class I certification from the Ministry of Construction in the PRC. It engages principally in the development, sale, leasing and management of high quality residential, commercial and retail properties.

As stated in the Letter from the Board, up to the Latest Practicable Date, the PRC Company has completed various development projects over one million square metres.

The Properties and the Buildings

As referred to in the Letter from the Board, the Properties comprise 11 parcels of land, ten of which are adjoining sites, and are situated right at the heart of Yubei District of Chongqing, a district where the central government administration region, major highway junctions of Chongqing and a new rail transportation hub are located. The remaining parcel of land, albeit separate, is situated close to the new rail transportation hub. All these parcels of land have been earmarked for development as separate projects, consisting of hotels, commercial and residential complexes.

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The Properties have a total site area of approximately 865,669 sq.m. with a total buildable gross floor area of approximately 3.07 million sq.m.. The following table set out the proposed usage of the site based on the preliminary development plans of the Properties:

Proposed usage	Gross Floor Area
	(’000 sq.m.)
Townhouse and Villa	23
Residential	1,761
Hotel and serviced apartment	64
Commercial	544
Office	331
Others (Car parking spaces and
other auxiliary facilities)	347
Total	3,070

Based on the opinion of Yugang’s legal adviser as to PRC laws, as at the Latest Practicable Date, all land premiums have been fully paid and land use certificate for every parcel of land has been obtained. The aggregate market value of the Properties as at 31 August 2006 is valued at RMB6,524,614,000 (or approximately HK$6,396,680,000) by Savills Valuation and Professional Services Limited (“Savills”), an independent valuer.

In addition, the PRC Company also currently owns the Buildings as either its fixed assets or as rental properties. The aggregate market value of the Buildings as at 31 August 2006 is valued at RMB204,747,500 (or approximately HK$200,733,000) by Savills. The Buildings consist of 35 residential units with approximately 4,981 sq.m., and commercial properties (including car parking spaces and other auxiliary facilities) with an aggregate gross floor area of approximately 87,497 sq.m..

II. FACTORS CONSIDERED

In the following sections, we set out the principal factors that we have taken into account in arriving at our opinion in relation to the Acquisition.

1. Chongqing property market

• (A) Overview of Chongqing

Chongqing, one of the four cities in the PRC with a municipal ranking, has been labeled by the PRC government as the key driver for economic growth in the central part of the western region of the PRC. Based on the figures published by the National Bureau of Statistics, Chongqing’s urbanization rate

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of approximately 45.2% in 2005 remains low when compared with Shanghai, Beijing and Guangzhou. Pursuant to the Chongqing municipal government’s 11th Five-Year Plan (the “11th Five-Year Plan”), Chongqing’s urbanization rate is expected to increase from approximately 45.2% in 2005 to approximately 52.0% by 2010 and to approximately 65.0% by 2015. Accordingly, the Chongqing government is taking various measures to encourage development in its urban areas. In particular, with the aim to speed up the urbanization campaign, in June 2006, the State Council of the PRC approved the Chongqing municipal government’s plan to build three new metro lines. In addition, according to the news published in the Chongqing Times on 18 March 2006, the Chongqing government also plans to build another eight bridges over the Jialing River (in addition to the eight existing bridges) and another 10 bridges over the Yangtze River (in addition to the six existing bridges) by 2020.

Based on the figures published by the National Bureau of Statistics, in 2004, the gross domestic product (“GDP”) of Chongqing had reached approximately RMB266.5 billion and was the highest among the major southwest cities in China such as Chengdu, Guiyang and Kunming, and continued to approximate the GDP of two major munipalized cities, namely, Beijing and Tianjin, which in 2004 had a GDP of approximately RMB428.3 billion and RMB293.2 billion respectively. According to the statistics published by the Chongqing City Statistical Bureau (the “Statistical Bureau”), the city recorded a robust average annual GDP growth of approximately 15.1% during the period from 2002 to 2005, and in 2005, the GDP of Chongqing had reached approximately RMB306.9 billion. Based on the latest information provided by the Statistical Bureau, for the first half of 2006, the GDP growth of Chongquing City reached approximately 12.6%, a historical high since the city obtained the municipal ranking in 1997, representing a remarkable increase of approximately 1.2% over the corresponding period in 2005 and an excess of approximately 1.7% over the average national GDP growth of the PRC.

As noted in the Chongqing City Statistic Year Books, both the urban household population and disposable income per capita has shown an upward trend over the past five years, with an average annual growth of approximately 1.3% and 12.2% respectively. In 2005, the urban household population and annual disposable income per capita had reached approximately 28.0 million and RMB31,756 respectively.

(B) Overview and prospect of Chongqing property market

With the strong purchasing power resulting from the improving economy and investment environment of Chongqing City as discussed above, the property market of the city remained strong in recent years. According to the Statistical Bureau, since 2002, investment in real estate in Chongqing City had shown an outstanding average annual growth of approximately 27.4%, amounting to approximately RMB51,773 million in 2005.

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Based on the information published by the Statistical Bureau, investment in residential buildings in 2005 was approximately RMB31,037 million, representing approximately 2.8 times over the figure in 2001. Based on the 重 慶市 2006年市情報告會資料匯編 published by重慶市對外開放領導小組辦公 室 (General Office of Chongqing Pioneering Group), in order to achieve the urbanization target of 52.0% by 2010 under the 11th Five-Year Plan, Chongqing will need to attain an average annual urban population growth of approximately 500,000 from the agricultural population and this is expected to constitute a significant driving force for the continual upward trend of its property market.

The table below illustrates the total gross floor area of residential properties completed, sold and vacant in Chongqing City for the past five years.

	2001	2002	2003	2004	2005
Completed (10,000 sq.m.)	738.4	1,033.4	1,231.8	1,227.7	1,712.0
Sold (10,000 sq.m.)	635.0	870.4	1,133.0	1,158.0	1,319.9
Vacant (10,000 sq.m.)	228.0	280.4	225.6	191.2	197.2

Source: Chongqing City Statistic Year Books and Statistical Bureau

As noted from the table above, both the total gross floor area of residential properties completed, and sold recorded an increasing trend at an average annual growth rate of approximately 23.4% and approximately 20.1% respectively whereas the total vacant gross floor area of residential properties in Chongqing City has recorded an average annual decline rate 3.6%.

Based on the Chongqing City Statistic Year Books, investment in Chongqing office building in 2004 has reached approximately RMB4,443 million, representing approximately 4.2 times the investment in 2001. According to the Chongqing property information as published by DTZ Debenham Tie Leung Limited, an international property valuer (the “Chongqing Report”), as the only municipality in southwest China, Chongqing has become the best choice for investors looking to invest in the western region and both leasing and sales demand of office buildings will see sustained increase due to the growth of local firms and entering of international enterprises to the city.

With its well developed infrastructure and relatively low property price as compared with other major cities in the PRC, Chongqing City has attracted property investments from major property developers such as Hutchison Whampoa Limited, Poly (Hong Kong) Investment Limited, Shui On Construction and Materials Limited, China Resources Land Limited, Shanghai Forte Land Co., Ltd etc..

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• (C) Prospect of Yubei District

Chongqing City is divided into nine districts. Yubei District is located at the northern part of Chongqing, together with Jiangbei District, are situated at the north coast of the Jialing River. Traditionally Yuzhong District, which is located at the south coast of the Jialing River, is the political, commercial and financial hub of Chongqing. The limited supply of large tracts of land for re-development in Yuzhong District and the rapid growth of the city has led the government to expand the business area across the Jialing River. Nowadays, Yubei has become a district where the government’s main administration offices, namely the Chongqing Advanced People’s Court, Chongqing People’s Procurator, Judicial Bureau, Public Security Bureau, major highway junctions of Chongqing and a new rail transportation hub are located.

According to the news published in the Chongqing Times on 6 April 2006, the Chongqing government is planning to construct a “Chongqing Aviation Town” with a site area of approximately 175 sq. km, which will be centered at the Jiangbei Airport. Based on the same newspaper article, it was also stated that by 2007, over RMB10,000 million will be invested in infrastructure around the airport, mainly aimed at improving the transport to and from the area. According to the news published in the Chongqing Times on 20 June 2006, as one of the infrastructure construction projects, the Chongqing municipal government has commenced construction of the new metro line numbered 3, which connects the Chongqing Aviation Town, the new railway station in Yubei and the area where the Properties are located, to Yuzhong District. It is expected that first phase of the metro line numbered 3 will be completed by or around 2008.

Residential market

Based on the statistics published by the Statistical Bureau, the floor space of residential buildings completed in Yubei District has achieved a remarkable average annual growth rate of approximately 34.3% in the past five years. The residential market of Yubei District is rapidly developing and playing a more important role in Chongqing City. In recent years, Yubei District has attracted property investment from major property developers, namely, Hutchison Whampoa Limited, Poly (Hong Kong) Investment Limited and Shanghai Forte Land Co., Ltd. As referred to in the Chongqing Report, among the 72 new projects launched in the second quarter of 2006, with a supply of approximately 240,000 units, Yubei District accounted for approximately 38% of the new residential projects in the Chongqing city. With the first phase of the metro line numbered 3 to be completed by or around 2008, it is expected that the upward trend of Yubei District’s residential market will continue.

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Office market

Based on the Chongqing Report, while Yuzhong District has been the commercial and trading center since mid-1990s, with the rapid development of infrastructure facilities, in recent years there is a growing demand for mid and high end office properties in the northern districts of Chongqing City, especially in Jiangbei District. Even though Yubei District is not traditionally regarded as a commercial center, with the construction of the “Chongqing Aviation Town” and the mounting demand for quality office premises in the adjacent Jiangbei District, it is expected that the demand for office properties in Yubei District will see sustained increase in the near future.

Commercial market

As referred to in the Chongqing Report, as a rapidly developing district in Chongqing City, Yubei District has attracted the attention of both major local retail companies such as CBBest Market and international retail companies such as B&Q, UK’s largest home improvement retailer, and Walmart. The entering of these local and international enterprises will be of vital importance to the development of the commercial market of Yubei District.

Based on the above information, which in general supports the Chongqing City’s strong economic growth, increasing affluence of the residents, strong government support in infrastructure projects, continued influx of foreign investments, relatively late start of the property market compared to other first-tier cities like Shanghai, Beijing and Guangzhou, and central location in the western region of the PRC and thus benefiting from the country’s “Go West” policies, we consider that the fundamentals of the property market in Chongqing (including Yubei District) are promising.

2. Reasons for the Acquisition by Qualipak

As mentioned in the Letter from the Board, the PRC Company is located in Chongqing, a key city for the economic development in the central-western regions of China. Both the Directors and the directors of Qualipak (the “Qualipak Directors”) are of the view that the acquisition of the Subject Company provides Qualipak with an opportunity to take advantage of the PRC Company’s strategic location and her early entry in the property market to diversify its business into property development and investment. Also, the growth in the economy and the income level in the PRC is expected to result in an increase in demand in the real estate markets. Given the current property prices, the trend of the supply of and demand for real estates in Chongqing and the prosperous outlook of the Chongqing economy, the Directors and the Qualipak Directors expect that Qualipak’s property development business has optimistic prospects and will achieve a rapid growth rate in the coming years.

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Accordingly, both the Directors and the Qualipak Directors consider that the diversification into property development in Chongqing is in the interest of their respective shareholders. In addition, the Directors consider that the Acquisition is in line with Yugang’s strategy of being a diversified investment holding company and represents a further step for Yugang to expand its investment portfolio into property development in the PRC.

As referred to in the Letter from the Board, the Acquisition will enable Yugang to further enlarge its asset base due to the increase in net assets attributable to Yugang resulting from the substantial increase in the net assets of Qualipak. Based on the unaudited proforma consolidated balance sheet of Yugang as at 30 June 2006, the consolidated net asset value attributable to equity holders of Yugang will increase from HK$2,184 million to approximately HK$3,280 million. As a result of the Acquisition, Yugang will also record a gain on deemed disposal of its interest in Qualipak of approximately HK$1,096 million.

The Acquisition provides Qualipak with an opportunity to diversify into the real estate and property development business in the PRC with good prospects. Whilst Yugang’s interest in Qualipak will be diluted from approximately 64.54% to approximately 45.90% immediately after the issue of the Consideration Qualipak Shares but before completion of the Placing or issue of the Conversion Shares, the Directors expect that the contribution of Qualipak to the Yugang Group will be significantly increased. The Directors further believe that the Acquisition will bring to the Yugang Group an enlarged asset base, improved profitability prospects and is in line with Yugang’s property investment business. Accordingly, the Directors (including the independent non-executive Directors) consider that the Transaction is in the interests of the Yugang Shareholders and Yugang as a whole.

Having taken into account the above factors, we concur with the Directors’ view that the Acquisition provides an opportunity for Yugang to participate in the Chongqing property market which outlook the Directors believe to be promising. While we are not in the position to express an opinion on the long-term prospect of the Chongqing property market, we have no reason to doubt the Directors’ belief. We also concur with the Directors’ view that the Acquisition is in line with Yugang’s strategy of being a diversified investment holding company and represents a further step for Yugang to expand its investment portfolio.

3. The Acquisition

(A) The Consideration

The aggregate value of consideration for the sale and purchase of the Sale Share (taking into account the assumption by the Purchaser of the obligations to repay the Debts) is HK$3,317,553,298 being as to:

• (i) HK$448,000,000 to be satisfied by the issue of the Consideration Qualipak Shares at Completion;

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• (ii) HK$2,552,000,000 to be satisfied by the issue of the Convertible Note;

• (iii) a sum representing such amount of the Receivables up to the equivalent of HK$250,000,000, as may be recovered by the Qualipak Group, which shall only be due and payable by the Purchaser to the Vendor on a dollar-for-dollar basis (but net of all taxes, costs and expenses) within 30 days after the later of (A) the Completion Date; and (B) receipt by the PRC Company from time to time. The Purchaser will settle the sum by cash out of the proceeds recovered (if any) from the Receivables or from the internal resources of the Qualipak Group; and

• (iv) HK$67,553,298 to be satisfied by the assumption by the Purchaser of the obligations to repay the Debts.

As referred to in the Letter from the Board, as at 31 August 2006, the aggregate market value of the Properties and Buildings of the PRC Company is appraised at approximately RMB6,729,361,500 (or approximately HK$6,597,413,000) by Savills (the “Valuation”). The Consideration is calculated with reference to the unaudited combined net tangible assets of approximately HK$4,282,443,000 of the Subject Company adjusted for the Valuation (net of deferred tax effect) of the Properties and the Buildings amounting to approximately HK$4,039,005,000 as at 31 August 2006.

The Consideration represents a discount of approximately 22.5% to such adjusted combined net tangible assets of the Subject Company. Such discount has been determined after arm’s length negotiation between the parties to the Agreement.

Valuation of the Properties and Buildings

A valuation report dated 31 August 2006 (the “Valuation Report”) is prepared by Savills to assess the market value of the Properties and the Buildings and such valuation report is set out in Appendix VII to the Circular. We understand from Savills that in valuing the property interests, Savills has complied with all the requirements set out in Chapter 5 and Practice Note 12 of the Listing Rules and Valuation Standards on Properties (1st Edition) published by the Hong Kong Institute of Surveyors. In the opinion of Savills, the aggregate market value of the Properties and the Buildings is RMB6,729,361,500 (or approximately HK$6,597,413,000).

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As stated in the Valuation Report, the Properties are classified into two group: (i) interest held by the PRC Company for future development (“Group I Properties”) and (ii) interest held by the PRC Company in a development project (“Group II Property”). Savills has valued the Group I Properties by adopting the direct comparison approach assuming sale of each of the Properties in its existing state and by making reference to comparable sales transactions available in the relevant market and the latest development proposals in respect of the Properties provided by the Subject Company. In respect of the Group II Property, Savills has made reference to the sales evidence as available on the market and information provided by the Company including development proposal, the development programme, development contract and other relevant information. In valuing the Buildings, Savills has made reference to comparable sales transactions as available in the market and where appropriate on the basis of capitalisation of net income.

As the Consideration has been principally determined with reference to the adjusted combined net tangible assets of the Subject Company as adjusted by the Valuation, we have reviewed and discussed with Savills on the methodology and the underlying bases and parameters adopted in arriving at the Valuation.

Based on our discussion with Savills, we understand that the principal considerations, bases and parameters underlying the Valuation are based on the land price for land sites in Chongqing which are comparable to the Properties, market price of residential, office and commercial properties in Chongqing and the gross floor area of each type of property to be developed under the latest development plans provided by the Subject Company. For the market price of residential, office and commercial properties in Chongqing, Savills has made reference to recent sale transactions of comparable properties. For the gross floor area to be built, Savills considers the preliminary development plan provided by the Subject Company to be reasonable based on the prevailing urban planning. In arriving at the Valuation, Savills consider that they have obtained and received all the pertinent information which are material to the valuation and all the material bases and parameters are reasonable based on their expertise.

Having regard to the above discussion with Savills, we are of the view that the valuation methodologies adopted by Savills are generally consistent with market practices and we are not aware of any reasons to doubt the fairness and appropriateness of the considerations, bases and parameters adopted by Savills in arriving at the Valuation.

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LETTER FROM CIMB-GK

Having considered the above analyses and factors, we are of the view that the Consideration is fair and reasonable so far as Yugang and the Independent Shareholders are concerned.

(B) The Consideration Qualipak Shares

As stated in the Letter from the Board, pursuant to the Acquisition Agreement, 1,600,000,000 Qualipak Shares credited as fully paid-up will be issued by Qualipak at Completion at the issue price of HK$0.28 per Consideration Qualipak Share (the “Issue Price”), which is determined with reference to the net tangible assets per share of HK$0.15 as of 30 June 2006 and prevailing market price of the Qualipak Shares. The Consideration Qualipak Shares will rank pari passu in all respects with the Qualipak Shares in issue at Completion. The Issue Price equals the issue price of the Placing Shares and the Initial Conversion Price (as defined below), and also represents:

• (i) a discount of approximately 8.2% to HK$0.305, the closing price of Qualipak on 22 September 2006, being the last trading day prior to suspension of trading in Qualipak Shares pending the issue of the Announcement (the “Last Trading Day”);

• (ii) a discount of approximately 7.9% to the 5 day-average closing price up to and including the Last Trading Day;

• (iii) a discount of approximately 8.5% to the 10 day-average closing price up to and including the Last Trading Day;

• (iv) a discount of approximately 20.0% to the closing price on the Latest Practicable Date;

• (v) a premium of approximately 90.5% to the net asset value per share of Qualipak as disclosed in Qualipak’s audited financial statements for the year ended 31 December 2005; and

• (vi) a premium of approximately 85.4% over the unaudited consolidated net assets value of the Qualipak Group of approximately HK$0.151 per Qualipak Share as at 30 June 2006.

The Consideration Shares Comparables

In assessing the fairness and reasonableness of the Issue Price, we have identified, on a best effort basis, the transactions (the “Consideration Shares Comparables”) announced during the period from 1 January 2006 to the date prior to the date of the Announcement by companies listed

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in Hong Kong involving the issue of shares to the relevant vendors to satisfy all or part of the consideration for the relevant acquisition, details of which are as follows:

Table A – Consideration Shares Comparables

					Issue price
					premium/
					(discount) to the
		Announcement		Issue	corresponding
Company name	Code	date	Amount	price	last trading day
			(HK$’ m)	(HK$)	(%)
Kiu Hung International Holdings Limited	381	26 September 2006	42.90	0.330	(18.5)
Pearl Oriental Innovation Limited	632	26 September 2006	22.00	3.900	17.8
Oriental Investment Corporation	735	26 September 2006	78.00	0.240	(4.0)
INNOMAXX Biotechnology Group Limited	340	10 August 2006	432.59	0.400	(41.2)
Nippon Asia Investments Holdings Limited	603	8 August 2006	10.50	0.060	0.0
China Merchants DiChain (Asia) Limited	632	2 August 2006	30.00	4.000	(2.4)
Jolimark Holdings Limited	2028	31 July 2006	30.82	1.340	(1.5)
Xinyu Hengdeli Holdings Limited	3389	28 July 2006	180.00	3.200	(14.1)
China Merchants DiChain (Asia) Limited	632	20 July 2006	295.62	3.900	(6.6)
Yanion International Holdings Limited	82	13 July 2006	176.40	0.630	(30.0)
Everbest Century Holdings Limited	578	4 July 2006	28.80	0.320	16.4
Hantec Investment Holdings Limited	111	29 June 2006	15.64	0.680	1.5
Kanstar Environmental Paper Products
Holdings Limited	8011	13 June 2006	225.60	0.282	(19.0)
Inner Mongolia Development
(Holdings) Limited	279	9 June 2006	11.00	0.200	17.0
New Smart Holdings Limited	91	9 May 2006	38.13	0.250	(5.7)
Sino Proposer Holdings Limited	766	4 May 2006	319.97	1.420	4.4
Uni-Bio Science Group Limited	690	26 April 2006	198.00	0.900	(52.6)
Seapower Resources International Limited	269	20 April 2006	115.00	0.128	(7.9)
PYI Corporation Limited	498	11 April 2006	167.80	2.450	(14.8)
Softbank Investment International
(Strategic) Limited	648	7 April 2006	15.00	0.100	44.9
CITIC International Financial Holdings Limited	183	31 March 2006	5,544.00	3.410	(1.9)
GOME Electrical Appliances Holding Limited	493	29 March 2006	5,235.30	8.050	0.0
Artfield Group Limited	1229	24 March 2006	50.40	1.200	(7.7)
Vision Grande Group Holdings Limited	2300	24 March 2006	488.60	7.000	(19.1)
Ming Pao Enterprise Corporation Limited	685	20 March 2006	16.20	1.350	(2.2)
Zida Computer Technologies Limited	859	13 March 2006	0.62	0.930	14.8
Wanji Pharmaceutical Holdings Limited	835	7 March 2006	9.99	0.153	11.7
Credit Card DNA Security System
(Holdings) Limited	1051	1 March 2006	50.00	0.054	(11.5)
Riche Multi-Media Holdings Limited	764	23 February 2006	266.06	0.200	0.0
Sunny Global Holdings Limited	1094	20 February 2006	42.00	0.140	15.7
Technology Venture Holdings Limited	61	17 February 2006	18.00	0.102	0.0

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LETTER FROM CIMB-GK

					Issue price
					premium/
					(discount) to the
		Announcement		Issue	corresponding
Company name	Code	date	Amount	price	last trading day
			(HK$’ m)	(HK$)	(%)
Sonavox International Holdings Limited	8226	16 February 2006	1.98	0.389	(5.1)
Credit Card DNA Security System
(Holdings) Limited	1051	3 February 2006	34.02	0.060	3.5
Sino Gas Group Limited	260	1 February 2006	31.75	0.255	(37.0)
IA International Holdings Limited	8047	23 January 2006	9.00	0.120	(36.8)
Good Fellow Group Limited	910	20 January 2006	69.60	0.120	(21.6)
Willie International Holdings Limited	273	17 January 2006	66.25	0.265	0.0
Tianjin Development Holdings Limited	882	13 January 2006	74.90	3.745	(6.4)
Singal Media and Communications
Holdings Limited	2362	3 January 2006	9.44	0.300	3.4
				Max	44.9
				Min	(52.6)
				Average	(5.6)
The Company		28 September 2006	448.00	0.280	(8.2)

Source: www.hkex.com.hk, and the respective announcements/circulars containing details of the Consideration Shares Comparables.

As noted in Table A above, the Consideration Shares Comparables were issuing shares within a range of approximately 52.6% discount to and 44.9% premium over the corresponding last trading day, with an average discount of approximately 5.6%. We note that the discount of the Issue Price to the Last Trading Day is comparable with the average discount of the Consideration Shares Comparables.

(C) Terms of Convertible Note

As referred to in the Letter from the Board, the terms of the Convertible Note were negotiated between Qualipak and the Vendor on an arm’s length basis and the principal terms are summarized below:

Principal amount: HK$2,552,000,000 Maturity date:

The tenth anniversary of the date of issue of the Convertible Note.

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Conversion price:

The initial conversion price during the First Year is HK$0.28 per Conversion Share. If at any time and from time to time during the First Year there is any change in the aggregate percentage of issued share capital of Qualipak which is not in public hands (within the meaning of the Listing Rules) such that such percentage falls below 75% (the “Change”), Qualipak shall, upon becoming aware of the same, promptly inform the holder of the Convertible Note in writing of particulars of the Change (“Notice of Change”). On the expiry of the period of 14 days after the date of receipt of a Notice of Change the conversion price for the Unconverted Portion (as defined in the Letter from the Board) of the Convertible Note which could have been converted without breaching the public float requirement during the First Year will be increased to HK$0.31.

The conversion price after the first year is set out below:

	HK$ per
Period from date of issue	Conversion
of the Convertible Note	Share
Second Year	0.310
Third Year	0.326
Fourth Year	0.341
Fifth Year	0.357
Sixth Year	0.372
Seventh Year	0.388
Eighth Year	0.403
Nineth Year	0.419
Tenth Year	0.434

Interest rate: Interest-free for the first 2 years and at a rate of 2% per annum thereafter.

Conversion period:

At any time from the date of issue of the Convertible Note up to (and including) the maturity date of the Convertible Note at the relevant conversion price.

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The Convertible Note Comparables

In assessing the fairness and reasonableness of the terms of the Convertible Note, we have identified, on a best effort basis, transactions (the “Convertible Note Comparables”) announced during the period from 1 January 2006 to the date prior to the date of the Announcement by companies listed in Hong Kong involving the issue of convertible notes to the relevant vendors to satisfy all or part of the consideration for an acquisition, details of which are as follows:

Table B – The Convertible Note Comparables

					Conversion		Redemption
					premium/		amount	Effective
		Announcement	Principal		(discount) to		**at maturity **	annualized
Company	Code	date	amount	Coupon	share price	Duration	(% of the	interest
			(HK$’ m)	(%)	(%)	(years)	principal)
Teem Foundation	628	18 September 2006	134.40	5	(39.0)	10	100	5.00%
Group Limited
Wing Shan International	570	22 August 2006	282.40	3	6.3	3.5	100	3.00%
Limited
Yanion International	82	13 July 2006	66.32	0	(30.0)	3	100	0.00%
Holdings Limited
K.P.I. Company	605	4 July 2006	93.00	0	45.5	2	113	6.30%
Limited
Everbest Century	578	4 July 2006	20.00	1	27.3	3	100	1.00%
Holdings Limited
Daido Group Limited	544	7 June 2006	104.40	0	(3.3)	5	100	0.00%
CCT Telecom Holdings	138	28 April 2006	30.00	0	(2.6)	3	100	0.00%
Limited
China HealthCare	673	28 April 2006	18.40	2	(31.8)	4	100	2.00%
Holdings Limited
Yue Da Holdings	629	7 April 2006	75.00	3.5	(11.1)	3	100	3.50%
Limited
Honesty Treasure	600	28 February 2006	93.80	2.5	(15.9)	5	100	2.50%
International
Holdings Limited
Cheung Tai Hong	199	7 February 2006	60.00	0	12.8	4.5	100	0.00%
Holdings Limited

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					Conversion		Redemption
					premium/		amount	Effective
		Announcement	Principal		(discount) to		**at maturity **	annualized
Company	Code	date	amount	Coupon	share price	Duration	(% of the	interest
			(HK$’ m)	(%)	(%)	(years)	principal)
IA International	8047	23 January 2006	9.30	0	0.0	2	100	0.00%
Holdings Limited
Good Fellow	910	20 January 2006	210.40	1.5	(21.6)	4	100	1.50%
Group Limited
			Max:	5.00	45.5			6.30%
			Min:	0.00	(39.0)			0.00%
			Average:	1.42	(4.9)			1.91%
The Convertible Note		28 September 2006		2.00	1.64	10	100	1.92%
					(based on the
					Second
					Conversion
					Price)

Source: www.hkex.com.hk and the respective announcements/circulars containing details of the Convertible Notes Comparables.

The Conversion Price

Pursuant to the Acquisition Agreement, the initial conversion price during the first year of the date of issue of the Convertible Note of HK$0.28 per Conversion Share (the “Initial Conversion Price”) is the same as the Issue Price and the issue price of the Placing Shares. After the first anniversary of the date of issue of the Convertible Note or, in case the Change does occur, for the Unconverted Portion during the first year of the date of issue of the Convertible Note, the conversion price of the Convertible Note will be adjusted upward to HK$0.31 per Conversion Share (the “Second Conversion Price”). As mentioned above, the conversion price of the Convertible Note is subject to annual adjustment and will eventually reach HK$0.434 per Conversion Share in the final year of the conversion period.

As advised by the Directors, based on their best knowledge, it is the original intention of the Qualipak Directors to satisfy the Consideration solely by the issue of new Qualipak Shares, without the issue of the Convertible Notes (the “Share Only Structure”). However, given the size of the Consideration, the Share Only Structure will result in a substantial issue of new Qualipak Shares to such extent that there will be insufficient public float. We understand that to comply with the public float requirements, parties to the Acquisition Agreement have

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agreed to the issue of Convertible Note to satisfy part of the Consideration. Based on the terms of the Convertible Note, the Initial Conversion Price only applies when the Change occurs and any Unconverted Portion will be converted at the Second Conversion Price. Accordingly, we are of the view that the Convertible Note as converted under the Initial Conversion Price can be treated as an issue of Qualipak Shares at the Issue Price, as the conversion itself is driven by the Change event instead of the Convertible Note holder and should the Placing be completed in full, the Convertible Note will be either converted at the Initial Conversion Price or has the conversion price adjusted upward to the Second Conversion Price.

In light of the above, we have compared the Second Conversion Price with that of the Convertible Note Comparables. As noted in Table B above, the conversion prices of the Convertible Note Comparables represent an average discount of approximately 4.9% to the closing price on the corresponding last trading day. The Second Conversion Price of HK$0.31 represents a premium of approximately 1.6% to the closing price of Qualipak of HK$0.305 on the Last Trading Day, which is more favorable than that of the Convertible Note Comparables.

The Effective Annualized Interest Rate

As referred to in Table B above, after taking into account the coupon rate and the redemption amount as a percentage of the principle of the Convertible Note Comparables, the effective annualized interest rate of the Convertible Note Comparables ranged from 0% to 6.3%, with an average of approximately 1.9%. Taking into account the two years interest free period, the effective annualized interest rate of the Convertible Note is approximately 1.9% and is in line with the rate of the Convertible Note Comparables.

Having considered the above analyses, we are of the view that the terms of the Convertible Notes are fair and reasonable so far as Yugang and the Independent Shareholders are concerned.

• (D) Effect of the Acquisition on Qualipak

Earnings

As referred to in the Letter from the Board, based on the unaudited pro forma financial statement on the Qualipak Group as enlarged by the acquisition of the Subject Company (the “Enlarged Qualipak Group”), the pro forma profit attributable to the equity holders of the Enlarged Qualipak Group would be approximately HK$912.2 million, which is mainly attributable to an unaudited pro forma adjustment for an excess over cost of a business combination, and represent a 2,333% increase over the unaudited profit of Qualipak of approximately HK$37.5 million for the period ended 30 June 2006.

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As stated in the Letter from the Board, assuming there is no conversion and repayment of the Convertible Note prior to the maturity date and having an effective interest rate of the Convertible Note of 9% per annum, as determined by reference to the assessment made by Grant Sherman Appraisal Limited, the total interest expenses on the Convertible Note will be approximately HK$1,645 million, and such interest expenses will be recorded by the Enlarged Qualipak Group during the period from the date of the issue of the Convertible Note to the tenth anniversary of the date of the issue of the Convertible Note.

Such annual interest expenses are derived with reference to the effective interest rate of the Convertible Note of 9% per annum and the liabilities portion of the Convertible Note of the then year. The liabilities portion of the Convertible Note is subject to annual adjustment by the net difference between the interest expenses recorded for the year and the actual interest expenses payable to the holder of the Convertible Note for the corresponding year. As referred to in the Letter from the Board, pursuant to the terms of the Convertible Note, of the total interest expenses of HK$1,645 million, only approximately HK$409 million will be the actual interest payable to the holder of the Convertible Note and the remaining interest expenses of approximately HK$1,236 million are only required to be recorded in the consolidated income statement of the Enlarged Qualipak Group in accordance with Hong Kong Accounting Standard 32. The amount of total interest expenses will be reduced if the Convertible Note is partly or fully converted and/or repaid before maturity.

Net asset value

With reference to the Letter from the Board, based on the unaudited pro forma financial statement on the Enlarged Qualipak Group, upon Completion, the net asset value of the Enlarged Qualipak Group attributable to its equity holders will be increased from an unaudited net asset value of approximately HK$593.6 million as at 30 June 2006 (equivalent to approximately HK$0.15 per Qualipak Share based on the then Qualipak Shares in issue of 3,939,536,870 Qualipak Shares) to approximately HK$3,222.7 million (equivalent to approximately HK$0.58 per Qualipak Share based on 5,539,536,870 Qualipak Shares in issue), which represents an increase of approximately 286.7% to the unaudited net asset value per Qualipak Share as at 30 June 2006.

Gearing

Based on the figures as extracted from the interim report of Qualipak for the six-month period ended 30 June 2006, the gearing ratio of Qualipak, which is calculated by dividing the total loans of approximately HK$43.9 million by Qualipak’s equity attributable to its

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equity holders of approximately HK$593.6 million, is approximately 7.4%. As referred to in the Letter from the Board, based on the unaudited consolidated balance sheet of the Enlarged Qualipak Group as at 30 June 2006, upon Completion, the total loans of the Enlarged Qualipak Group (including the liability portion of the Convertible Note of approximately HK$1,315.8 million) would amount to approximately HK$2,207.8 million, and the Qualipak’s equity attributable to its equity holders would be approximately HK$3,222.7 million. Under such basis, the gearing ratio of the Enlarged Qualipak Group would increase to approximately 68.5%. Upon full conversion of the Convertible Note, the gearing ratio of the Enlarged Qualipak Group will decrease to approximately 19.7%.

Working capital

Pursuant to the terms of the Acquisition, the Consideration will be satisfied by the issue of the Consideration Qualipak Shares and the Convertible Note, and there will be no immediate cash outflow upon Completion. As referred to in the Letter from the Board, based on the unaudited consolidated balance sheet of Qualipak as at 30 June 2006, the pro forma cash and bank balance of the Enlarged Qualipak Group, including short term bank deposits, pledged deposits, and deposits with brokerage companies, amounts to approximately HK$335.2 million, and investment held for trading amounts to approximately HK$91.0 million.

As set out in the “Letter from the Board”, the Enlarged Qualipak Group will have pro forma net current liabilities of approximately HK$280 million, of which interest-bearing bank loans of approximately HK$675 million will become due for repayment within one year from 30 June 2006. If the Placing is completed in full and taking into consideration the estimated net Placing proceeds of approximately HK$930 million, the Enlarged Qualipak Group’s working capital position will be substantially improved to a positive net current assets position of approximately HK$650 million. In the event that the Placing falls through and the Enlarged Qualipak Group fails to obtain financing from equity or debt markets or other sources, the Directors are of the view that, given (i) the significant market value of the Properties and the Buildings in excess of HK$6,500 million as appraised by Savills as at 31 August 2006, and (ii) the PRC Company’s successful experience in renewing similar bank loans in the previous years, they do not foresee any difficulties in renewing the existing bank loans and/or securing new bank loans to repay those bank loans that fall due in the coming year. Nevertheless, Shareholders should note that in the event that the Enlarged Qualipak Group is unable to obtain financing by any of the means described above and does not have sufficient internal financial resources for repayment of bank loans which falls due it may have to liquidate some of its assets for repayment of such bank loans.

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4. Effect of the Acquisition on Yugang

As mentioned above, upon Completion, Qualipak will cease to be a subsidiary of Yugang, and Yugang’s interest in Qualipak will be diluted from approximately 64.54% to approximately 45.90% after the issue of the Consideration Qualipak Shares, which will be further diluted to approximately 28.44% assuming the Placing is completed in full but before conversion of the Convertible Note or 14.08% assuming the Placing is completed in full and full conversion of the Convertible Note.

While Yugang’s stake in Qualipak will decrease upon Completion, as referred to in the Letter from the Board, based on the unaudited proforma consolidated balance sheet of Yugang as at 30 June 2006, the consolidated net asset value attributable to equity holders of Yugang will increase by approximately 50.2% from approximately HK$2,184 million to approximately HK$3,280 million. In addition, as a result of the Acquisition, Yugang will record a gain on deemed disposal of its interest in Qualipak of approximately HK$1,096 million.

As referred to in Appendix V to the Circular, based on unaudited pro forma financial information on the remaining Group, upon Completion, the gearing ratio (calculated by dividing the total debts by Yugang’s equity attributable to its equity holders) of Yugang will be improved from approximately 4.2%, as at 30 June 2006, to approximately 1.5%. With reference to the sub-section headed “Gearing” above, upon Completion, the gearing ratio of the Enlarged Qualipak Group will increase from approximately 7.4% to approximately 68.5%, which will decrease to approximately 19.7% upon full conversion of the Convertible Note. However, given that Qualipak will cease to be a subsidiary of Yugang upon Completion, the increase in the gearing ratio in Qualipak will have no material effect on the gearing ratio of Yugang.

Notwithstanding that the Acquisition will dilute Yugang’s share of profit from Qualipak’s existing business, the Directors consider that the Acquisition provides Qualipak with an opportunity to diversify into the real estate and property development business in Chongqing. Given the strategic location of Chongqing, the current property market performance, the trend of the supply of and demand for real estates in Chongqing the increasing affluence of Chongqing residents and the rapid development of Chongqing’s urban areas in the coming years, the Directors believe that the Subject Company’s property development business has optimistic prospects.

As discussed in the paragraph headed “The Yugang Group” in this letter, Yugang is an investment holding company with a diversified source of profit and the majority of the Yugang Group’s assets are treasury investment and property and infrastructure related. Given Yugang’s investment strategy, the Acquisition represents a further step of Yugang to expand its investment portfolio to a substantial property development business in Chongqing. Given the size of the Consideration, the Directors are of the view that the satisfaction of the Consideration by the issue of the Consideration Qualipak Shares and the Convertible Note to be in the interest of

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Qualipak as such payment method requires no immediate cash outflow and, in respect of the issue of the Consideration Qualipak Shares, increases Qualipak’s shareholders’ equity. Accordingly, the Directors are of the view that the dilution of Yugang’s interest in Qualipak as a result of the Acquisition is acceptable.

Although Yugang’s interest in Qualipak will be diluted as a result of the Transaction, Yugang’s participation in the management of Qualipak at the board level is being assured as long as Yugang remains a substantial shareholder of Qualipak and the Vendor and the Guarantor (together with their respective associates) hold in aggregate 30% or more of Qualipak. This assurance is achieved by way of an undertaking to be given by the Vendor and the Guarantor upon Completion, pursuant to which as long as the Vendor and the Guarantor (together with their respective associates) hold in aggregate 30% or more of Qualipak and Yugang holds 10% or more of Qualipak, at Yugang’s request, the Vendor and the Guarantor will (i) propose person(s) nominated by Yugang to be elected to the board of Qualipak so that such nominees may constitute at least one-quarter of the directors of Qualipak, and (ii) vote in favour of electing the aforesaid nominees. With the benefit of the aforesaid undertaking, Yugang is able to maintain a significant influence in the management of Qualipak although Yugang’s interest in Qualipak may be diluted to approximately 14.08% assuming the Placing is completed in full and full conversion of the Convertible Note. Such management influence in Qualipak to be retained by Yugang enables Yugang to closely monitor the performance and business activity of Qualipak.

Having considered the above analyses and factors, we concur with the Directors’ view that the Acquisition is in the interest of Yugang.

III. OTHER MATTERS

We would like to draw the attention of the Independent Shareholders to the following risk factors associated with the Acquisition.

Financing the development of the Properties

Based on the information available to the Directors in relation to the development of the Properties, it is estimated that the Qualipak Group will require a substantial capital expenditure for the full development of the Properties in the next six years. Based on the best knowledge of the Directors, the main sources of Qualipak Group’s financing are the pre-sale and sale proceeds, the proceeds from the Placing, bank borrowings and internal resources. Given that the Placing is on a best effort basis, there is no assurance that the Qualipak Group can obtain the intended proceeds from the Placing. In addition, there can be no assurance that the Qualipak Group will have sufficient cash flow to finance the development of the Properties and that the Qualipak Group will be able to arrange adequate financing for the development of the Properties as some of the factors are out of its control.

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LETTER FROM CIMB-GK

The policy initiatives of the PRC Government in recent years which restrict PRC commercial banks from financing certain types of property development projects may have adverse impact on the Qualipak Group’s ability and flexibility to obtain bank loans for financing its development of the Properties.

In the event that the Qualipak Group is unable to secure the funding for the development of the Properties according to its plan, there may be delay in the development of the Properties and/or changes to the development plan. Any delay or changes in the plan for the development of the Properties will likely have an adverse impact on the profitability of the Qualipak Group.

Legal and regulatory changes in the PRC property market

In response to concerns over increasing levels of property investment in recent years, the PRC Government has recently introduced measures to restrict future property development. While we understand from Yugang’s legal adviser as to PRC Laws that pursuant to circular No. 167 (2006) of the Chongqing municipal government, it is stated that such restrictive measures do not apply to properties granted on or before 1 June 2006, that is the Properties are exempted from such restrictive measures, there is no assurance that the Properties will remain exempted from other new restrictive measures to be imposed by the PRC Government in the future.

Besides, the PRC Government has also imposed other restrictive measures which aim at discouraging speculative and investment oriented housing demand and the development of luxurious properties in the PRC. Furthermore, the PRC Government and commercial banks may also increase the down payment percentage or otherwise change the regulatory framework that may affect the ability or interest of the potential property purchasers to obtain mortgage financing. Such measures may have adverse impact on the residential properties demand.

The PRC Government’s restrictive measures to restrict the growth of the property sectors may limit the Qualipak Group’s access to capital resources, diminish the overall market demand, increase its administrative and operating costs in adapting to these measures, and constrain the types of properties to be developed in the future. The PRC Government and the local government may adopt additional and more stringent measures in the future, which could further restrain the development of the PRC property market in general, and may therefore adversely affect the prospects of the Qualipak Group’s property development business in the PRC.

– 55 –

LETTER FROM CIMB-GK

IV. RECOMMENDATION

Having considered the principal factors and reasons referred to the above, in particular:

1. given the strategic location of Chongqing, the current property market performance, the trend of the supply of and demand for real estates in Chongqing according to publicly available information, the increasing affluence of Chongqing’s residents and the rapid development in Chongqing’s urban areas in the coming years, the Directors expect that the Subject Company’s property development business in Chongqing has optimistic prospects and will achieve a rapid growth rate in the coming years;

2. the Consideration represents a discount of approximately 22.5% to the adjusted combined net tangible assets of the Subject Company as adjusted by the Valuation;

3. the issue price of the Consideration Qualipak Shares and the terms of the Convertible Note, principally the conversion price and the effective annualized interest rate, are comparable with the relevant market comparables;

4. the significant increase in the consolidated net asset value of Qualipak attributable to equity holders of Yugang from approximately HK$2,184 million to approximately HK$3,280 million upon Completion;

5. the substantial gain on deemed disposal of Yugang’s interest in Qualipak of approximately HK$1,096 million to be recognized by Yugang;

6. the Acquisition is in line with Yugang’s strategy of being a diversified investment holding company and represents a further step for Yugang to expand its investment portfolio;

7. the issue of the Consideration Qualipak Shares and the Convertible Note to be in the interest of Qualipak as such payment method requires no immediate cash outflow and, in respect of the issue of the Consideration Qualipak Shares, increases Qualipak’s shareholders’ equity; and

8. Yugang’s ability to participate in the management of Qualipak after Completion,

we consider that the terms of the Acquisition are fair and reasonable, and the Acquisition, together with the resultant deemed disposal of Yugang’s interest in Qualipak, is in the interest of Yugang so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Acquisition.

– 56 –

LETTER FROM CIMB-GK

However, Independent Shareholders should bear in mind the risk associated with the Acquisition, namely (i) the adequacy of financing facilities available to the Qualipak Group for the development of the Properties and (ii) the possible adverse effect arising from the legal and regulatory changes in the PRC property market as detailed under the section headed “Other Matters” of this letter.

Yours faithfully, For and on behalf of CIMB-GK Securities (HK) Limited Alex Lau Heidi Cheng Executive Vice President Senior Vice President

– 57 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the auditors and reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong.

18th Floor

Two International Finance Centre 8 Finance Street Central Hong Kong

20 October 2006

The Directors

Yugang International Limited

Dear Sirs,

We set out below our report on the financial information regarding Yugang International Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), for each of the years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006 (the “Relevant Periods”) for inclusion in the circular of the Company dated 20 October 2006 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of Starthigh International Limited by Qualipak International Holdings Limited (“Qualipak”), a subsidiary of the Company, and the Company’s related deemed disposal of interest in Qualipak.

The Company was incorporated in Bermuda on 8 June 1993 as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended).

As at the date of this report, the Company had direct and indirect interests in the subsidiaries and associates as set out in notes 19 and 21, respectively, of Section II below, all of which are private companies except as otherwise specified in the respective notes. All companies now comprising the Group have adopted 31 December as their financial year end date.

We acted as the auditors of the Company for the years ended 31 December 2003, 2004 and 2005, and for the six months ended 30 June 2006. We also acted as the auditors of companies comprising the Group for the years ended 31 December 2003, 2004 and 2005, and for the six months ended 30 June 2006, except for those companies specified in notes 19, 20 and 21 of Section II below. The consolidated financial statements of the Group for each of the Relevant Periods have been prepared in accordance with accounting principles generally accepted in Hong Kong.

– 58 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

For the purpose of this report, we have examined the audited financial statements or, where appropriate, the unaudited management accounts of the companies comprising the Group for the Relevant Periods, and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

For the purpose of this report, we have performed a review of and carried out procedures as are necessary on the comparative financial information which includes the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement of the Group for the six months ended 30 June 2005, together with the notes thereon, (the “30 June 2005 Financial Information”), for which the directors of the Company are responsible, in accordance with Statement of Auditing Standards 700 “Engagements to Review Interim Financial Reports” issued by the HKICPA. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope and provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 30 June 2005 Financial Information.

The financial information as set out in Sections I and II below (the “Financial Information”) has been prepared based on the audited consolidated financial statements of the Group or, where appropriate, unaudited consolidated management accounts of the Group after making such adjustments as are appropriate. The directors of the Company are responsible for the preparation of the Financial Information and the 30 June 2005 Financial Information. In preparing the Financial Information and the 30 June 2005 Financial Information that give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion and a review conclusion, based on our examination, on the Financial Information and the 30 June 2005 Financial Information, respectively, and to report our opinion and review conclusion thereon.

Opinion in respect of the Relevant Periods

In our opinion, the Financial Information together with the notes thereto give, for the purpose of this report, a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003, 2004 and 2005 and 30 June 2006, and of the consolidated results and cash flows of the Group for each of the Relevant Periods.

Review conclusion in respect of the 30 June 2005 Financial Information

On the basis of our review, which does not constitute an audit, we are not aware of any material modification that should be made to the 30 June 2005 Financial Information.

– 59 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

I. FINANCIAL INFORMATION

Consolidated income statements

Notes REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution costs Administrative expenses Other expenses 6 Finance costs 8 Share of profits and losses of: A jointly-controlled entity Associates PROFIT/(LOSS) BEFORE TAX 7 Tax 11 PROFIT/(LOSS) FOR THE YEAR /PERIOD Attributable to: Equity holders of the Company 12 Minority interests DIVIDEND 13 EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY 14 Basic – HK cents Diluted – HK cents

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) 217,499 392,766 436,334 123,889 428,466 (154,741) (200,715) (374,129) (102,334) (346,270) 62,758 192,051 62,205 21,555 82,196 134,893 168,172 41,434 108,791 96,858 (7,039) (8,650) (10,913) (4,002) (8,585) (71,574) (92,663) (95,986) (38,423) (57,197) (10,675) (44,643) (86,554) (51,801) (11,682) (7,250) (5,115) (4,449) (2,309) (6,961) 643 (725) (910) (900) (359) 18,288 43,132 90,145 88,859 53,777 120,044 251,559 (5,028) 121,770 148,047 (4,056) (11,215) (5,115) (773) (9,842) 115,988 240,344 (10,143) 120,997 138,205 105,797 223,953 (26,579) 114,966 125,435 10,191 16,391 16,436 6,031 12,770 115,988 240,344 (10,143) 120,997 138,205 16,907 25,360 26,173 – – 1.25 2.65 (0.31) 1.36 1.44 1.20 2.45 N/A 1.25 1.36

– 60 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Consolidated balance sheets

Notes NON-CURRENT ASSETS Property, plant and equipment 15 Investment properties 16 Prepaid land lease payments 17 Goodwill 18 Negative goodwill 18 Investment in a jointly-controlled entity 20 Interests in associates 21 Convertible debentures and notes 22 Loans receivable 23 Available-for-sale equity investment/long term investment 24 Other assets Total non-current assets CURRENT ASSETS Convertible debentures and notes 22 Investments at fair value through profit or loss/other investments 25 Loans receivable 23 Inventories 26 Tax recoverable Trade debtors 27 Other debtors, deposits and prepayments Bills receivable Prepaid land lease payments 17 Pledged time deposits Time deposits Cash and bank balances Total current assets	2003 HK$’000 (Restated) 99,808 6,600 118,633 – (60,233) 5,304 618,936 52,000 4,000 – 8,265 853,313 10,500 371,852 364,962 42,245 126 27,737 52,560 9,168 2,262 8,060 402,176 112,743 1,404,391	31 December 2004 HK$’000 99,036 6,700 123,527 – (43,950) 4,578 659,930 16,000 28,000 70,000 20,267 984,088 – 523,178 266,766 43,866 11 24,007 18,219 4,494 2,422 8,143 528,448 29,166 1,448,720	2005 HK$’000 134,054 55,169 143,564 35,297 – 3,669 839,451 52,811 2,000 20,000 19,101 1,305,116 – 396,696 173,237 86,014 294 87,813 18,236 6,901 2,906 10,345 436,078 73,861 1,292,381	30 June 2006 HK$’000 131,333 11,100 142,040 35,297 – – 881,921 95,427 1,000 – 13,141
				1,311,259
				– 523,868 209,991 83,888 294 131,468 21,553 10,089 2,921 11,540 307,189 56,958
				1,359,759

– 61 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Notes CURRENT LIABILITIES Bills payable and trust receipt loans, secured Trade creditors 28 Tax payable Other payables Accrued expenses Customers’ deposits received Interest-bearing bank borrowings 29 Loans from minority shareholders 30 Convertible note 31 Consideration payable on acquisition of associates 21 Consideration payable on acquisition of subsidiaries 35 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Convertible note 31 Deferred tax liabilities 32 Consideration payable on acquisition of associates 21 Consideration payable on acquisition of subsidiaries 35 Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company Issued capital 33 Equity component of a convertible note 31 Reserves 34 Proposed final dividend 13 Minority interests Total equity	2003 HK$’000 (Restated) 2,794 17,720 69,167 6,348 17,422 7,711 80,000 – 100,000 – – 301,162 1,103,229 1,956,542 – 783 – – 783 1,955,759 84,533 5,652 1,690,098 16,907 1,797,190 158,569 1,955,759	31 December 2004 HK$’000 218 24,086 71,471 2,541 22,869 8,753 – – – – – 129,938 1,318,782 2,302,870 63,345 2,845 – – 66,190 2,236,680 84,533 7,620 1,895,773 25,360 2,013,286 223,394 2,236,680	2005 HK$’000 663 100,404 72,799 3,439 33,980 11,269 15,448 8,000 – – – 246,002 1,046,379 2,351,495 46,680 3,491 3,000 5,000 58,171 2,293,324 87,243 5,407 1,965,195 26,173 2,084,018 209,306 2,293,324	30 June 2006 HK$’000 245 110,669 23,356 3,249 22,230 10,942 35,899 8,000 – 3,000 5,000
				222,590
				1,137,169
				2,448,428
				47,590 3,549 – –
				51,139
				2,397,289
				87,243 5,407 2,090,946 –
				2,183,596 213,693
				2,397,289

– 62 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Balance sheets

Notes NON-CURRENT ASSETS Interests in subsidiaries 19 CURRENT ASSETS Prepayments Cash and bank balances Total current assets CURRENT LIABILITIES Tax payable Accrued expenses Convertible note 31 Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITY Convertible note 31 Net assets EQUITY Issued capital 33 Equity component of a convertible note 31 Reserves 34 Proposed final dividend 13 Total equity	2003 HK$’000 (Restated) 1,885,422 1,344 1,939 3,283 567 2,739 100,000 103,306 (100,023) 1,785,399 – 1,785,399 84,533 5,652 1,678,307 16,907 1,785,399	31 December 2004 HK$’000 1,866,943 1,408 331 1,739 567 3,016 – 3,583 (1,844) 1,865,099 63,345 1,801,754 84,533 7,620 1,684,241 25,360 1,801,754	2005 HK$’000 1,867,990 858 1,473 2,331 567 1,314 – 1,881 450 1,868,440 46,680 1,821,760 87,243 5,407 1,702,937 26,173 1,821,760	30 June 2006 HK$’000 1,837,822 954 1,481 2,435 567 2,198 – 2,765 (330) 1,837,492 47,590 1,789,902 87,243 5,407 1,697,252 – 1,789,902

– 63 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

					Total	equity	HK$’000		1,866,187	(742 )	1,865,445	(25,674 )	115,988	–		1,955,759		1,430			1,430	240,344		241,774	53,989	–	7,620	–	(22,462 )	2,236,680
					Minority	interests	HK$’000		148,378	–	148,378	–	10,191	–		158,569		–			–	16,391		16,391	53,989	–	–	–	(5,555 )	223,394
						Total	HK$’000		1,717,809	(742)	1,717,067	(25,674)	105,797	–		1,797,190		1,430			1,430	223,953		225,383	–	–	7,620	–	(16,907)	2,013,286
				Proposed	final	dividend	HK$’000		–	–	–	–	–	16,907		16,907		–			–	–		–	–	–	–	25,360	(16,907 )	25,360
					Retained	profits	HK$’000		6,593	(6,394)	199	–	105,797	(16,907)		89,089*		–			–	223,953		223,953	–	5,652	–	(25,360)	–	293,334*
Attributable to equity holders of the Company			Investment Equity	Warrant Exchange property component of	subscription fluctuation revaluation a convertible	reserve reserve reserve note	HK$’000 HK$’000 HK$’000 HK$’000		25,674 (419) – –	– – – 5,652	25,674 (419) – 5,652	(25,674) – – –	– – – –	– – – –		– (419) – 5,652		– – 1,430 –			– – 1,430 –	– – – –		– – 1,430 –	– – – –	– – – (5,652)	– – – 7,620	– – – –	– – – –	– (419) 1,430 7,620
					Contributed	surplus	HK$’000		760,799	–	760,799	–	–	–		760,799*		–			–	–		–	–	–	–	–	–	760,799*
				Share	premium	account	HK$’000		840,629	–	840,629	–	–	–		840,629*		–			–	–		–	–	–	–	–	–	840,629*
				Issued	share	capital	HK$’000		84,533	–	84,533	–	–	–		84,533		–			–	–		–	–	–	–	–	–	84,533
							Notes	At 1 January 2003	As previously reported	Prior year adjustments 2.2(b)	As restated	Expiry of warrants	Profit for the year	Proposed final dividend 13	At 31 December 2003 and	1 January 2004	Share of investment property	revaluation reserve of associates	Total income and expense for	the year recognised directly	in equity	Profit for the year	Total income and expense	for the year	Partial disposal of subsidiaries	Repayment of convertible note	Equity component of a convertible note 31	Proposed final dividend 13	Dividends paid	At 31 December 2004

– 64 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Investment Equity	Issued Share Exchange property component of Proposed	share premium Contributed fluctuation revaluation a convertible Other Retained final Minority Total	capital account surplus reserve reserve note reserves profits dividend Total interests equity	Notes HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000	At 1 January 2005 84,533 840,629 760,799 (419) 1,430 7,620 – 293,334 25,360 2,013,286 223,394 2,236,680	Opening adjustments 2.2(b) – – – – (1,430) – (1,699) 103,626 – 100,497 (161 ) 100,336	Share of changes in other reserves	of associates – – – – – – 3,253 – – 3,253 – 3,253	Exchange realignment – – – 117 – – – – – 117 187 304	Total income and expense for the year	recognised directly in equity – – – 117 – – 3,253 – – 3,370 187 3,557	Loss for the year – – – – – – – (26,579) – (26,579) 16,436 (10,143 )	Total income and expense for the year – – – 117 – – 3,253 (26,579) – (23,209) 16,623 (6,586 )	Deemed disposal of partial interests	in associates – – – – – – 5 – – 5 – 5	Acquisition of subsidiaries 35 – – – – – – – – – – 1,711 1,711	Acquisition of minority interests – – – – – – – – – – (26,673 ) (26,673 )	Issue of shares upon conversion of	a convertible note 31, 33 2,710 18,302 – – – (2,213) – – – 18,799 – 18,799	Proposed final dividend 13 – – – – – – – (26,173) 26,173 – – –	Dividends paid – – – – – – – – (25,360 ) (25,360) (5,588 ) (30,948 )	At 31 December 2005 and	1 January 2006 87,243 858,931 760,799 (302) – 5,407 1,559 344,208 26,173 2,084,018 209,306 2,293,324	Share of changes in other reserves of	associates – – – – – – 316 – – 316 – 316	Total income and expense for the period	recognised directly in equity – – – – – – 316 – – 316 – 316	Profit for the period – – – – – – – 125,435 – 125,435 12,770 138,205	Total income and expense for the period – – – – – – 316 125,435 – 125,751 12,770 138,521	Dividends paid – – – – – – – – (26,173 ) (26,173) (8,383 ) (34,556 )	At 30 June 2006 87,243 858,931 760,799 (302) – 5,407 1,875 469,643 – 2,183,596 213,693 2,397,289			* These reserve accounts comprise the consolidated reserves of HK$1,690,098,000, HK$1,895,773,000, HK$1,965,195,000 and HK$2,090,946,000 in the consolidated	balance sheet as at 31 December 2003, 2004, 2005 and 30 June 2006, respectively.

– 65 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Consolidated cash flow statements

					Six months ended	Six months ended
		Year	ended 31 December		30 June
		2003	2004	2005	2005	2006
	Notes	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Restated)			_(_Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit/(loss) before tax		120,044	251,559	(5,028)	121,770	148,047
Adjustments for:
Share of profits and losses of:
A jointly-controlled entity		(643)	725	910	900	359
Associates		(18,288)	(43,132)	(90,145)	(88,859)	(53,777)
Interest income from convertible
notes and loans receivable	5	(25,035)	(23,789)	(17,986)	(9,976)	(7,862)
Interest income on bank deposits	5	(4,416)	(4,459)	(13,902)	(5,491)	(8,048)
Dividend income from listed
investments	5	(1,153)	(3,422)	(5,800)	(2,538)	(8,716)
Negative goodwill recognised
as income	5	(8,281)	(8,110)	–	–	–
Warrant subscription reserve
recognised as income upon
expiry of warrants	5	(25,674)	–	–	–	–
Allowance/(write-back of
allowance) for doubtful
debts, net	5, 6	4,343	14,643	(4,052)	(4,352)	2,341
Fair value losses/(gains) on
investment properties	5, 6	6,332	(100)	(3,800)	–	(1,930)
Unrealised holding gains on
other investments/fair value
losses/(gains) on investments
at fair value through
profit or loss	5, 6	(91,116)	(128,179)	27,329	(81,527)	(29,111)
Loss/(gain) on disposal of
listed equity investments at
fair value through profit
or loss/other investments	5	17,049	(111,112)	35,767	18,338	(17,996)
Gain on derecognition of
investments at fair value
through profit or loss	5	–	–	–	–	(17,229)
Gain on partial disposal
of a subsidiary	5	–	(22,480)	–	–	–
Gain on disposal of subsidiaries	5	–	–	–	–	(36,144)
Gain arising from redemption
of a convertible note	5	–	–	–	–	(1,333)

– 66 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Notes Gain on redemption of investments at fair value through profit or loss Losses/(gains) arising from changes in fair values of convertible notes 5, 6 Loss on deemed disposal of interests in associates 6 Excess over the cost of acquisitions of an additional interest in a subsidiary 5 Impairment loss on an available-for-sale equity investment/long term investment 6 Provision against obsolete inventories 7 Depreciation 7 Write-back of impairment loss on a convertible note 5 Amortisation on prepaid land lease payments 7 Loss/(gain) on disposal of items of property, plant and equipment 7 Impairment losses on items of property, plant and equipment 6 Impairment losses on prepaid land lease payments 6 Finance costs 8 Operating loss before working capital changes

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) – – – – (32) – – (2,415) (2,614) 9,341 – – 1,801 1,801 – – – (9,525) (9,525) – – 30,000 50,000 50,000 – – 3,339 – – – 9,445 9,236 10,002 5,679 6,370 (2,340) (1,553) (3,907) (3,907) – 2,263 2,375 2,795 287 1,509 (99) (150) 116 (12) (82) – – 751 – – – – 6,319 – – 7,250 5,115 4,449 2,309 6,961 (10,319) (29,494) (16,321) (7,717) (7,332)

– 67 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Operating loss before working capital changes Decrease/(increase) in investments at fair value through profit or loss/other investments Decrease/(increase) in loans receivable Decrease/(increase) in inventories Increase in trade debtors Decrease/(increase) in other debtors, deposits and prepayments Decrease/(increase) in bills receivable Increase/(decrease) in bills payable and trust receipt loans, secured Increase in trade creditors Increase/(decrease) in other payables Increase/(decrease) in accrued expenses Increase/(decrease) in customers’ deposits received Dividend received from listed investments Interest income from convertible notes and loans receivable Cash generated from/(used in) operations Hong Kong profits tax paid Net cash inflow/(outflow) from operating activities

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) (10,319) (29,494) (16,321) (7,717) (7,332) (21,662) 119,965 86,110 43,791 (64,802) (156,442) 69,711 119,529 103,783 (34,485) 1,854 (4,960) (12,179) (7,182) 2,126 (8,501) (5,951) (19,948) (12,268) (45,996) (4,746) 36,440 3,846 1,468 (2,491) 3,103 4,674 (2,407) (3,431) (3,188) 2,794 (2,576) 445 745 (418) 2,704 6,366 13,202 6,972 10,265 1,177 (3,807) 898 3,367 (161) (677) 6,671 (8,548) (12,432) (12,518) (1,134) 1,042 2,516 1,515 (327) 1,002 3,835 5,821 2,561 2,289 24,763 20,797 20,865 14,428 9,352 (166,084) 222,713 193,829 135,600 (147,686) (2,415) (6,733) (4,674) (621) (42) (168,499) 215,980 189,155 134,979 (147,728)

– 68 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Notes CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment Additions of prepaid land lease payments Purchases of investment properties Proceeds from disposal of items of property, plant and equipment Purchase of an available-for-sale equity investment/long term investment Proceeds received from partial disposal of a subsidiary Proceeds received from disposal of subsidiaries 40 Proceeds from redemption of investments at fair value through profit or loss/other investments Proceeds from exchange of investments at fair value through profit or loss 36(a) Interest received from bank deposits Dividend received from associates Purchases of convertible debentures and notes Proceeds from redemption of convertible debentures and notes Acquisition of subsidiaries 35 Acquisition of an additional interest in a subsidiary Acquisition of associates Loan to an associate 21 Increase in pledged time deposits Net cash inflow/(outflow) from investing activities

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) (3,078) (8,464) (17,251) (12,610) (7,421) (250) (7,429) (26,553) (26,553) – – – (44,669) (44,669) – 189 150 35 17 96 (155) (112,000) – – – – 67,770 – – – – – – – 56,000 20,000 – – – 1,280 – – – – 4,825 4,416 4,459 13,802 5,489 8,145 4,094 4,095 5,460 5,460 11,622 (55,000) (16,000) (56,330) (39,330) (68,000) 55,340 32,053 3,907 3,907 16,000 – – (31,340) – – – – (17,148) (17,148) – – – (30,595) (30,000) – – – (3,000) (3,000) – (16) (83) (2,202) (91) (1,195) 25,540 (35,449) (205,884) (158,528) 21,352

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

CASH FLOWS FROM FINANCING ACTIVITIES Additions of bank loans Repayment of bank loans Capital element of hire purchase rental payments Interest element of hire purchase rental payments Interest paid Loans from minority shareholders Dividends paid Dividends paid to minority shareholders Repayment of convertible note Net cash inflow/(outflow) from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Non-pledged time deposits with original maturity of less than three months when acquired	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) 305,000 140,000 50,000 50,000 313,495 (225,000) (220,000) (50,542) (50,000) (293,044) (22) – – – – (7) – – – – (5,306) (5,374) (2,573) (72) (5,311) – – 3,394 – – – (16,907) (25,360) (25,360) (26,173) (3,562) (5,555) (5,588) (5,588) (8,383) – (30,000) – – – 71,103 (137,836) (30,669) (31,020) (19,416) (71,856) 42,695 (47,398) (54,569) (145,792) 586,775 514,919 557,614 557,614 509,939 – – (277) – – 514,919 557,614 509,939 503,045 364,147 112,743 29,166 73,861 10,188 56,958 402,176 528,448 436,078 492,857 307,189 514,919 557,614 509,939 503,045 364,147	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) 305,000 140,000 50,000 50,000 313,495 (225,000) (220,000) (50,542) (50,000) (293,044) (22) – – – – (7) – – – – (5,306) (5,374) (2,573) (72) (5,311) – – 3,394 – – – (16,907) (25,360) (25,360) (26,173) (3,562) (5,555) (5,588) (5,588) (8,383) – (30,000) – – – 71,103 (137,836) (30,669) (31,020) (19,416) (71,856) 42,695 (47,398) (54,569) (145,792) 586,775 514,919 557,614 557,614 509,939 – – (277) – – 514,919 557,614 509,939 503,045 364,147 112,743 29,166 73,861 10,188 56,958 402,176 528,448 436,078 492,857 307,189 514,919 557,614 509,939 503,045 364,147
		(19,416)
		(145,792) 509,939 –
		364,147
		56,958 307,189
		364,147

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

II. NOTES TO THE FINANCIAL INFORMATION

1. Basis of preparation

The Financial Information and the 30 June 2005 Financial Information have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for investment properties, derivative financial instruments and certain equity investments, which have been measured at fair value. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the Relevant Periods. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

2.1 Impact of new and revised Hong Kong Financial Reporting Standards

For the year ended 31 December 2005, the Group has adopted, for the first time, the following new and revised HKFRSs in its financial statements:

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 11	Construction Contracts
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 20	Accounting for Government Grants and Disclosure of Government Assistance
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 31	Interests in Joint Ventures
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 39	Transition and Initial Recognition of Financial Assets and Financial Liabilities
Amendment

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

HKAS 40 Investment Property HKFRS 2 Share-based Payment HKFRS 3 Business Combinations HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations HK(SIC)-Int 21 Income Taxes – Recovery of Revalued Non-depreciable Assets HK-Int 4 Leases – Determination of the Length of Lease Term in respect of Hong Kong Land Leases

The adoption of HKASs 2, 7, 8, 10, 11, 12, 14, 16, 18, 19, 20, 21, 23, 27, 28, 31, 33, 37 and 38, HKFRSs 2 and 5, and HK-Int 4 has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group’s and the Company’s financial statements.

HKAS 1 has affected the presentation of minority interests on the face of the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and other disclosures. In addition, in prior periods, the Group’s share of tax attributable to associates and a jointly-controlled entity was presented as a component of the Group’s total tax charge/(credit) in the consolidated income statement. Upon the adoption of HKAS 1, the Group’s share of the post-acquisition results of associates and a jointly-controlled entity is presented net of the Group’s share of tax attributable to the associates and a jointly-controlled entity.

HKAS 24 has expanded the definition of related parties and affected the Group’s related party disclosures.

The impact of adopting the other HKFRSs is summarised as follows:

(a) HKAS 17 – Leases

Prior to 1 January 2005, leasehold land and buildings held for own use were stated at cost less accumulated depreciation and any impairment losses.

Upon the adoption of HKAS 17, the Group’s leasehold interest in land and buildings is separated into leasehold land and buildings. The Group’s leasehold land is classified as an operating lease, because the title of the land is not expected to pass to the Group by the end of the lease term, and is reclassified from property, plant and equipment to prepaid land lease payments, while buildings continue to be classified as part of property, plant and equipment. Prepaid land premiums for land lease payments under operating leases are initially stated at cost and subsequently amortised on the straight-line basis over the lease term. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

The effects of the above changes are summarised in note 2.2. The comparative amounts in the consolidated balance sheets as at 31 December 2003 and 2004 have been restated to reflect the reclassification of the leasehold land.

• (b) HKAS 32 and HKAS 39 – Financial Instruments

(i) Equity securities

Prior to 1 January 2005, the Group classified its investments in unlisted equity securities as long term investments, which were held for non-trading purposes and were stated at cost less any impairment losses. Upon the adoption of HKAS 39, these securities held by the Group at 1 January 2005 in the amount of HK$70,000,000 were designated as availablefor-sale investments under the transitional provisions of HKAS 39.

Prior to 1 January 2005, the Group classified its investments in listed equity securities for trading purpose as other investments, and they were stated at their fair values on an individual basis with gains and losses recognised in the income statement. Upon the adoption of HKAS 39, these securities held by the Group at 1 January 2005 in the amount of HK$523,178,000 were designated as financial assets at fair value through profit or loss under the transitional provisions of HKAS 39 and accordingly are stated at fair value with gains or losses being recognised in the income statement.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The adoption of HKAS 39 has not resulted in any change in the measurement of these equity securities. Comparative amounts as at 31 December 2003 and 2004 have been reclassified for presentation purposes.

(ii) Convertible notes

Prior to 1 January 2005, convertible notes were stated at amortised cost. Upon the adoption of HKAS 32, convertible notes are split into liability and equity components. The effects of the above changes are summarised in note 2.2. In accordance with HKAS 32, comparative amounts as at 31 December 2003 and 2004 have been restated.

(iii) Convertible debentures and notes

Prior to 1 January 2005, the Group’s investments in convertible debentures and notes were stated at cost less impairment losses. Upon the adoption of HKAS 39, these investments held by the Group at 1 January 2005 in the amount of HK$16,000,000 were classified as financial assets at fair value through profit or loss under the transitional provisions of HKAS 39 and accordingly are stated at fair value with gains or losses being recognised in the income statement.

The effects of the above changes are summarised in note 2.2. In accordance with the transitional provisions of HKAS 39, comparative amounts have not been restated.

(iv) Derivative financial instruments – Share options

Prior to 1 January 2005, unlisted share options held by an associate of the Group were stated at cost less any impairment losses.

Upon the adoption of HKASs 32 and 39, these share options are classified as derivative financial assets. Derivative financial assets are categorised as held for trading. They are initially recognised at fair value on the date a derivative contract is entered into, and are subsequently remeasured at their fair value unless they are designated as hedges. Changes in fair value are recognised immediately in the income statement. 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 dates.

The fair values of the unlisted share options are determined using valuation techniques. Such techniques include using recent arm’s length market transactions; references to the current market value of another instrument, which is substantially the same; a discounted cash flow analysis; and option pricing models.

The effects of the above changes are summarised in note 2.2. In accordance with the transitional provisions of HKAS 39, comparative amounts have not been restated.

(c) HKAS 40 – Investment Property

Prior to 1 January 2005, changes in the fair values of investment properties were dealt with as movements in the investment property revaluation reserve. If the total of this reserve was insufficient to cover a deficit, on a portfolio basis, the excess of the deficit was charged to the income statement. Any subsequent revaluation surplus was credited to the income statement to the extent of the deficit previously charged.

Upon the adoption of HKAS 40, gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise. In accordance with the transitional provisions of HKAS 40, rather than restating the comparative amounts to reflect this change retrospectively, the opening balance of retained profits is adjusted. The effects of the above change are summarised in note 2.2.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

• (d) HKFRS 3 – Business Combinations and HKAS 36 – Impairment of Assets

Prior to 1 January 2005, goodwill arising on acquisitions was capitalised and amortised on the straight-line basis over its estimated useful life and was subject to impairment testing when there was any indication of impairment. Negative goodwill was carried in the balance sheet and was recognised in the consolidated income statement on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets.

The adoption of HKFRS 3 and HKAS 36 has resulted in the Group ceasing annual goodwill amortisation and commencing testing for impairment at the cash-generating unit level annually (or more frequently if events or changes in circumstances indicate that the carrying value may be impaired).

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of the acquisition of subsidiaries and associates (previously referred to as “negative goodwill”), after reassessment, is recognised immediately in the income statement.

The transitional provisions of HKFRS 3 have required the Group to eliminate at 1 January 2005 the carrying amounts of accumulated amortisation with a corresponding adjustment to the cost of goodwill and to derecognise the carrying amounts of negative goodwill against retained profits.

The effects of the above changes are summarised in note 2.2. In accordance with the transitional provisions of HKFRS 3, comparative amounts have not been restated.

• (e) HK(SIC)-Int 21 – Income Taxes – Recovery of Revalued Non-depreciable Assets

Prior to 1 January 2005, deferred tax arising on the revaluation of investment properties was recognised based on the tax rate that would be applicable upon the sale of the investment properties.

Upon the adoption of HK(SIC)-Int 21, deferred tax arising on the revaluation of the Group’s investment properties is determined depending on whether the properties will be recovered through use or through sale. The Group has determined that its investment properties will be recovered through use, and accordingly the profits tax rate has been applied to the calculation of deferred tax.

The effects of the above changes are summarised in note 2.2. The change has been adopted retrospectively from the earliest period presented and comparative amounts as at 31 December 2003 and 2004 have been restated.

Starting from the six months ended 30 June 2006, the following new and revised HKFRSs affected the Group and were adopted for the first time in the Group’s financial statements.

HKAS 21 Amendment Net Investment in a Foreign Operation HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HKAS 39 & HKFRS 4 Amendments Financial Guarantee Contracts

The adoption of HKAS 39 Amendment – “The fair value option” does not affect the classification and valuation of the Group’s financial assets at fair value through profit or loss prior to 1 January 2006, as the Group is able to comply with the amended criteria for the designation of financial instruments at fair value through profit or loss.

In prior years, financial guarantee contracts entered into by the Company and the Group were not accounted for in the Group’s financial statements. Upon adoption of the amendments to HKAS 39 regarding financial guarantee contracts, financial guarantee contracts are now initially recognised at fair value and are subsequently measured at the higher of (i) the amount determined in accordance with

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

HKAS 37 and (ii) the amount initially recognised, less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18. This change in accounting policy has had immaterial effect on the balance sheet of the Company and the Group, and therefore no value of the financial guarantee contracts was recognised in the balance sheet of the Company and the Group. Further details of the financial guarantee contracts of the Company and the Group are set out in note 41.

Except as stated above, the adoption of the above HKFRSs has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group’s and the Company’s financial statements.

2.2 Summary of the impact of changes in accounting policies

(a) Effect on the consolidated balance sheet

Effect of new policies (Increase/(decrease)) At 31 December 2003 Assets Property, plant and equipment Prepaid land lease payments Interests in associates Liabilities/equity Equity component of a convertible note Retained profits	Effect of adopting HK(SIC)– HKAS 17# HKAS 32# Int 21# Deferred tax on Prepaid revaluation of land lease Convertible investment payments note properties HK$’000 HK$’000 HK$’000 (118,527) – – 120,897 – – – – (4,582) – 5,652 – 2,370 (5,652) (4,582)	Total HK$’000 (118,527) 120,897 (4,582) (2,212) 5,652 (7,864) (2,212)

• # Adjustments/presentation taken effect retrospectively

– 75 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Effect of new policies (Increase/(decrease)) At 1 January 2005 Assets Property, plant and equipment Prepaid land lease payments Negative goodwill Interests in associates Available-for-sale equity investment Long term investment Convertible debentures and notes Investments at fair value through profit or loss Other investments Liabilities/equity Convertible note Equity component of a convertible note Investment property revaluation reserve Other reserves Minority interests Retained profits	Effect of adopting HKASs 32# HK(SIC)– HKAS 17# and 39 HKAS 32# HKAS 39 HKAS 40 *HKFRS 3 Int 21# Discontinuation of amortisation Deferred Change in Surplus on of goodwill/ tax on Prepaid classification revaluation of derecognition revaluation of land lease of equity Convertible Financial investment of negative investment payments investments note instruments properties goodwill properties* HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (123,171 ) – – – – – – 125,949 – – – – – – – – – – – 43,950 – – – – 43,676 – 13,109 (7,488 ) – 70,000 – – – – – – (70,000 ) – – – – – – – – (399 ) – – – – 523,178 – – – – – – (523,178 ) – – – – – – – (6,655 ) – – – – – – 7,620 – – – – – – – – (1,430 ) – – – – – (1,699 ) – – – – – – (161 ) – – – 2,778 – (965 ) 45,137 1,430 57,059 (7,488 )	Total HK$’000 (123,171 ) 125,949 43,950 49,297 70,000 (70,000 ) (399 ) 523,178 (523,178 ) 95,626 (6,655 ) 7,620 (1,430 ) (1,699 ) (161 ) 97,951 95,626

* Adjustments taken effect prospectively from 1 January 2005

# Adjustments/presentation taken effect retrospectively

– 76 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Effect of adopting HKASs 32# HK(SIC)– HKAS 17# and 39 HKAS 32# HKAS 39 HKAS 40 *HKFRS 3 Int 21# Discontinuation of amortisation Deferred Change in Surplus on of goodwill/ tax on Prepaid classification revaluation of derecognition revaluation of Effect of new policies land lease of equity Convertible Financial investment of negative investment (Increase/(decrease)) payments investments note instruments properties goodwill properties HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 At 31 December 2005* Assets Property, plant and equipment (143,286 ) – – – – – – Prepaid land lease payments 146,470 – – – – – – Negative goodwill – – – – – 45,469 – Interests in associates – – – 56,155 – 17,061 (14,047 ) Available-for-sale equity investment – 20,000 – – – – – Long term investment – (21,249 ) – – – – – Convertible debentures and notes – – – 2,016 – – – Investments at fair value through profit or loss – 396,696 – – – – – Other investments – (395,447 ) – – – – – Liabilities/equity Convertible note – – (2,995 ) – – – – Share premium – – 687 – – – – Equity component of a convertible note – – 5,407 – – – – Investment property revaluation reserve – – – – (62,621 ) – – Other reserves – – – 1,559 – – – Minority interests – – – (492 ) – – – Retained profits 3,184 – (3,099 ) 57,104 62,621 62,530 (14,047 )

Total HK$’000 (143,286 ) 146,470 45,469 59,169 20,000 (21,249 ) 2,016 396,696 (395,447 ) 109,838 (2,995 ) 687 5,407 (62,621 ) 1,559 (492 ) 168,293 109,838

* Adjustments taken effect prospectively from 1 January 2005

# Adjustments/presentation taken effect retrospectively

– 77 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

(b) Effect on the balances of equity at 1 January 2003, 2004 and 2005

Effect of new policies (Increase/(decrease)) 1 January 2003 Equity component of a convertible note Retained profits 1 January 2004 Equity component of a convertible note Retained profits 1 January 2005 Equity component of a convertible note Investment property revaluation reserve Other reserves Minority interests Retained profits	Effect of adopting HKASs 32 HKAS 17 HKAS 32 and 39 HKAS 40 HKFRS 3 HK(SIC)-Int 21 Discontinuation of amortisation Surplus on of goodwill/ Deferred tax Prepaid revaluation of derecognition on revaluation land lease Convertible Financial investment of negative of investment payments note instruments properties goodwill properties HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – 5,652 – – – – 1,952 (3,715 ) – – – (4,631 ) – 5,652 – – – – 2,370 (5,652 ) – – – (4,582 ) – 7,620 – – – – – – – (1,430 ) – – – – (1,699 ) – – – – – (161 ) – – – 2,778 (965 ) 45,137 1,430 57,059 (7,488 )	Total HK$’000 5,652 (6,394 ) (742 ) 5,652 (7,864 ) (2,212 ) 7,620 (1,430 ) (1,699 ) (161 ) 97,951 102,281

– 78 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

(c) Effect on the consolidated income statements for the years ended 31 December 2003, 2004 and 2005

Effect of new policies Year ended 31 December 2003 Decrease in administrative expenses Increase in finance costs Decrease in share of profit and loss of a jointly-controlled entity Decrease in share of profits and losses of associates Decrease in tax Total increase/(decrease) in profit Decrease in basic earnings per share_(HK cents) Decrease in diluted earnings per share(HK cents) Year ended 31 December 2004 Decrease in administrative expenses Increase in finance costs Decrease in share of profits and losses of associates Decrease in tax Total increase/(decrease) in profit Decrease in basic earnings per share(HK cents) Decrease in diluted earnings per share(HK cents) Year ended 31 December 2005 Increase in other income and gains Decrease in administrative expenses Increase in finance costs Increase/(decrease) in share of profits and losses of associates Decrease in tax Total increase/(decrease) in profit Decrease/(increase) in basic loss per share (HK cents) Decrease/(increase) in diluted loss per share (HK cents)_				Effect of adopting HKAS 39 HKAS 40 HKFRS 3 HK(SIC)-Int 21 Discontinuation of amortisation Surplus on of goodwill/ Deferred tax revaluation of derecognition on revaluation Financial investment of negative of investment instruments properties goodwill properties HK$’000 HK$’000 HK$’000 HK$’000 – – – – – – – – – – – – – – – 49 – – – – – – – 49 – – – – – – – – – – – – – – – – – – – (2,906 ) – – – – – – – (2,906 ) – – – (0.03) – – – (0.03) 2,746 – 993 – – – – – – – – – 9,221 61,191 4,478 (6,559 ) – – – – 11,967 61,191 5,471 (6,559 ) 0.14 0.72 0.06 (0.08) 0.13 0.65 0.06 (0.07)	Total HK$’000 418 (1,937 ) (572 ) (4,646 ) 5,267 (1,470 ) (0.02) (0.02) 408 (965 ) (10,869 ) 7,963 (3,463 ) (0.04) (0.04) 3,739 406 (2,134 ) 54,826 13,505 70,342 0.82 0.75
	HKAS 17 Prepaid land lease payments HK$’000 418 – – – – 418 – – 408 – – – 408 – – – 406 – – – 406 – –	HKAS 1 Share of post-tax profits and losses of a jointly controlled entity and associates HK$’000 – – (572 ) (4,695 ) 5,267 – – – – – (7,963 ) 7,963 – – – – – – (13,505 ) 13,505 – – –	HKASs 32 and 39 Convertible note HK$’000 – (1,937 ) – – – (1,937 ) (0.02) (0.02) – (965 ) – – (965 ) (0.01) (0.01) – – (2,134 ) – – (2,134 ) (0.02) (0.02)

– 79 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

2.3 Impact of issued but not yet effective Hong Kong Financial Reporting Standards

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements. Unless otherwise stated, these HKFRSs are effective for annual periods beginning on or after 1 January 2007:

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

The HKAS 1 Amendment will affect the disclosures about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 requires disclosure relating to financial instruments and incorporates many of the disclosure requirements of HKAS 32. This HKFRS should be applied for annual periods beginning on or after 1 January 2007.

HK(IFRIC)-Int 8, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 10 will be applied for annual periods beginning on or after 1 May 2006, 1 June 2006 and 1 November 2006, respectively.

Except as stated above, the Group expects that the adoption of the pronouncements listed above will not have any significant impact on the Group’s financial statements in the period of initial application.

2.4 Summary of significant accounting policies

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 are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture entity and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture is treated as:

• (a) a subsidiary, if the Group/Company has unilateral control, directly or indirectly, over the joint venture;

• (b) a jointly-controlled entity, if the Group/Company does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

• (c) an associate, if the Group/Company does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or

• (d) an equity investment accounted for in accordance with HKAS 39, if the Group/Company holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither unilateral/joint control of, nor is in a position to exercise significant influence over, the joint venture.

Jointly-controlled entities

A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Group’s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated income statement and consolidated reserves, respectively. Where the profit sharing ratio is different to the Group’s equity interest, the share of post-acquisition results of the jointlycontrolled entities is determined based on the agreed profit sharing ratio. The Group’s interests in jointly-controlled entities are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill arising from the acquisition of associates is included as part of the Group’s interests in associates. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Goodwill

Goodwill arising on the acquisition of subsidiaries and associates represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill on acquisitions for which the agreement date is on or after 1 January 2005

Goodwill arising on acquisition is recognised in the consolidated balance sheet as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. In the case of associates , goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the consolidated balance sheet.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

• is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with HKAS 14 “Segment Reporting”.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

An impairment loss recognised for goodwill is not reversed in a subsequent period.

Excess over the cost of business combinations

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries, associates and jointly-controlled entities (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement.

The excess for associates is included in the Group’s share of the associates’ profit or loss in the period in which the investments are acquired.

Impairment of assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets, investment properties and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cashgenerating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

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

• (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;

• (b) the party is an associate;

• (c) the party is a jointly-controlled entity;

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

• (d) the party is a member of the key management personnel of the Group or its parent;

• (e) the party is a close member of the family of any individual referred to in (a) or (d);

• (f) 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, any individual referred to in (d) or (e); or

• (g) the party is post-employment benefit plan for the benefit of the employees of the Group, or of any entity that is a related party of the Group.

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Buildings	2%
Leasehold improvements	Over the shorter of the lease terms and 20%
Furniture and fixtures	20%
Office equipment	20%
Motor vehicles and yachts	20% – 25%
Plant and machinery	10%
Moulds	15%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the period the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet dates.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the period of the retirement or disposal.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases net of any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

Investments and other financial assets

Applicable to the years ended 31 December 2003 and 2004:

The Group classified its equity investments, other than subsidiaries, associates and jointly-controlled entities, as long term investments and other investments.

Long term investments

Long term investments mainly represent club debentures and investments in unlisted equity securities intended to be held on a long term basis. They are stated at cost less any impairment losses.

Other investments

Other investments are investments in equity securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet dates, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the income statement in the period in which they arise.

Applicable to the year ended 31 December 2005 and six months ended 30 June 2006:

Financial assets in the scope of HKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet dates.

All regular way purchases and sales of financial assets are recognised on the trade date, i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets classified as held for trading or so designated are included in the category “financial assets at fair value through profit or loss”. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives held by the Group are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in the income statement.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet dates. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

Impairment of financial assets (applicable to the year ended 31 December 2005 and six months ended 30 June 2006)

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the 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). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in profit or loss.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss.

Derecognition of financial assets (applicable to the year ended 31 December 2005 and six months ended 30 June 2006)

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

• the rights to receive cash flows from the asset have expired;

• the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a “pass-through” arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cashsettled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Convertible notes

The component of convertible notes that exhibits characteristics of a liability is recognised as a liability in the balance sheet, net of transaction costs. On issuance of convertible notes, the fair value of the liability component is determined using a market rate for an equivalent non-convertible note; and this amount is carried as a long term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent periods.

Transaction costs are apportioned between the liability and equity components of the convertible notes based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

Derecognition of financial liabilities (applicable to the year ended 31 December 2005 and six months ended 30 June 2006)

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

Derivative financial instruments and hedging (applicable to the year ended 31 December 2005 and six months ended 30 June 2006)

An associate of the Group’s associates uses interest rate swaps to hedge its risks associated with the interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the period.

The fair value of interest rate swap contracts is determined by reference to the present value of estimated future cash flows.

For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a forecast transaction.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Cash flow hedges

Cash flow hedges are hedges of the Group’s exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognised or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, the amounts previously recognised in equity are transferred to profit or loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to profit or loss.

Financial guarantee contracts

Financial guarantee contracts are accounted for as financial liability. A financial guarantee contract shall be recognised initially at its fair value and transaction costs that are directly attributable to the acquisition or issue of the financial guarantee contract except for the case of such contract being recognised at fair value through profit or loss. Subsequent to initial recognition, the Group shall measure the financial guarantee contract at the higher of (i) the amount determined in accordance with HKAS 37 and (ii) the amount initially recognised, less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18.

Inventories

Inventories are stated at the lower of cost and net realisable value after making due allowance for any obsolete or slow-moving items. Cost is determined on the weighted average method and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and in selling and distribution.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet dates between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except:

• where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

• in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet dates.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Foreign currencies

These financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet dates. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries, jointly-controlled entities and associates are currencies other than the Hong Kong dollar. As at the balance sheet dates, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet dates and, their income statements are translated into Hong Kong dollars at the weighted average exchange rates for each of the Relevant Periods. The resulting exchange differences are included in a separate component of equity as the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Hong Kong dollars at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout each of the Relevant Periods are translated into Hong Kong dollars at the weighted average exchange rates for each of the Relevant Periods.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, demand deposits and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheets, cash and bank balances comprise cash on hand and at banks, including time deposits, and assets similar to cash, which are not restricted as to use.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) rental income from properties, in the period in which the properties are let and on the straightline basis over the lease terms;

• (c) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset;

• (d) loan arrangement fee income from the provision of financial services, in the period in which such services are rendered.

• (e) dividend income, when the shareholders’ right to receive payment has been established; and

• (f) income from the sale of listed securities, on the trade date.

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained profits within the equity section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

Employee benefits

Retirement benefits schemes

The Group, other than Qualipak International Holdings Limited (“Qualipak”) and its subsidiaries (details of whose retirement benefits scheme are included below), operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all its employees. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Qualipak, a subsidiary of the Company, together with its subsidiaries (collectively, the “Qualipak Group”), operates a defined contribution retirement benefits scheme for those employees who are eligible and who have elected to participate in the scheme. The assets of the scheme are held separately from those of the Qualipak Group in an independently administered fund. Contributions are made at specified rates and are charged to the income statement as they become payable in accordance with the rules of the scheme. When an employee leaves the scheme prior to his/her interest in the Qualipak Group’s employer contributions vesting fully, the ongoing contributions payable by the Qualipak Group may be reduced by the relevant amount of forfeited contributions.

Following the introduction of the MPF Scheme, the Qualipak Group has restructured its retirement arrangements to comply with the Mandatory Provident Fund Schemes Ordinance. The Qualipak Group has secured Mandatory Provident Fund exemption status for its retirement benefits scheme and, in addition, has participated in an approved MPF Scheme with effect from 1 December 2000 to provide a choice of schemes to its existing employees. All of its new employees are required to participate in the MPF Scheme.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

3. Significant accounting judgements and estimates

Employment Ordinance long service payments

Certain of the Group’s employees have completed the required number of years of service to the Group in order to be eligible for long service payments under the Hong Kong Employment Ordinance in the event of the termination of their employment. The Group is liable to make such payments in the event that such a termination of employment meets the circumstances specified in the Employment Ordinance.

A provision is recognised in respect of probable future long service payments expected to be made. The provision is based on the best estimate of the probable future payments which has been earned by the employees from their service to the Group to the balance sheet dates.

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as investment property.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet dates, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period, are discussed below.

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APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

4. Segment information

Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the values-in-use of the cash-generating units to which the goodwill is allocated. Estimating the values-in-use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of goodwill arising from the acquisition of subsidiaries at 31 December 2003, 2004 and 2005 and 30 June 2006 were nil, nil, HK$35,297,000 and HK$35,297,000, respectively, and those arising from the acquisition of associates were nil, nil, HK$31,789,000 and HK$29,889,000, respectively. More details are given in notes 18 and 21.

Estimation of fair value of investment properties

The fair value of the Company’s investment property is assessed by management based on the property valuation performed by independent qualified valuers on an open market, existing use basis. The assumptions adopted in the property valuation are based on market conditions existing at each balance sheet date, with reference to comparable sales transactions and where appropriate, on the basis of capitalisation of the net income after allowances for outgoings and in some cases provisions for reversionary income potential.

Estimation of provision against obsolete and slow-moving inventories

The Group does not have a general provision policy on inventories based on ageing given the nature of inventories that are not subject to frequent wear and tear and frequent technological changes. However, operational procedures have been in place to monitor this risk as majority of working capital is devoted to inventories. The Group’s sales and marketing managers review the inventory ageing listing on a periodical basis for those aged inventories. This involves comparison of the carrying value of the aged inventory items with the respective net relisable value. The purpose is to ascertain whether allowance is required to be made in the consolidated financial statements for any obsolete and slow-moving items. In addition, physical counts on all inventories are carried out on a periodical basis in order to determine whether the allowance needs to be made in respect of any obsolete and defective inventories identified.

Allowance for bad and doubtful debts

In determining whether the allowance for bad and doubtful debts is required, the Group takes into consideration the aging status and the likelihood of collection. Following the identification of doubtful debts, the Group’s responsible personnel discuss with the relevant customers and report to management on the recoverability. Specific allowance is only made for receivables that are unlikely to be collected.

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows:

• (a) the trading of automobile parts and other materials segment consists of the trading of automobile parts mainly for use in the manufacture of automobiles and trading of other materials;

• (b) the treasury investment segment includes the trading of securities, interest and dividend income from securities investment and interest income from provision of financing services;

• (c) the manufacture and sale of packaging products segment comprises the production and sale of watch boxes, gift boxes, spectacles cases, bags and pouches and display units;

• (d) the manufacture and sale of luggage products segment comprises the production and sale of soft luggage, travel bags, backpacks and brief cases; and

• (e) the property and other investments segment comprises rental income from investment properties.

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

– 92 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

(a)

Business segments

The following tables present revenue, profit and certain asset, liability and expenditure information for the Group’s business segments.

Year ended 31 December 2003

(Restated)

Trading of automobile parts and other materials HK$’000 Segment revenue: Revenue from external customers 12,722 Other revenue – Total revenue 12,722 Segment results (19,866) Unallocated income, net Interest income on bank deposits Finance costs Share of profits of: A jointly-controlled entity – Associates – Profit before tax Tax Profit for the year Assets and liabilities Segment assets 34,762 Investment in a jointly-controlled entity – Investments in associates – Unallocated assets – Total assets Segment liabilities 5,560 Unallocated liabilities – Total liabilities Other segment information: Capital expenditure – Negative goodwill recognised as income – Depreciation – Amortisation on prepaid land lease payments – Write-back of allowance/ (allowance) for doubtful debts, net (6,887) Unrealised holding gains on other investments – Loss on disposal of other investments –

Manufacture and sale of Property Treasury packaging and other investment products investments Unallocated Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 12,879 191,898 – – 217,499 – – 546 – 546 12,879 191,898 546 – 218,045 84,628 37,606 (5,312) – 97,056 6,891 4,416 (7,250) – – 643 – 643 – – 18,288 – 18,288 120,044 (4,056) 115,988 922,748 369,458 12,937 – 1,339,905 – – 5,304 – 5,304 – – 618,936 – 618,936 – – – 293,559 293,559 2,257,704 29 31,462 – – 37,051 – – – 264,894 264,894 301,945 – (2,675) – (653) (3,328) – 7,755 526 – 8,281 – (6,519) – (2,926) (9,445) – (974) – (1,289) (2,263) – 2,544 – – (4,343) 91,116 – – – 91,116 (17,049) – – – (17,049)

– 93 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Year ended 31 December 2004

Trading of automobile parts and other materials HK$’000 Segment revenue: Revenue from external customers – Other revenue – Total revenue – Segment results (14,225) Unallocated expenses, net Interest income on bank deposits Finance costs Share of profits and losses of: A jointly-controlled entity – Associates – Profit before tax Tax Profit for the year Assets and liabilities: Segment assets 28,500 Investment in a jointly-controlled entity – Investments in associates – Unallocated assets – Total assets Segment liabilities 3,455 Unallocated liabilities – Total liabilities Other segment information: Capital expenditure (760) Negative goodwill recognised as income – Depreciation – Amortisation on prepaid land lease payments – Allowance for doubtful debts – Provision against obsolete inventories – Fair value gains on investments at fair value through profit or loss – Gain on disposal of other investments –

Manufacture and sale of Property Treasury packaging and other investment products investments Unallocated Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 138,323 254,443 – – 392,766 – – 603 – 603 138,323 254,443 603 – 393,369 232,455 46,938 (29,252) – 235,916 (26,108) 4,459 (5,115) – – (725) – (725) – – 43,132 – 43,132 251,559 (11,215) 240,344 957,231 455,696 95,030 – 1,536,457 – – 4,578 – 4,578 – – 659,930 – 659,930 – – – 231,843 231,843 2,432,808 7,154 38,244 – – 48,853 – – – 147,275 147,275 196,128 (182) (5,702) – (9,249) (15,893) – 7,584 526 – 8,110 (311) (6,705) – (2,220) (9,236) – (975) – (1,400) (2,375) (4,962) (9,681) – – (14,643) – (3,339) – – (3,339) 128,179 – – – 128,179 111,112 – – – 111,112

– 94 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Year ended 31 December 2005

Trading of automobile parts and other materials HK$’000 Segment revenue: Revenue from external customers 590 Other revenue – Total revenue 590 Segment results (4,077 ) Unallocated expenses, net Interest income on bank deposits Finance costs Share of profits and losses of: A jointly-controlled entity – Associates – Loss before tax Tax Loss for the year Assets and liabilities: Segment assets 8,200 Investment in a jointly-controlled entity – Interests in associates – Unallocated assets – Total assets Segment liabilities 4,428 Unallocated liabilities – Total liabilities Other segment information: Capital expenditure – Depreciation – Amortisation on prepaid land lease payments – Write-back of allowance/(allowance) for doubtful debts, net – Fair value losses on investments at fair value through profit or loss – Loss on disposal of listed equity investments at fair value through profit or loss/other investments – Impairment losses on items of property, plant and equipment – Impairment losses on prepaid land lease payments –	Treasury investment HK$’000 (11,688 ) – (11,688 ) (69,342 ) – – 836,374 – – – 2,165 – – (320 ) – (411 ) (27,329 ) (35,767 ) – –	Manufacture and sale of packaging products HK$’000 277,442 – 277,442 39,499 – – 380,293 – – – 48,651 – (84,291 ) (6,855 ) (1,289 ) 4,463 – – – –	Manufacture and sale of luggage products HK$’000 169,990 – 169,990 5,530 – – 134,862 – – – 110,262 – (2,407 ) (948 ) (64 ) – – – – –	Property and other investments HK$’000 – 696 696 (38,369 ) (910 ) 90,145 48,870 3,669 839,451 – – – – – – – – – – –	Unallocated HK$’000 – – – – – – – – – 345,778 – 138,667 (1,775 ) (1,879 ) (1,442 ) – – – (751 ) (6,319 )	Consolidated HK$’000 436,334 696 437,030 (66,759 ) (36,957 ) 13,902 (4,449 ) (910 ) 90,145 (5,028 ) (5,115 ) (10,143 ) 1,408,599 3,669 839,451 345,778 2,597,497 165,506 138,667 304,173 (88,473 ) (10,002 ) (2,795 ) 4,052 (27,329 ) (35,767 ) (751 ) (6,319 )

– 95 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Six months ended 30 June 2005 (Unaudited)

Trading of automobile parts and other materials HK$’000 Segment revenue: Revenue from external customers – Other revenue – Total revenue – Segment results (1,726 ) Unallocated expenses, net Interest income on bank deposits Finance costs Share of profits and losses of: A jointly-controlled entity – Associates – Profit before tax Tax Profit for the period Assets and liabilities: Segment assets 8,205 Investment in a jointly-controlled entity – Interests in associates – Unallocated assets Total assets Segment liabilities 3,969 Unallocated liabilities – Total liabilities Other segment information: Capital expenditure – Depreciation – Amortisation on prepaid land lease payments – Write-back of allowance/(allowance) for doubtful debts, net – Fair value gains on investments at fair value through profit or loss – Loss on disposal of listed equity investments at fair value through profit or loss/other investments –	Treasury investment HK$’000 (5,528 ) – (5,528 ) 71,114 – – 971,737 – – 253 – – (123 ) – (411 ) 81,527 (18,338 )	Manufacture and sale of packaging products HK$’000 129,417 – 129,417 20,579 – – 352,981 – – 52,427 – (82,734 ) (3,673 ) (287 ) 4,763 – –	Manufacture and sale of luggage products HK$’000 – – – – – – – – – – – – – – – – –	Property and other investments HK$’000 – 348 348 (42,173 ) (900 ) 88,859 45,170 3,679 832,865 – – – – – – – –	Unallocated HK$’000 – – – – – – – – – 383,798 – 145,619 (1,098 ) (1,883 ) – – – –	Consolidated HK$’000 123,889 348 124,237 47,794 (17,165 ) 5,491 (2,309 ) (900 ) 88,859 121,770 (773 ) 120,997 1,378,093 3,679 832,865 383,798 2,598,435 56,649 145,619 202,268 (83,832 ) (5,679 ) (287 ) 4,352 81,527 (18,338 )

– 96 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Six months ended 30 June 2006

Trading of automobile parts and other materials HK$’000 Segment revenue: Revenue from external customers 20,315 Other revenue – Total revenue 20,315 Segment results (1,676 ) Unallocated expenses, net Interest income on bank deposits Finance costs Share of profits and losses of: A jointly-controlled entity – Associates – Profit before tax Tax Profit for the period Assets and liabilities: Segment assets 17,285 Interests in associates – Unallocated assets – Total assets Segment liabilities 4,238 Unallocated liabilities – Total liabilities Other segment information: Capital expenditure – Depreciation – Amortisation on prepaid land lease payments – Allowance for doubtful debts, net – Impairment of goodwill arising from acquisition of associates – Fair value gains on investments at fair value through profit or loss – Gain on disposal of listed equity investments at fair value through profit or loss – Gain on derecognition of investments at fair value through profit or loss –	Treasury investment HK$’000 34,574 – 34,574 56,309 – – 940,913 – – 155 – – (119 ) – – – 29,111 17,996 17,229	Manufacture and sale of packaging products HK$’000 151,900 – 151,900 17,838 – – 362,664 – – 39,665 – (1,684 ) (4,001 ) (755 ) (360 ) – – – –	Manufacture and sale of luggage products HK$’000 221,677 – 221,677 1,017 – – 154,801 – – 114,035 – (1,684 ) (1,061 ) (32 ) (1,981 ) – – – –	Property and other investments HK$’000 – 1,460 1,460 39,292 (359 ) 53,777 23,591 881,921 – 191 – – – – – (1,900 ) – – –	Unallocated HK$’000 – – – – – – – – 289,843 – 115,445 (4,053 ) (1,189 ) (722 ) – – – – –	Consolidated HK$’000 428,466 1,460 429,926 112,780 (19,238 ) 8,048 (6,961 ) (359 ) 53,777 148,047 (9,842 ) 138,205 1,499,254 881,921 289,843 2,671,018 158,284 115,445 273,729 (7,421 ) (6,370 ) (1,509 ) (2,341 ) (1,900 ) 29,111 17,996 17,229

– 97 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

(b) Geographical segments

The following tables present revenue and certain asset and expenditure information for the Group’s geographical segments.

Year ended 31 December 2003 (Restated) Segment revenue: Revenue from external customers Other revenue Total revenue Other segment information: Segment assets Capital expenditure Year ended 31 December 2004 Segment revenue: Revenue from external customers Other revenue Total revenue Other segment information: Segment assets Capital expenditure Year ended 31 December 2005 Segment revenue: Revenue from external customers Other revenue Total revenue Other segment information: Segment assets Capital expenditure	Hong Kong HK$’000 58,667 546 59,213 2,115,540 3,328 215,551 603 216,154 2,248,705 15,133 65,906 696 66,602 2,363,328 88,473	Elsewhere in the PRC HK$’000 10,092 – 10,092 141,745 – – – – 149,389 760 590 – 590 233,701 –	North and South Americas HK$’000 67,107 – 67,107 419 – 80,461 – 80,461 283 – 207,539 – 207,539 468 –	European Union HK$’000 64,624 – 64,624 – – 81,162 – 81,162 – – 127,678 – 127,678 – –	Others Consolidated HK$’000 HK$’000 17,009 217,499 – 546 17,009 218,045 – 2,257,704 – 3,328 15,592 392,766 – 603 15,592 393,369 34,431 2,432,808 – 15,893 34,621 436,334 – 696 34,621 437,030 – 2,597,497 – 88,473	Others Consolidated HK$’000 HK$’000 17,009 217,499 – 546 17,009 218,045 – 2,257,704 – 3,328 15,592 392,766 – 603 15,592 393,369 34,431 2,432,808 – 15,893 34,621 436,334 – 696 34,621 437,030 – 2,597,497 – 88,473
						218,045
						2,257,704 3,328
						392,766 603
						393,369
						2,432,808 15,893
						436,334 696
						437,030
						2,597,497 88,473

– 98 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Six months ended 30 June 2005 (Unaudited) Segment revenue: Revenue from external customers Other revenue Total revenue Other segment information: Segment assets Capital expenditure Six months ended 30 June 2006 Segment revenue: Revenue from external customers Other revenue Total revenue Other segment information: Segment assets Capital expenditure	Hong Kong HK$’000 30,427 348 30,775 2,511,482 83,832 81,261 1,460 82,721 2,484,695 4,596	Elsewhere in the PRC HK$’000 – – – 30,615 – 20,315 – 20,315 104,424 2,825	North and South Americas HK$’000 37,006 – 37,006 27,990 – 192,663 – 192,663 21,899 –	European Union HK$’000 48,521 – 48,521 – – 109,378 – 109,378 – –	Others Consolidated HK$’000 HK$’000 7,935 123,889 – 348 7,935 124,237 28,348 2,598,435 – 83,832 24,849 428,466 – 1,460 24,849 429,926 60,000 2,671,018 – 7,421	Others Consolidated HK$’000 HK$’000 7,935 123,889 – 348 7,935 124,237 28,348 2,598,435 – 83,832 24,849 428,466 – 1,460 24,849 429,926 60,000 2,671,018 – 7,421
						124,237
						2,598,435 83,832
						428,466 1,460
						429,926
						2,671,018 7,421

– 99 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

5. Revenue, other income and gains

Revenue, which is also the Group’s turnover, represents the aggregate of the net invoiced value of goods sold, after allowances for returns and trade discounts, gain/(loss) on disposal of listed equity securities, dividend income from listed investments, interest income from convertible notes and loans receivable and loan arrangement fee income from provision of financial services during the Relevant Periods.

An analysis of the Group’s revenue, other income and gains is as follows:

				Six months ended	Six months ended	Six months ended
	Year ended 31		December	30 June
	2003	2004	2005	2005		2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(Unaudited)
Revenue
Sale of goods	204,620	254,443	448,022	129,417	393,892
Gain/(loss) on disposal of listed equity
investments at fair value through
profit or loss/other investments	(17,049)	111,112	(35,767)	(18,338)		17,996
Dividend income from listed investments	1,153	3,422	5,800	2,538		8,716
Interest income from convertible notes and
loans receivable	25,035	23,789	17,986	9,976		7,862
Loan arrangement fee income from provision
of financial services	3,115	–	–	–		–
Others	625	–	293	296		–
	217,499	392,766	436,334	123,889	428,466
Other income and gains
Gross rental income	546	603	696	348		1,460
Interest income on bank deposits	4,416	4,459	13,902	5,491		8,048
Negative goodwill recognised as income	8,281	8,110	–	–		–
Warrant subscription reserve recognised as
income upon expiry of warrants	25,674	–	–	–		–
Excess over the cost of acquisitions of an
additional interest in a subsidiary	–	–	9,525	9,525		–
Unrealised holding gains on other investments/
fair value gains on investments at fair value
through profit or loss	91,116	128,179	–	81,527		29,111
Gains arising from changes in fair values of
convertible notes	–	–	2,415	2,614		–
Gain on partial disposal of a subsidiary	–	22,480	–	–		–
Write-back of allowance for doubtful debts, net	–	–	4,052	4,352		–
Gain on derecognition of investments at fair value
through profit or loss	–	–	–	–		17,229
Gain arising from redemption of a
convertible note	–	–	–	–		1,333
Write-back of impairment loss on
a convertible note	2,340	1,553	3,907	3,907		–
Fair value gains on investment properties	–	100	3,800	–		1,930
Gain on disposal of subsidiaries	–	–	–	–		36,144
Others	2,520	2,688	3,137	1,027		1,603
	134,893	168,172	41,434	108,791		96,858

– 100 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

6. Other expenses

Exchange losses, net Fair value losses on investments at fair value through profit or loss Allowance for doubtful debts, net Loss on deemed disposal of interests in associates Losses arising from changes in fair value of convertible notes Impairment loss on an available-for-sale equity investment/long term investment Fair value losses on investment properties Impairment losses on items of property, plant and equipment Impairment losses on prepaid land lease payments	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) – – 354 – – – – 27,329 – – 4,343 14,643 – – 2,341 – – 1,801 1,801 – – – – – 9,341 – 30,000 50,000 50,000 – 6,332 – – – – – – 751 – – – – 6,319 – – 10,675 44,643 86,554 51,801 11,682	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) – – 354 – – – – 27,329 – – 4,343 14,643 – – 2,341 – – 1,801 1,801 – – – – – 9,341 – 30,000 50,000 50,000 – 6,332 – – – – – – 751 – – – – 6,319 – – 10,675 44,643 86,554 51,801 11,682
		11,682

– 101 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

7. Profit/(loss) before tax

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

Cost of inventories sold Provision against obsolete inventories Depreciation Amortisation on prepaid land lease payments Loss/(gain) on disposal of items in property, plant and equipment Minimum lease payments under operating leases: Land and buildings Others Auditors’ remuneration Staff costs (including directors’ remuneration)(note 9): Wages and salaries Pension scheme contributions _Less:_Forfeited contributions Net pension scheme contributions Gross rental income Exchange losses/(gains), net Impairment of goodwill arising from acquisition of associates*

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) 154,741 197,376 374,129 102,334 346,270 – 3,339 – – – 9,445 9,236 10,002 5,679 6,370 2,263 2,375 2,795 287 1,509 (99) (150) 116 (12) (82) 3,870 3,778 3,398 1,834 1,697 – 200 2,004 225 3,327 3,870 3,978 5,402 2,059 5,024 1,416 1,498 1,964 770 1,092 33,727 44,554 45,133 15,079 22,600 1,066 1,110 1,230 622 707 (30) (17) (46) (27) (61) 1,036 1,093 1,184 595 646 34,763 45,647 46,317 15,674 23,246 (546) (603) (696) (348) (1,460) 1,013 (167) 354 (38) (103) – – – – 1,900

* There was no forfeited contributions available to the Group to reduce its contributions to the pension scheme in future years for each of the Relevant Periods.

** The impairment of goodwill arising from acquisition of associates is included in “Share of profits and losses of associates” on the face of the consolidated income statements.

– 102 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

8. Finance costs

Interest on bank loans, overdrafts and other loans wholly repayable within five years Interest on convertible note Hire purchase interest	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) 306 374 476 72 5,312 6,937 4,741 3,973 2,237 1,649 7 – – – – 7,250 5,115 4,449 2,309 6,961	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) (Unaudited) 306 374 476 72 5,312 6,937 4,741 3,973 2,237 1,649 7 – – – – 7,250 5,115 4,449 2,309 6,961
		6,961

9.

Directors’ remuneration

Directors’ remuneration for each of the Relevant Periods is as follows:

Fees Other emoluments: Salaries, allowances and benefits in kind Bonuses Pension scheme contributions	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,500 1,500 1,900 850 950 6,240 6,480 8,060 3,350 3,835 3,200 5,400 7,200 – – 48 48 48 24 24 10,988 13,428 17,208 4,224 4,809	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 1,500 1,500 1,900 850 950 6,240 6,480 8,060 3,350 3,835 3,200 5,400 7,200 – – 48 48 48 24 24 10,988 13,428 17,208 4,224 4,809
		4,809

(a) Independent non-executive directors

The fees paid to independent non-executive directors during each of the Relevant Periods were as follows:

Mr. Wong Wai Kwong, David Mr. Ng Kwok Fu Mr. Wong Yat Fai	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 500 500 700 250 250 – – 100 50 100 – – 100 50 100 500 500 900 350 450	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 500 500 700 250 250 – – 100 50 100 – – 100 50 100 500 500 900 350 450
		450

There were no other emoluments payable to the independent non-executive directors during each of the Relevant Periods.

– 103 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

(b) Executive directors and non-executive director

Group

Salaries, allowances and benefits Fees in kind HK$’000 HK$’000 Year ended 31 December 2003 Executive directors: Mr. Cheung Chung Kiu – 1,950 Mr. Yuen Wing Shing – 1,820 Mr. Zhang Qing Xin – 650 Mr. Lam Hiu Lo – 1,040 Mr. Liang Kang – 780 – 6,240 Non-executive director: Mr. Lee Ka Sze, Carmelo 1,000 – 1,000 6,240 Year ended 31 December 2004 Executive directors: Mr. Cheung Chung Kiu – 2,070 Mr. Yuen Wing Shing – 1,940 Mr. Zhang Qing Xin – 650 Mr. Lam Hiu Lo – 1,040 Mr. Liang Kang – 780 – 6,480 Non-executive director: Mr. Lee Ka Sze, Carmelo 1,000 – 1,000 6,480	Pension scheme Total Bonuses contributions remuneration HK$’000 HK$’000 HK$’000 800 12 2,762 800 12 2,632 400 – 1,050 800 12 1,852 400 12 1,192 3,200 48 9,488 – – 1,000 3,200 48 10,488 3,000 12 5,082 800 12 2,752 400 – 1,050 800 12 1,852 400 12 1,192 5,400 48 11,928 – – 1,000 5,400 48 12,928	Pension scheme Total Bonuses contributions remuneration HK$’000 HK$’000 HK$’000 800 12 2,762 800 12 2,632 400 – 1,050 800 12 1,852 400 12 1,192 3,200 48 9,488 – – 1,000 3,200 48 10,488 3,000 12 5,082 800 12 2,752 400 – 1,050 800 12 1,852 400 12 1,192 5,400 48 11,928 – – 1,000 5,400 48 12,928
		9,488 1,000
		10,488
		5,082 2,752 1,050 1,852 1,192
		11,928 1,000
		12,928

– 104 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Group

Salaries, allowances and benefits Fees in kind HK$’000 HK$’000 Year ended 31 December 2005 Executive directors: Mr. Cheung Chung Kiu – 3,160 Mr. Yuen Wing Shing – 2,190 Mr. Zhang Qing Xin – 770 Mr. Lam Hiu Lo – 1,100 Mr. Liang Kang – 840 – 8,060 Non-executive director: Mr. Lee Ka Sze, Carmelo 1,000 – 1,000 8,060 Six months ended 30 June 2005 (Unaudited) Executive directors: Mr. Cheung Chung Kiu – 1,110 Mr. Yuen Wing Shing – 1,000 Mr. Zhang Qing Xin – 350 Mr. Lam Hiu Lo – 505 Mr. Liang Kang – 385 – 3,350 Non-executive director: Mr. Lee Ka Sze, Carmelo 500 – 500 3,350 Six months ended 30 June 2006 Executive directors: Mr. Cheung Chung Kiu – 1,440 Mr. Yuen Wing Shing – 1,070 Mr. Zhang Qing Xin – 385 Mr. Lam Hiu Lo – 535 Mr. Liang Kang – 405 – 3,835 Non-executive director: Mr. Lee Ka Sze, Carmelo 500 – 500 3,835	Pension scheme Total Bonuses contributions remuneration HK$’000 HK$’000 HK$’000 4,000 12 7,172 1,000 12 3,202 600 – 1,370 1,000 12 2,112 600 12 1,452 7,200 48 15,308 – – 1,000 7,200 48 16,308 – 6 1,116 – 6 1,006 – – 350 – 6 511 – 6 391 – 24 3,374 – – 500 – 24 3,874 – 6 1,446 – 6 1,076 – – 385 – 6 541 – 6 411 – 24 3,859 – – 500 – 24 4,359	Pension scheme Total Bonuses contributions remuneration HK$’000 HK$’000 HK$’000 4,000 12 7,172 1,000 12 3,202 600 – 1,370 1,000 12 2,112 600 12 1,452 7,200 48 15,308 – – 1,000 7,200 48 16,308 – 6 1,116 – 6 1,006 – – 350 – 6 511 – 6 391 – 24 3,374 – – 500 – 24 3,874 – 6 1,446 – 6 1,076 – – 385 – 6 541 – 6 411 – 24 3,859 – – 500 – 24 4,359
		15,308 1,000
		16,308
		1,116 1,006 350 511 391
		3,374 500
		3,874
		1,446 1,076 385 541 411
		3,859 500
		4,359

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

– 105 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

10. Five highest paid employees

The five highest paid employees included three, two, three, two and two directors for the years ended 31 December 2003, 2004 and 2005, and the six months ended 30 June 2005 and 2006, details of whose remuneration are set out in note 9 above. Details of the remuneration of the remaining two, three, two, three and three non-director, highest paid employees for the Relevant Periods are as follows:

Basic salaries, housing allowances, other allowances and benefits in kind Bonuses Pension scheme contributions	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,750 5,171 4,425 2,630 2,827 500 7,400 800 – 1,060 114 132 132 95 103 4,364 12,703 5,357 2,725 3,990	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,750 5,171 4,425 2,630 2,827 500 7,400 800 – 1,060 114 132 132 95 103 4,364 12,703 5,357 2,725 3,990
		3,990

The number of non-director, highest paid employees whose remuneration fell within the following bands is as follows:

Nil to HK$1,000,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000 HK$3,000,001 to HK$3,500,000 HK$9,000,001 to HK$9,500,000	Group Number of employees Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 (Unaudited) – – – 2 2 1 2 – 1 – – – 1 – – 1 – – – 1 – – 1 – – – 1 – – – 2 3 2 3 3	Group Number of employees Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 (Unaudited) – – – 2 2 1 2 – 1 – – – 1 – – 1 – – – 1 – – 1 – – – 1 – – – 2 3 2 3 3
		3

– 106 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

11. Tax

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profits arising in Hong Kong.

Group: Current – Hong Kong Charge for the year Underprovision/(overprovision) in prior years Additional tax assessments for the years of assessment from 1993/94 to 2002/03 Deferred_(note 32)_ Total tax charge for the year/period	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,351 8,577 3,564 1,497 9,697 377 (4,118) 1,553 – – – 4,694 – – – 4,728 9,153 5,117 1,497 9,697 (672) 2,062 (2) (724) 145 4,056 11,215 5,115 773 9,842	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 4,351 8,577 3,564 1,497 9,697 377 (4,118) 1,553 – – – 4,694 – – – 4,728 9,153 5,117 1,497 9,697 (672) 2,062 (2) (724) 145 4,056 11,215 5,115 773 9,842
		9,697 145
		9,842

A reconciliation of the tax expense applicable to profit/(loss) before tax using the statutory rate to the tax expense at the effective tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax rate, are as follows:

Profit/(loss) before tax Tax at the statutory tax rate Underprovision/(overprovision) of tax in prior years Additional tax assessments for the years of assessment 1993/94 to 2002/03 Profits and losses attributable to a jointly-controlled entity and associates Income not subject to tax Expenses not deductible for tax Utilisation of tax losses brought forward from previous years Tax losses not recognised Others Tax charge at the Group’s effective rate	2003 HK$’000 120,044 21,008 377 – (3,313 ) (30,642 ) 30,082 (17,623 ) 4,883 (716 ) 4,056	Year ended 2004 % HK$’000 251,559 17.5 44,023 0.3 (4,118 ) – 4,694 (2.8 ) (7,421 ) (25.5 ) (32,503 ) 25.1 16,292 (14.7 ) (12,038 ) 4.1 2,231 (0.6 ) 55 3.4 11,215	Group Six months ended 31 December 30 June 2005 2005 2006 % HK$’000 % HK$’000 % HK$’000 (Unaudited) (5,028 ) 121,770 148,047 17.5 (880 ) 17.5 21,310 17.5 25,908 (1.6 ) 1,553 (30.9 ) – – – 1.9 – – – – – (3.0 ) (15,616 ) 310.6 (15,393 ) (12.6 ) (9,348 ) (12.9 ) (8,884 ) 176.7 (16,385 ) (13.5 ) (10,076 ) 6.5 12,138 (241.4 ) 9,969 8.2 1,503 (4.8 ) (10 ) 0.2 (27 ) – (579 ) 0.9 17,241 (342.9 ) 2,023 1.6 1,948 – (427 ) 8.5 (724 ) (0.6 ) 486 4.5 5,115 (101.7 ) 773 0.6 9,842	% 17.5 – – (6.3 (6.8 1.0 (0.4 1.3 0.3
				6.6

– 107 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The share of tax attributable to associates amounting to HK$2,778,000, HK$7,782,000, HK$13,505,000, HK$4,392,000 and HK$6,567,000 for the years ended 31 December 2003, 2004 and 2005, and the six months ended 30 June 2005 and 2006 is included in “Share of profits and losses of associates” on the face of the consolidated income statement.

The share of tax attributable to a jointly-controlled entity amounting to HK$572,000 for the year ended 31 December 2003 is included in “Share of profits and losses of a jointly-controlled entity” on the face of the consolidated income statement. The Group did not share any tax attributable to its jointly-controlled entity for the years ended 2004 and 2005, and the six months ended 30 June 2005 and 2006.

12. Net profit/(loss) attributable to equity holders of the Company

The amounts of net profit/(loss) attributable to equity holders of the Company for the years ended 31 December 2003, 2004 and 2005, and the six months ended 30 June 2005 and 2006 dealt with in the financial statements of the Company, were profits of HK$29,896,000, HK$25,642,000, HK$26,567,000 and HK$29,860,000 and loss of HK$5,685,000, respectively.

13. Dividend

Proposed final Dividend per ordinary share	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 16,907 25,360 26,173 HK 0.2 cents HK 0.3 cents HK 0.3 cents	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited) N/A N/A N/A N/A	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited) N/A N/A N/A N/A
			N/A

No interim dividend was declared for each of the above periods.

14. Earnings/(loss) per share attributable to ordinary equity holders of the Company

The calculation of the basic earnings/(loss) per share amount is based on the net profit/(loss) for the year/period attributable to ordinary equity holders of the Company, and the weighted average number of ordinary shares in issue during the year/period.

The calculation of the diluted earnings/(loss) per share amount is based on the net profit/(loss) for the year/period attributable to ordinary equity holders of the Company, adjusted to reflect the interest on the convertible note, where applicable (see below). The weighted average number of ordinary shares used in the calculation is the ordinary shares in issue during the year/period, as used in the basic earnings per share calculation and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

– 108 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The calculations of basic and diluted earnings/(loss) per share are based on:

Group

						Six months ended	Six months ended
	Year ended 31 December						30 June
	2003	2004		2005		2005	2006
	HK$’000	HK$’000		HK$’000		HK$’000	HK$’000
	(Restated)					(Unaudited)
Earnings/(loss)
Net profit/(loss) attributable
to ordinary equity holders
of the Company, used in
the basic earnings/(loss)
per share calculation	105,797	223,953		(26,579)		114,966	125,435
Increase in profit for deemed
conversion of
convertible note	6,937	4,741		3,973		2,237	1,649
Net profit/(loss) attributable
to ordinary equity holders
of the Company used in
the calculation of diluted
earnings/(loss) per share	112,734	228,694		(22,606)		117,203	127,084
		Number of shares
						Six months ended
	Year ended 31 December						30 June
	2003	2004		2005		2005	2006
						(Unaudited)
Shares
Weighted average number of
ordinary shares in issue
during the year/period used
in the basic earnings/(loss)
per share calculation	8,453,321,700	8,453,321,700		8,569,146,358		8,453,321,700	8,724,321,700
Effect of dilution – weighted
average number of
ordinary shares:
Convertible note	909,090,909	877,808,219		795,138,100		933,333,333	605,792,682
Weighted average number of
ordinary shares in issue
during the year/period
used in the diluted
earnings/(loss) per share
calculation	9,362,412,609	9,331,129,919		9,364,284,458		9,386,655,033	9,330,114,382

For the year ended 31 December 2003, share options and warrants outstanding during that year had anti-dilutive effects on the basic earnings per share for that year and were therefore ignored in the calculation of diluted earnings per share.

The diluted loss per share amount for the year ended 31 December 2005 has not been disclosed as the convertible note outstanding during that year had an anti-dilutive effect on the basic loss per share for that year.

– 109 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

15. Property, plant and equipment

Group 31 December 2003 (Restated) At 1 January 2003: Cost Accumulated depreciation Net carrying amount At 1 January 2003, net of accumulated depreciation Additions Disposal Transfer to investment properties (note 16) Depreciation provided during the year At 31 December 2003, net of accumulated depreciation At 31 December 2003: Cost Accumulated depreciation Net carrying amount	Buildings HK$’000 85,663 (2,826) 82,837 82,837 302 – (7,432) (1,990) 73,717 76,864 (3,147) 73,717	Leasehold improve- ments HK$’000 4,056 (2,385 ) 1,671 1,671 54 – – (406 ) 1,319 4,110 (2,791 ) 1,319	Furniture and fixtures HK$’000 18,129 (9,126 ) 9,003 9,003 1,035 (3 ) – (1,553 ) 8,482 19,160 (10,678 ) 8,482	Office equipment HK$’000 2,337 (1,968 ) 369 369 65 – – (147 ) 287 2,395 (2,108 ) 287	Motor vehicles and yachts HK$’000 19,666 (14,457 ) 5,209 5,209 – (87) – (2,301 ) 2,821 16,144 (13,323 ) 2,821	Plant and machinery HK$’000 24,985 (13,628 ) 11,357 11,357 549 – – (2,170 ) 9,736 25,534 (15,798 ) 9,736	Moulds HK$’000 6,634 (3,383) 3,251 3,251 1,073 – – (878 ) 3,446 7,707 (4,261) 3,446	Total HK$’000 161,470 (47,773 ) 113,697 113,697 3,078 (90) (7,432) (9,445) 99,808 151,914 (52,106 ) 99,808

– 110 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Group

31 December 2004 At 31 December 2003 and 1 January 2004: Cost Accumulated depreciation Net carrying amount At 1 January 2004, net of accumulated depreciation Additions Depreciation provided during the year At 31 December 2004, net of accumulated depreciation At 31 December 2004: Cost Accumulated depreciation Net carrying amount	Buildings HK$’000 76,864 (3,147) 73,717 73,717 2,019 (2,023) 73,713 78,883 (5,170) 73,713	Leasehold improve- ments HK$’000 4,110 (2,791 ) 1,319 1,319 146 (345 ) 1,120 4,256 (3,136 ) 1,120	Furniture and fixtures HK$’000 19,160 (10,678 ) 8,482 8,482 1,138 (1,646 ) 7,974 20,298 (12,324 ) 7,974	Office equipment HK$’000 2,395 (2,108 ) 287 287 55 (119 ) 223 2,450 (2,227 ) 223	Motor vehicles and yachts HK$’000 16,144 (13,323 ) 2,821 2,821 1,862 (1,889 ) 2,794 17,532 (14,738 ) 2,794	Plant and machinery HK$’000 25,534 (15,798 ) 9,736 9,736 1,922 (2,212 ) 9,446 27,456 (18,010 ) 9,446	Moulds HK$’000 7,707 (4,261) 3,446 3,446 1,322 (1,002) 3,766 9,029 (5,263) 3,766	Total HK$’000 151,914 (52,106 ) 99,808 99,808 8,464 (9,236) 99,036 159,904 (60,868 ) 99,036

– 111 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Group

31 December 2005 At 31 December 2004 and at 1 January 2005: Cost Accumulated depreciation Net carrying amount At 1 January 2005, net of accumulated depreciation Additions Disposal Acquisition of subsidiaries (note 35) Impairment Depreciation provided during the year Exchange realignment At 31 December 2005, net of accumulated depreciation At 31 December 2005: Cost Accumulated depreciation and impairment Net carrying amount	Buildings HK$’000 78,883 (5,170 ) 73,713 73,713 10,128 – 20,240 (751 ) (2,409 ) 352 101,273 109,603 (8,330 ) 101,273	Leasehold improve- ments HK$’000 4,256 (3,136 ) 1,120 1,120 517 – – – (423) – 1,214 4,773 (3,559 ) 1,214	Furniture and fixtures HK$’000 20,298 (12,324 ) 7,974 7,974 2,352 (41 ) 1,406 – (1,904 ) 25 9,812 23,962 (14,150 ) 9,812	Office equipment HK$’000 2,450 (2,227 ) 223 223 164 – – – (122 ) – 265 2,614 (2,349 ) 265	Motor vehicles and yachts HK$’000 17,532 (14,738 ) 2,794 2,794 1,277 (91 ) 1,014 – (1,383 ) 10 3,621 18,225 (14,604 ) 3,621	Plant and machinery HK$’000 27,456 (18,010 ) 9,446 9,446 1,666 (19 ) 5,518 – (2,672 ) 106 14,045 34,713 (20,668 ) 14,045	Construction Moulds in progress HK$’000 HK$’000 9,029 – (5,263 ) – 3,766 – 3,766 – 957 190 – – – – – – (1,089 ) – – – 3,634 190 9,986 190 (6,352 ) – 3,634 190	Total HK$’000 159,904 (60,868 ) 99,036 99,036 17,251 (151 ) 28,178 (751 ) (10,002 ) 493 134,054 204,066 (70,012 ) 134,054

– 112 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Group

Six months ended 30 June 2006 At 31 December 2005 and at 1 January 2006: Cost Accumulated depreciation Net carrying amount At 1 January 2006, net of accumulated depreciation Additions Disposal Disposal of subsidiaries_(note 40)_ Depreciation provided during the period Transfers At 30 June 2006, net of accumulated depreciation At 30 June 2006: Cost Accumulated depreciation and impairment Net carrying amount	Buildings HK$’000 109,603 (8,330 ) 101,273 101,273 418 – (3,758 ) (1,616 ) – 96,317 105,487 (9,170 ) 96,317	Leasehold improve- ments HK$’000 4,773 (3,559 ) 1,214 1,214 – – – (238) – 976 4,773 (3,797 ) 976	Furniture and fixtures HK$’000 23,962 (14,150 ) 9,812 9,812 919 (14 ) – (1,319 ) 19 9,417 24,826 (15,409 ) 9,417	Office equipment HK$’000 2,614 (2,349 ) 265 265 64 – – (51 ) – 278 2,678 (2,400 ) 278	Motor vehicles and yachts HK$’000 18,225 (14,604 ) 3,621 3,621 4,110 – – (1,008 ) – 6,723 22,335 (15,612 ) 6,723	Plant and machinery HK$’000 34,713 (20,668 ) 14,045 14,045 1,174 – – (1,603 ) – 13,616 35,887 (22,271 ) 13,616	Construction Moulds in progress HK$’000 HK$’000 9,986 190 (6,352 ) – 3,634 190 3,634 190 252 484 – – – – (535 ) – – (19 ) 3,351 655 10,238 655 (6,887 ) – 3,351 655	Total HK$’000 204,066 (70,012 ) 134,054 134,054 7,421 (14 ) (3,758 ) (6,370 ) – 131,333 206,879 (75,546 ) 131,333

Certain of the Group’s leasehold buildings were pledged to banks to secure banking facilities granted to the Group (note 39) .

16. Investment properties

Carrying amount at 1 January Transfer from property, plant and equipment (note 15) Additions Net profit/(loss) from a fair value adjustment Disposal of subsidiaries_(note 40)_ Carrying amount at end of year/period	2003 HK$’000 5,500 7,432 – (6,332) – 6,600	Group 31 December 2004 2005 HK$’000 HK$’000 6,600 6,700 – – – 44,669 100 3,800 – – 6,700 55,169	30 June 2006 HK$’000 55,169 – – 1,930 (45,999) 11,100

The Group’s investment properties were situated in Hong Kong and were held under long term leases.

– 113 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The Group’s investment properties were revalued on 31 December 2003, 2004 and 2005 and 30 June 2006 by Savills Valuation and Professional Services Limited, independent professionally qualified valuers, on an open market, existing use basis. The investment properties are leased to third parties under operating leases, further summary details of which are included in note 37.

At 31 December 2003, 2004, 2005 and 30 June 2006, the Group’s investment properties with aggregate values of HK$6,600,000, HK$6,700,000, HK$10,500,000 and HK$11,100,000, respectively, were pledged to secure bank loans granted to the Group (note 39) .

17. Prepaid land lease payments

Carrying amount 1 January Additions Impairment Acquisition of subsidiaries_(note 35)_ Recognised during the year/period Exchange realignment At end of year/period Current portion Non-current portion	2003 HK$’000 122,908 250 – – (2,263) – 120,895 (2,262) 118,633	Group 31 December 2004 2005 HK$’000 HK$’000 120,895 125,949 7,429 26,553 – (6,319) – 2,992 (2,375) (2,795) – 90 125,949 146,470 (2,422) (2,906) 123,527 143,564	30 June 2006 HK$’000 146,470 – – – (1,509 –
			144,961 (2,921
			142,040

The Group’s leasehold lands are held under the following lease terms:

In Hong Kong: Long term leases Medium term leases In Mainland China: Long term leases Medium term leases Total Long term leases Medium term leases	2003 HK$’000 87,787 9,132 96,919 – 23,976 23,976 87,787 33,108 120,895	31 December 2004 2005 HK$’000 HK$’000 86,729 102,108 15,816 18,512 102,545 120,620 – – 23,404 25,850 23,404 25,850 86,729 102,108 39,220 44,362 125,949 146,470	30 June 2006 HK$’000 101,133 18,296
			119,429
			– 25,532
			25,532
			101,133 43,828
			144,961

Certain of the Group’s leasehold lands were pledged to banks to secure banking facilities granted to the Group (note 39) .

– 114 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

18. Goodwill/negative goodwill

The amounts of the negative goodwill recognised in the consolidated balance sheet, arising from the acquisition of subsidiaries, are as follows:

Cost At 1 January 2003 Arising from an additional investment in a subsidiary At 31 December 2003 and 1 January 2004 Realised upon partial disposal of a subsidiary At 31 December 2004 and at 1 January 2005 Effect of adopting HKFRS 3_(note 2.2(a)) Acquisition of subsidiaries(note 35) At 31 December 2005 and at 30 June 2006 Accumulated amortisation At 1 January 2003 Recognised as income during the year At 31 December 2003 and 1 January 2004 Recognised as income during the year Realised upon partial disposal of a subsidiary At 31 December 2004 and at 1 January 2005 Effect of adopting HKFRS 3(note 2.2(a))_ At 31 December 2005 and at 30 June 2006 Net carrying amount At 31 December 2003 At 31 December 2004 At 31 December 2005 and at 30 June 2006	Goodwill HK$’000 – – – – – – 35,297 35,297 – – – – – – – – – – 35,297	Group Negative goodwill HK$’000 79,465 25,070 104,535 (12,692) 91,843 (91,843) – – 36,547 7,755 44,302 7,584 (3,993) 47,893 (47,893) – 60,233 43,950 –	Total HK$’000 79,465 25,070 104,535 (12,692) 91,843 (91,843) 35,297 35,297 36,547 7,755 44,302 7,584 (3,993) 47,893 (47,893) – 60,233 43,950 35,297

In 2004, negative goodwill not previously credited to the consolidated reserves was amortised on the straight-line basis over its estimate useful life of 10 years.

– 115 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

19.

Impairment testing of goodwill

Goodwill acquired through business combination has been allocated to the cash-generating unit of the manufacture and sale of luggage products, which is a reportable segment, for impairment testing:

The recoverable amount of the cash-generating unit (“CGU”) of the manufacture and sale of luggage products has been determined based on a value-in-use calculation using cash flow projections based on financial budgets covering a five-year period approved by the management. The discount rate applied to cash flow projections is 6%, while it is assumed that the unit will not have any growth in business.

Key assumptions were used in the value-in-use calculation of the cash-generating unit of the manufacture and sale of luggage products for 31 December 2005 and 30 June 2006. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

Budgeted gross margins – The basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year.

Discount rates – The discount rates used are before tax and reflect specific risks relating to the cashgenerating units.

Interests in subsidiaries

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries	2003 HK$’000 105,759 1,790,266 (10,603) 1,885,422	Company 31 December 2004 2005 HK$’000 HK$’000 105,759 105,759 1,820,899 1,762,231 (59,715) – 1,866,943 1,867,990	30 June 2006 HK$’000 105,759 1,732,063 –
			1,837,822

Except for the amount due from a subsidiary amounting to HK$9,317,000, HK$7,800,000, HK$3,900,000 and HK$3,900,000 at 31 December 2003, 2004 and 2005 and 30 June 2006 which bears interest at the best lending rate of the Hongkong and Shanghai Banking Corporation Limited plus 2% per annum, the amounts due from and to subsidiaries are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of these amounts due from and to subsidiaries approximate to their fair values.

– 116 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Details of the principal subsidiaries as at the date of this report are as follows:

		Nominal value
	Place of	of issued	Percentage
	incorporation/	and paid-up/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
Big Brother Resources	British Virgin	US$1	100	Property holding
Limited	Islands/
	Hong Kong
Bonco Limited	British Virgin	US$1	100	Property holding
	Islands/
	Hong Kong
Bookman Properties	British Virgin	US$1	100	Investment in
Limited	Islands/			listed securities
	Hong Kong
Chase Create Investments	Hong Kong	HK$2	100	Property holding
Limited
Dynamic Award	British Virgin	US$1	100	Investment holding
International Limited	Islands
Eastern Bloom Limited	British Virgin	US$1	100	Investment holding
	Islands/
	Hong Kong
Ferrex Holdings Limited	British Virgin	US$1	100	Investment holding
	Islands
First River Investments	British Virgin	US$1	100	Investment holding
Limited	Islands
Funrise Limited	British Virgin	US$1	100	Investment holding
	Islands
Joywell Holdings Limited	British Virgin	US$1	100	Investment holding
	Islands
Kent Smart Investments	Hong Kong	HK$2	100	Property holding
Limited
Maxking Industries Limited	Hong Kong	HK$2	100	Investment holding
Maxlord Enterprises Limited	Hong Kong	HK$2	100	Money lending
Megaspace Asia Limited	British Virgin	US$1	100	Property holding
	Islands/
	Hong Kong
New Wealth Limited	Hong Kong	HK$2	100	Property investment

– 117 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

		Nominal value
	Place of	of issued	Percentage
	incorporation/	and paid-up/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
Regulator Holdings Limited	British Virgin	US$1	100	Investment holding
	Islands
Senico Investments Limited	British Virgin	US$1	100	Trading
	Islands
Time Lander Limited	British Virgin	US$1	100	Property holding
	Islands/
	Hong Kong
Top Eagle Holdings Limited	British Virgin	US$1	100	Investment holding
	Islands
Yugang Finance Limited	Hong Kong	HK$2	100	Treasury
Yugang International (B.V.I.)	British Virgin	US$5	100	Investment holding
Limited	Islands
Yugang Management Limited	Hong Kong	HK$2	100	Corporate
				Management
Ablelink Investments Limited*	British Virgin	US$100	64.54	Investment holding
	Islands
Empire New Assets Limited*	British Virgin	US$100	64.54	Property holding
	Islands
Ensure Success Holdings	British Virgin	US$100	64.54	Investment holding
Limited*	Islands
Global Palace Investments	British Virgin	US$1,000	64.54	Property holding
Limited*	Islands/
	Hong Kong
Onestep Enterprises Limited*	British Virgin	US$100	64.54	Investment holding
	Islands
Qualipak International Holdings	Bermuda	HK$39,395,000	64.54	Investment holding
Limited/*
Qualipak Development Limited*	British Virgin	US$10,000	64.54	Investment holding
	Islands
Qualipak Finance Limited*	Hong Kong	HK$2	64.54	Provision of
				financial services
Qualipak Fortune Inc.*	British Virgin	US$10,000	64.54	Manufacture of
	Islands/			watch boxes,
	PRC			gift boxes,
				spectacles
				cases and bags
				and pouches

– 118 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

		Nominal value
	Place of	of issued	Percentage
	incorporation/	and paid-up/	of equity
	registration	registered	attributable to	Principal
Name	and operations	share capital	the Company	activities
Qualipak Manufacturing	Hong Kong	Ordinary	64.54	Trading of
Limited*		HK$100		watch boxes, gift
		non-voting		boxes, spectacles
		deferred		cases, bags and
		HK$22,303,857		pouches and
				display units
Qualipak Manufacturing	British Virgin	US$1	64.54	Investment holding
(China) Limited*	Islands
Qualipak Production Inc.*	British Virgin	US$10,000	64.54	Manufacture
	Islands/PRC			of watch boxes,
				gift boxes and
				display units
Winning Hand Management	British Virgin	US$1	64.54	Property holding
Limited*	Islands/PRC
Wisdom Way Limited*	Hong Kong	HK$2	64.54	Property holding
Worthwell Investments	British Virgin	US$50,000	64.54	Investment holding
Limited*	Islands/
	Hong Kong
Hoi Tin Universal Limited*/#	Hong Kong	HK$1,000,000	38.72	Sale of soft
				luggage, travel
				bags, backpacks
				and brief cases
Young Comfort Development	Hong Kong	HK$10,000	29.04	Manufacture
Limited*/#				and sale of
				soft luggage,
				travel bags,
				backpacks and
				brief cases
海天環球旅游用品	PRC	US$5,000,000	38.72	Manufacture
(蘇州)有限公司*/#				and sale of
				soft luggage,
				travel bags,
				backpacks and
				brief cases

Except for Yugang International (B.V.I.) Limited, all of the subsidiaries are indirectly held by the Company.

• These subsidiaries were not audited by Ernst & Young.

• ** This subsidiary is listed on the Stock Exchange of Hong Kong.

• These subsidiaries are subsidiaries of non-wholly-owned subsidiaries of the Company and accordingly are accounted for as subsidiaries by virtue of the Company’s control over the entities.

– 119 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

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

During the year ended 31 December 2005, the Group acquired Hoi Tin Universal Limited. Further details of this acquisition are included in note 35.

20. Investment in a jointly-controlled entity

		Group
		31 December		30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Share of net assets	5,304	4,578	3,669	–

The jointly-controlled entity was disposed of during the six months ended 30 June 2006 (note 40) .

Particulars of the jointly-controlled entity are as follows:

Place of Business registration Name structure and operations 青島海信網絡科技 Corporate PRC 股份有限公司	Percentage of Ownership Voting Profit Principal interest power sharing activities 35 40 35 Trading and manufacture of software products

The above jointly-controlled entity was not audited by Ernst & Young and is held through a subsidiary.

21.

Interests in associates

Share of net assets: – Listed shares – Unlisted shares Goodwill on acquisition Negative goodwill on acquisition Loan to an associate Market value of listed shares	2003 HK$’000 623,977 – – (5,041) 618,936 – 618,936 136,500	Group 31 December 2004 2005 HK$’000 HK$’000 664,445 797,645 – 7,017 – 31,789 (4,515) – 659,930 836,451 – 3,000 659,930 839,451 212,940 283,920	30 June 2006 HK$’000 846,724 2,308 29,889 –
			878,921 3,000
			881,921
			382,200

The loan to an associate is unsecured, interest-free and has no fixed terms of repayment. The carrying amount of this loan approximates to its fair value.

– 120 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

On 3 June 2005, the Group acquired a 30% equity interest in Technical International Holdings Limited (“Technical International”), a company incorporated in the British Virgin Islands with limited liability, for a cash consideration of HK$33,000,000, subject to adjustment, as described in the circular of the Company dated 27 June 2005. Technical International and its subsidiaries (the “Technical Group”) principally engage in the business of design, trading and marketing of knives, corkscrews and kitchenware in Hong Kong.

The total consideration of HK$33,000,000 for the acquisition was in the form of cash, of which HK$30,000,000 was paid during the year, and the remaining balance of HK$3,000,000 (subject to adjustment as stipulated in the sale and purchase agreement entered into with the vendor) is payable within seven business days from the issue of the audited consolidated financial statements of the Technical Group for the year ending 31 December 2006. Goodwill arising from this acquisition amounted to HK$31,789,000.

The movements of goodwill arising from acquisition of associates are set out below:

Acquisition of associates during the year ended 31 December 2005 Cost and net carrying amount at 31 December 2005 and at 1 January 2006 Impairment provided during the period Net carrying amount at 30 June 2006 At 30 June 2006: Cost Accumulated impairment Net carrying amount	HK$’000 31,789 31,789 (1,900) 29,889 31,789 (1,900) 29,889

Impairment testing on goodwill arising from acquisition of associates

For the purpose of impairment testing, goodwill set out above is allocated to the business of the associates as a CGU.

The recoverable amount of the CGU has been determined based on value in use calculation. This calculation uses cash flow projections based on financial budgets approved by management covering a five-year period and a discount rate of 6%. No growth rate is assumed in the calculation. Another key assumption for the value in use calculation is the budgeted gross margin, which is determined based on the CGU’s past performance and management’s expectation for the market development.

– 121 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Particulars of the principal associates are as follows:

	Place of		Percentage
	incorporation/	Particulars	of equity
	registration	of issued	attributable
Name	and operations	shares held	to the Group	Principal activities
Y.T. Realty Group Limited*	Bermuda	Ordinary shares	34.14	Investment holding
		of HK$0.1 each
Apex Rich Group Limited	British Virgin	Ordinary shares	34.14	Investment holding
	Islands/	of US$1 each
	Hong Kong
Benefit Plus Company	Hong Kong	Ordinary shares	34.14	Property investment
Limited		of HK$1 each
Best View Limited	British Virgin	Ordinary shares	34.14	Property holding
	Islands/	of US$1 each
	Hong Kong
E-Tech Services Limited	Hong Kong	Ordinary shares	34.14	Property management
		of HK$1 each
Harson Investment Limited	Hong Kong	Ordinary shares	34.14	Property investment
		of HK$1 each
Honway Holdings Limited	British Virgin	Ordinary shares	34.14	Investment holding
	Islands/	of US$1 each
	Hong Kong
Mainland Sun Limited	British Virgin	Ordinary shares	34.14	Property investment
	Islands/PRC	of US$1 each
Score Goal Investment Limited	Hong Kong	Ordinary shares	34.14	Property investment
		of HK$1 each
Score Target Investment Limited	Hong Kong	Ordinary shares	34.14	Property trading
		of HK$1 each
Y.T. (China) Limited	Hong Kong/	Ordinary shares	34.14	Investment holding
	PRC	of HK$1 each
Y.T. Finance Limited	Hong Kong	Ordinary shares	34.14	Finance vehicle
		of HK$500 each
Y. T. Investment Holdings	British Virgin	Ordinary shares	34.14	Investment holding
Limited	Islands/	of US$1 each
	Hong Kong
Y.T. Investment Management	British Virgin	Ordinary shares	34.14	Securities investment
Limited	Islands/PRC	of US$1 each
Y. T. Properties International	British Virgin	Ordinary shares	34.14	Investment holding
Limited	Islands/	of US$1 each
	Hong Kong
Y.T. Property Services Limited	Hong Kong	Ordinary shares	34.14	Property management
		of HK$1 each

– 122 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

	Place of		Percentage
	incorporation/	Particulars	of equity
	registration	of issued	attributable
Name	and operations	shares held	to the Group	Principal activities
Winwide Excel Limited	British Virgin	Ordinary shares	34.14	Investment holding
	Islands/	of US$1 each
	Hong Kong
Technical International Holdings	British Virgin	Ordinary shares	19.36	Investment holding
Limited#	Islands	of US$1 each
Technical Development (HK)	Hong Kong	Ordinary shares	19.36	Design, trading and
Limited#		of HK$1 each		marketing of
				corkscrew, and
				kitchenware
Technical (HK) Manufacturing	Hong Kong	Ordinary shares	19.36	Design, trading and
Limited#		of HK$1 each		marketing of
				corkscrew, and
				kitchenware

• This associate is listed on the Stock Exchange of Hong Kong.

These associates are held by non-wholly-owned subsidiaries of the Company, and were not audited by Ernst & Young.

The above table lists the associates of the Group which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other associates would, in the opinion of the directors, result in particulars of excessive length.

All the above associates have been accounted for using the equity method in these financial statements.

The following table illustrates the summarised financial information of the Group’s associates extracted from their financial statements:

		31 December		30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Assets	2,775,643	2,655,693	3,058,474	3,369,297
Liabilities	953,811	715,713	698,725	881,486
Revenues	105,640	89,843	235,245	91,524
Profit	28,547	94,401	268,058	156,033

– 123 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

22. Convertible debentures and notes

Unsecured and non-interest- bearing Unsecured and interest- bearing Provision for impairment _Less:_Amount classified as current assets	2003 HK$’000 – 71,860 (9,360) 62,500 (10,500) 52,000	Group 31 December 2004 2005 HK$’000 HK$’000 – 14,666 23,807 38,145 (7,807) – 16,000 52,811 – – 16,000 52,811	30 June 2006 HK$’000 – 95,427 –
			95,427 –
			95,427

At 30 June 2006, the Group held certain unlisted convertible debentures and notes issued by listed companies. These convertible debentures and notes conferred rights to the bearers to convert the whole or part of the outstanding principal amounts into shares of those listed companies at conversion prices ranging from HK$0.3 to HK$9.0 per share in the Relevant Periods. They can only be redeemed at their face values upon maturity to the extent of the amounts not previously converted. The interest-bearing convertible notes bear interest at rates ranging from 2% to 4% per annum.

Provision for impairment was made as at 31 December 2003 and 2004 against certain convertible debentures and notes to reduce their carrying values to the estimated recoverable amounts.

23. Loans receivable

Non-current: Secured Unsecured Current: Secured Unsecured Effective interest rates	2003 HK$’000 – 4,000 4,000 – 364,962 364,962 368,962 5.0% – 7.0%	Group 31 December 2004 2005 HK$’000 HK$’000 25,000 – 3,000 2,000 28,000 2,000 – 42,000 266,766 131,237 266,766 173,237 294,766 175,237 5.0% – 7.1% 5.0% – 12.8%	30 June 2006 HK$’000 – 1,000
			1,000
			– 209,991
			209,991
			210,991
			5.6% – 13.0%

– 124 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The Group’s loans receivable represents receivables arising from its money lending business and are stated at amortised cost. The credit terms are normally less than one year. As the Group’s loans receivable relate to a number of different borrowers, the directors are of the opinion that there is no significant concentration of credit risk over these loans.

24. Available-for-sale equity investment/long term investment

Unlisted equity investment in Hong Kong, at cost _Less:_Impairment	2003 HK$’000 – – –	Group 31 December 2004 2005 HK$’000 HK$’000 100,000 100,000 (30,000) (80,000) 70,000 20,000	30 June 2006 HK$’000 – –
			–

The above investment was designated as available-for-sale financial assets on 1 January 2005.

In the opinion of the directors, the fair value of the above unlisted available-for-sale equity investment cannot be reliably measured. Accordingly, the investment is stated at cost less any impairment losses. The impairment loss is measured as the difference between the investment’s carrying amount and the recoverable amount. The recoverable amount was determined with reference to the proceeds received from disposal of the investment during the six months ended 30 June 2006 (note 40) .

25. Investments at fair value through profit or loss/other investments

Listed equity investments, at market value: Hong Kong Overseas Listed debt security Overseas, at market value Unlisted debt security Hong Kong, at fair value	2003 HK$’000 371,852 – 371,852 – – 371,852	Group 31 December 2004 2005 HK$’000 HK$’000 488,747 395,447 26,408 – 515,155 395,447 8,023 – – 1,249 523,178 396,696	30 June 2006 HK$’000 523,868 –
			523,868 – –
			523,868

The above investments were classified as held for trading.

The fair values of the above investments were determined based on quoted prices in the market or obtained from financial institutions at the balance sheet dates.

– 125 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

26. Inventories

Raw materials Work in progress Finished goods	2003 HK$’000 20,981 11,471 9,793 42,245	Group 31 December 2004 2005 HK$’000 HK$’000 20,268 30,939 12,679 38,700 10,919 16,375 43,866 86,014	30 June 2006 HK$’000 34,457 30,369 19,062
			83,888

27. Trade debtors

The Group allows an average credit period of 60 days to its customers.

As the Group’s trade debtors relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade debtors are non-interest-bearing.

An aged analysis of the trade debtors at the balance sheet dates is as follows:

0 to 30 days 31 to 60 days More than 60 days	2003 HK$’000 13,131 6,970 7,636 27,737	Group 31 December 2004 2005 HK$’000 HK$’000 12,802 77,019 8,989 3,822 2,216 6,972 24,007 87,813	30 June 2006 HK$’000 87,099 26,624 17,745
			131,468

Trade receivables included discounted bills with recourse amounting to HK$12,916,000 and HK$33,495,000 as at 31 December 2005 and 30 June 2006, respectively (note 29) .

28. Trade creditors

An aged analysis of the trade creditors at the balance sheet dates is as follows:

0 to 30 days 31 to 60 days More than 60 days	2003 HK$’000 8,198 4,539 4,983 17,720	Group 31 December 2004 2005 HK$’000 HK$’000 9,456 69,044 6,965 16,393 7,665 14,967 24,086 100,404	30 June 2006 HK$’000 52,094 35,517 23,058
			110,669

The trade creditors are non-interest-bearing and are normally settled on 60-day terms.

– 126 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

29. Interest-bearing bank borrowings

Maturity Discounted bills with recourse 2006 Bank loan – secured 2006 Bank loan – unsecured 2006	2003 HK$’000 – – 80,000 80,000	Group 31 December 2004 2005 HK$’000 HK$’000 – 12,916 – 2,404 – 128 – 15,448	30 June 2006 HK$’000 33,495 2,404 –
			35,899

The Group’s bank borrowings are denominated in the following currencies:

Hong Kong dollars United States dollars Renminbi	2003 HK$’000 80,000 – – 80,000	31 December 2004 2005 HK$’000 HK$’000 – 128 – 12,916 – 2,404 – 15,448	30 June 2006 HK$’000 33,495 – 2,404
			35,899

The Group’s secured bank loan is secured by a leasehold land of the Group with a carrying value amounting to HK$2,987,000 as at 30 June 2006, and guarantees given by a subsidiary, Qualipak and minority shareholders of a subsidiary.

The carrying amounts of the Group’s bank borrowings approximate to their fair values.

The Group’s bank borrowings carry effective interest rates ranging from 5.08% to 7.22% per annum.

30.

Loans from minority shareholders

The loans are unsecured, interest-free and have no fixed terms of repayment.

The carrying amounts of these loans approximate to their fair values.

31. Convertible note

On 31 July 2001, the Company issued to Timmex Investment Limited (“Timmex”) a convertible note of HK$100,000,000 (the “Note 1”) with a maturity date of 31 July 2004, which bears interest at the rate of 5% per annum. Timmex is 100% beneficially owned by Mr. Cheung Chung Kiu, a director of the Company. The Note 1 was convertible into new ordinary shares of the Company at a conversion price of HK$0.10 per share in the first year, HK$0.11 per share in the second year and HK$0.12 per share in the third year (subject to adjustment).

On 25 May 2004, the Company entered into an agreement with Timmex in relation to the subscription by Timmex for an interest-bearing convertible note amounting to HK$70,000,000 (the “Note 2”). The Note 1 was replaced by the Note 2 upon its maturity together with the repayment of a sum of HK$30,000,000 to Timmex by the Company.

The Note 2 conferred the right on the holder to convert the whole or part of the principal amount of the Note 2 into ordinary shares of the Company at any time from 31 July 2004 (the date of issuance) for a period of three years, at a conversion price of HK$0.075 per share in the first year, HK$0.082 per share in the second year and HK$0.089 per share in the third year (subject to adjustment). The Note 2 will mature for principal repayment on 31 July 2007. Interest on the Note 2 is accrued from the date of issuance on a day-to-day basis at 3% per annum on the principal amount of the Note 2 and is payable annually in arrears.

– 127 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

On 29 July 2005, Timmex exercised the conversion right of the Note 2 in an aggregate amount of HK$20,325,000 resulting in the issue of 271,000,000 new ordinary shares of the Company.

The fair value of the liability component was estimated at the issuance date using an equivalent market interest rate for a similar note without a conversion option. The residual amount is assigned as the equity component and is included in shareholders’ equity.

The net proceed received from the issue of the Note 2 has been split between the liability and equity components, as follows:

	Liability	Equity
	component of	component of
	a convertible	a convertible
	note	note
	HK$’000	HK$’000
Nominal value of a convertible note issued
on 31 July 2004	70,000	–
Equity component	(7,620)	7,620
	62,380	7,620
Interest expense	4,741	–
Interest paid	(3,776)	–
Balance at 31 December 2004 and
at 1 January 2005	63,345	7,620
Conversion of part of the Note 2	(18,799)	(2,213)
Interest expense	3,973	–
Interest paid	(1,839)	–
Balance at 31 December 2005 and 1 January 2006	46,680	5,407
Interest expense	1,649	–
Interest paid	(739)	–
Balance at 30 June 2006	47,590	5,407

The effective interest rate on the liability component of the Note 2 is 7%.

– 128 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

32. Deferred tax

The movements in deferred tax liabilities and assets during the Relevant Periods are as follows:

Deferred tax liabilities

Group

At 1 January 2003 Deferred tax credited to the income statement during the year_(note 11) At 31 December 2003 and 1 January 2004 Deferred tax charged/(credited) to the income statement during the year(note 11) At 31 December 2004 and 1 January 2005 Acquisition of subsidiaries(note 35) Deferred tax charged/(credited) to the income statement during the year(note 11) At 31 December 2005 and 1 January 2006 Disposal of subsidiaries(note 40) Deferred tax charged/(credited) to the income statement during the period(note 11)_ At 30 June 2006	Revaluation of properties HK$’000 – – – – – – 682 682 – 105 787	Losses available for Accelerated offsetting tax against future depreciation taxable profit HK$’000 HK$’000 1,460 (5) (369) (303) 1,091 (308) 2,111 (49) 3,202 (357) 648 – (698) 14 3,152 (343) (87) – 466 (426) 3,531 (769)	Total HK$’000 1,455 (672) 783 2,062 2,845 648 (2) 3,491 (87) 145 3,549

The Group has tax losses arising in Hong Kong of HK$130,968,000, HK$34,469,000, HK$44,351,000 and HK$11,785,000 at 31 December 2003, 2004 and 2005 and 30 June 2006, respectively, that are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as it is considered not probable that sufficient taxable profits will be available to allow the deferred tax asset to be utilised.

At the end of each of the Relevant Periods, there was no significant unrecognised deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, associates or the jointly-controlled entity as the Group has no liability to additional tax should such amounts be remitted.

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

– 129 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

33. Share capital

Shares

Authorised: 50,000,000,000 ordinary shares of HK$0.01 each Issued and fully paid: 8,724,321,700 (31 December 2003 and 2004: 8,453,321,700, 31 December 2005 and 30 June 2006: 8,724,321,700) ordinary shares of HK$0.01 each	2003 HK$’000 500,000 84,533	31 December 2004 2005 HK$’000 HK$’000 500,000 500,000 84,533 87,243	30 June 2006 HK$’000 500,000
			87,243

A summary of the transactions involving the Company’s issued ordinary share capital during the Relevant Periods is as follows:

Note At 1 January 2003, 31 December 2003 and 2004 and at 1 January 2005 Conversion of part of a convertible note (a) At 31 December 2005 and at 1 January and 30 June 2006	Number of shares in issue 8,453,321,700 271,000,000 8,724,321,700	Issued share capital HK$’000 84,533 2,710 87,243	Share premium account HK$’000 840,629 18,302 858,931	Total HK$’000 925,162 21,012
				946,174

Note

(a) On 29 July 2005, part of the convertible note amounting to HK$20,325,000 was converted into 271,000,000 shares of the Company at a conversion price of HK$0.075 each. Further details relating to the convertible note are set out in note 31.

Share options

At the special general meeting held on 29 April 2005, the Company adopted a share option scheme (the “Scheme”). Employees (including directors) of the Group are included in the eligible participants under the Scheme. A total of 845,332,170 shares will be available for issue under the Scheme, which represents 9.7% of the Company’s issued share capital as at 30 June 2006. Each participant cannot be entitled more than 1% of the total number of shares in issue in any 12-month periods. The shares must be taken up under an option not later than 10 years from the date of grant of option. The Scheme remains in force until 28 April 2015. No option was granted under the Scheme during the Relevant Periods.

– 130 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

34. Reserves

Group

The amounts of the Group’s reserves and the movements therein during the Relevant Periods are presented in the consolidated statement of changes in equity.

Company

Notes 1 January 2003 Expiry of warrants Net profit for the year Proposed final dividend 13 At 31 December 2003 and 1 January 2004 Repayment of a convertible note Net profit for the year Proposed final dividend 13 At 31 December 2004 and 1 January 2005 Issue of shares upon a conversion of part of the convertible note 33 Net profit for the year Proposed final dividend 13 At 31 December 2005 and 1 January 2006 Net loss for the period At 30 June 2006	Share premium account HK$’000 840,629 – – – 840,629 – – – 840,629 18,302 – – 858,931 – 858,931	Contributed surplus HK$’000 839,108 – – – 839,108 – – – 839,108 – – – 839,108 – 839,108	Warrant subscription reserve HK$’000 25,674 (25,674) – – – – – – – – – – – – –	Retained profits/ (accumulated losses) HK$’000 (14,419) – 29,896 (16,907) (1,430) 5,652 25,642 (25,360) 4,504 – 26,567 (26,173) 4,898 (5,685) (787)	Total HK$’000 1,690,992 (25,674) 29,896 (16,907) 1,678,307 5,652 25,642 (25,360) 1,684,241 18,302 26,567 (26,173) 1,702,937 (5,685) 1,697,252

The contributed surplus of the Company originally represented the excess of the net asset values of the subsidiaries acquired over the nominal value of the Company’s shares issued for their acquisition at the time of the reorganisation in preparation for the listing of the Company’s shares in 1993. Under the Bermuda Companies Act 1981 (as amended), the contributed surplus may be distributed to shareholders under certain circumstances.

– 131 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

35. Business combination

On 4 July 2005, the Group acquired a 60% equity interest in Hoi Tin Universal Limited (“Hoi Tin”) and its subsidiaries (the “Hoi Tin Group”) from certain independent third parties. The purchase consideration for the acquisition was in the form of cash, with HK$31,000,000 paid on the completion date of the acquisition and the remaining HK$5,000,000 is payable within three business days from the issue of the audited consolidated financial statements of Hoi Tin for the year ending 31 March 2007.

The fair values of the identifiable assets and liabilities of the Hoi Tin Group as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows:

o Notes Property, plant and equipment 15 Prepaid land lease payments 17 Trade debtors Other debtors, deposits and prepayments Inventories Cash and bank balances Trade creditors and other payables Accruals and other payables Tax payable Bank borrowings Deferred tax 32 Loans from shareholders Minority interests Goodwill on acquisition 18 Satisfied by: Cash Consideration payable Direct expenses paid in connection with the acquisition	Fair value recognised n acquisition HK$’000 28,178 2,992 39,395 7,099 29,969 1,308 (63,116) (19,917) (602) (15,990) (648) (4,606) (1,711) 2,351 35,297 37,648 31,000 5,000 1,648 37,648	Carrying amount HK$’000 26,221 2,992 39,395 7,099 29,969 1,308 (63,116) (19,917) (602) (15,990) (2) (4,606) (1,711) 1,040

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

	Year ended 31 December
	2005
	HK$’000
Cash consideration paid	(31,000)
Direct expenses paid in connection with the acquisition	(1,648)
Cash and bank balances acquired	1,308
Net outflow of cash and cash equivalents
in respect of the acquisition of subsidiaries	(31,340)

– 132 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Since its acquisition, Hoi Tin Group contributed HK$169,990,000 to the Group’s turnover and HK$4,544,000 to the consolidated profit for the year ended 31 December 2005.

Had the combination taken place at the beginning of 2005, the Group’s turnover and loss for the year ended 31 December 2005 would have been HK$575,449,000 and HK$12,481,000, respectively.

36. Notes to the consolidated cash flow statements

(a) Major non-cash transactions

• (i) During the year ended 31 December 2004, a convertible note of the Group amounting to HK$32,000,000 was converted into 26,666,666 shares of a company listed on the Stock Exchange of Hong Kong at a conversion price of HK$1.20 per share.

• (ii) During the year ended 31 December 2005, part of the convertible note amounting to HK$20,325,000 was converted into 271,000,000 shares of the Company at a conversion price of HK$0.075 per share.

• (iii) During the year ended 31 December 2005, a convertible note of the Group amounting to HK$17,000,000 was converted into 68,000,000 shares of a company listed on the Stock Exchange of Hong Kong at a conversion price of HK$0.25 per share.

• (iv) During the six months ended 30 June 2006, the Group’s convertible notes amounting to HK$35,000,000 were converted into 51,470,588 shares of a company listed on the Stock Exchange of Hong Kong at a conversion price of HK$0.68 per share.

• (v) During the six months ended 30 June 2006, the Group’s investments at fair value through profit or loss with a carrying value of HK$21,250,000 were exchanged for cash amounting to HK$4,825,000 and a convertible note issued by a company listed on the Stock Exchange of Hong Kong with initial fair value of approximately HK$33,654,000.

(b) Restricted cash and cash equivalent balances

Certain of the Group’s time deposits are pledged to a bank to secure the banking facilities granted to the Group, as further explained in note 39.

37.

Operating lease arrangements

(a) As lessor

The Group leases its investment properties (note 16) under operating lease arrangements, with leases negotiated for terms of two to three years. The terms of the leases generally require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

At the balance sheet dates, the Group had total future minimum lease receivables under noncancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	2003 HK$’000 403 – 403	31 December 2004 2005 HK$’000 HK$’000 696 497 773 276 1,469 773	30 June 2006 HK$’000 544 541
			1,085

– 133 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

(b) As lessee

The Group leases certain of its manufacturing plants, office properties and quarters under operating lease arrangements. The leases for the manufacturing plants, office properties and quarters are negotiated for terms of one to five years.

At the balance sheet dates, the Group had total future minimum lease payments under noncancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	2003 HK$’000 1,048 – 1,048	31 December 2004 2005 HK$’000 HK$’000 787 2,714 – 1,636 787 4,350	30 June 2006 HK$’000 1,964 1,290
			3,254

38. Commitments

In addition to the operating lease commitments detailed in note 37(b) above, the Group had the following commitments in respect of the purchases of property, plant and equipment at the balance sheet dates:

			Group
		31 December		30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Contracted, but not provided for	–	–	3,714	787

At the end of each of the Relevant Periods, the Company did not have any significant commitments.

39. Banking facilities

The Group’s banking facilities were secured by the following assets and corporate guarantees given by the Company and its subsidiary, Qualipak.

		31 December		30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Investment properties	6,600	6,700	10,500	11,100
Leasehold land and buildings	63,479	59,993	56,455	56,454
Time deposits	8,060	8,143	10,345	11,540

– 134 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

40. Disposal of subsidiaries

		Six months ended
		30 June
		2006
	Notes	HK$’000
Net assets disposed of:
Property, plant and equipment	15	3,758
Investment property	16	45,999
Investment in a jointly-controlled entity		3,310
Available-for-sale equity investment		20,000
Other assets		5,960
Other debtors, deposits and prepayments		16
Tax payable		(59,100)
Due to group companies, net		(43,689)
Deferred tax liabilities	32	(87)
		(23,833)
Assignment of due to group companies, net		43,689
		19,856
Gain on disposal of subsidiaries	5	36,144
		56,000
Satisfied by:
Cash		56,000

The results of the subsidiary disposed of during the six months ended 30 June 2006 had no significant impact on the Group’s consolidated revenue or profit after tax for that period.

41. Contingent liabilities

At the balance sheet dates, contingent liabilities not provided for in the financial statements are as follows:

2003 HK$’000 Guarantees given to banks in connection with facilities granted to: Subsidiaries – An associate – –	Group 31 December 2004 2005 HK$’000 HK$’000 – – – 6,000 – 6,000	30 June 2006 HK$’000 – 12,000 12,000	2003 HK$’000 488,080 – 488,080	Company 31 December 2004 2005 HK$’000 HK$’000 518,080 518,080 – – 518,080 518,080	30 June 2006 HK$’000 518,080 –
					518,080

No banking facilities were utilised by the subsidiaries at the end of each of the Relevant Periods. The banking facilities guaranteed by the Group to an associate were utilised to the extent of approximately HK$2,923,000 as at 30 June 2006. No banking facilities were utilised by the associate as at 31 December 2005.

In the opinion of the directors of the Company, the fair values of the above financial guarantee contracts of the Company and of the Group are insignificant at initial recognition and the directors consider that the possibility of the default of the parties involved is remote, accordingly, no value has been recognised in the balance sheet of the Company and of the Group.

– 135 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

42. Related party transactions

• (a) In addition to the transactions detailed elsewhere in this section, the Group had the following significant transactions with related parties:

				Group
					Six months	ended
		Year	ended 31	December	30 June
		2003	2004	2005	2005	2006
	Notes	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(Unaudited)
Rental expenses for
office premises paid
to a substantial shareholder	(i)	935	935	963	470	498
Interest expense paid to
a related company	(ii)	5,000	3,776	1,839	1,041	739
Sales of goods to a minority
shareholder of a subsidiary	(iii)	–	–	–	–	13,431

Notes:

• (i) The rental expenses were charged at cost, based on the floor area occupied by the Group in respect of the office premises rented by Chongqing Industrial Limited from an independent third party. Mr. Cheung Chung Kiu, a director of the Company, has a beneficial interest in Chongqing Industrial Limited, which is a substantial shareholder of the Company. This transaction also constituted a connected transaction for the Company under the Listing Rules.

• (ii) The interest expense paid to a related company was in respect of the convertible note issued by the Company to Timmex as detailed in note 31. The transaction constituted a connected transaction for the Company under the Listing Rules.

• (iii) A non wholly owned subsidiary of the Company had made certain sales of its products to its minority shareholders, Thomas Wagner GmbH during the period. The transaction constituted continuing connected transaction for Qualipak under the Listing Rules.

• (b) Details of the Group’s loan to an associate as at the balance sheet dates are included in note 21.

• (c) Compensation of key management personnel of the Group:

Short term employee benefits Post-employment benefits Long term employee benefits Total compensation paid to key management personnel	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 12,645 15,275 19,185 4,820 5,440 66 60 60 33 33 90 90 90 45 45 12,801 15,425 19,335 4,898 5,518	Group Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 12,645 15,275 19,185 4,820 5,440 66 60 60 33 33 90 90 90 45 45 12,801 15,425 19,335 4,898 5,518
		5,518

Further details of directors’ emoluments are included in note 9.

– 136 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

43. Financial risk management objectives and policies

The Group’s principal financial instruments include equity investments, convertible note investments, loans receivable, trade debtors, trade creditors, bank borrowings and short term deposits. Details of the major financial instruments and the Group’s accounting policies in relation to them are disclosed in note 2.4.

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, credit risk, price risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Cash flow interest rate risk

The Group does not have any significant exposure to the risk of changes in market interest rates, and therefore it does not use derivative financial instruments to hedge its debt obligations.

Foreign currency risk

The Group has currency exposure as the majority of its sales were denominated in U.S. dollars, which are pegged to Hong Kong dollars. On the other hand, the expenses or expenditure incurred in the operations of manufacturing plants are denominated in Renminbi (“RMB”), which expose the Group to foreign currency risk.

The RMB is not a freely convertible currency. Future exchange rates of the RMB could vary significantly from the current or historical exchange rates as a result of controls that could be imposed by the PRC government. The exchange rates may also be affected by economic developments and political changes domestically and internationally, and supply and demand of the RMB. The appreciation or devaluation of the RMB against HK$ may have impacts on the operating results of the Group.

The Group currently does not have a foreign currency hedging policy. However, management monitors the foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Credit risk

The Group trades only with recognised and creditworthy customers. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, trade debtor and other receivable balances are monitored on an ongoing basis to ensure follow-up action is taken to recover overdue debts and the Group’s exposure to bad debts is not significant. In addition, the Group reviews the recoverable amount of each individual trade debtor at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts.

The Group has established a credit committee (the “Committee”) to manage the credit risk with respect to the loans receivable of the Group. The Committee reviews the credit standing and assesses credit risk exposures of each borrower. In order to mitigate this risk, the Group has formulated a credit policy governing the control of credit risk. In this regard, the directors consider that the credit risk is significantly reduced and controlled.

Price risk

The Group’s investments held for trading and portion of the call option embedded in investments in convertible notes are measured at fair value at each balance sheet date. Therefore, the Group is exposed to equity security price risk. The management manages this exposure by maintaining a well-diversified portfolio with different risk profiles.

The Group’s investment properties, either directly owned by subsidiaries or indirectly owned through an associate, Y.T. Realty Group Limited, are measured at fair value at the balance sheet dates. The fair value changes arising from the property revaluation during the year are taken directly to the income statement. Therefore, the Group is exposed to property price risk. Management strikes to manage this exposure by improving the quality of properties and maintaining a higher occupancy rate.

– 137 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, convertible notes and other interest-bearing loans. The Group’s policy is that all of the bank borrowings should mature in any 12-month period.

III. SUBSEQUENT EVENTS

Subsequent to 30 June 2006, the following significant events occurred:

• (a) On 31 July 2006, part of convertible note held by Timmex amounting to HK$23,780,000 were converted into 290,000,000 shares of the Company of HK$0.01 each at a conversion price of HK$0.082 per share. Immediately after completion of this transaction, Timmex had an equity interest of 6.22% of the enlarged capital in the Company.

• (b) On 22 September 2006, Marvel Leader Investments Limited (“Marvel Leader”), a wholly-owned subsidiary of Qualipak, entered into a sale and purchase agreement with Thrivetrade Limited (“Thrivetrade”), a company wholly owned by Mr. Cheung Chung Kiu, for the purchase of the entire issued share capital of Starthigh International Limited (“Starthigh”), at a consideration of HK$3,317,553,298 which is to be satisfied by (i) 1,600,000,000 ordinary shares of HK$0.01 each in the share capital of Qualipak (the “Consideration Qualipak Shares”); (ii) a 10-year 2% convertible note of HK$2,552,000,000 to be issued by Qualipak to Thrivetrade; (iii) a sum representing such amount of the receivables with an aggregate amount of up to the equivalent of HK$250,000,000 as set out in the sale and purchase agreement; and (iv) the assumption of Marvel Leader of the obligations to repay debts in the aggregate amount of HK$67,553,298 owing as at 30 June 2006 by Mr. Cheung Chung Kiu and Chongqing Industrial Limited to Starthigh. The principal assets of Starthigh are interests in certain properties in Chongqing, the PRC. Details of the relationship of Mr. Cheung Chung Kiu and Chongqing Industrial Limited with the Company are set out in note 42(a) in Section II. Upon completion of the above transaction and on the issue of the Consideration Qualipak Shares, the Company’s interest in Qualipak will be diluted from approximately 64.54% to approximately 45.90%, resulting in a gain on deemed disposal of an interest in Qualipak amounting to approximately HK$1,096 million. The actual amount to be recognised will be adjusted based on, inter alia, the fair value of the consideration and the consolidated net assets of Qualipak at the date of the completion. In addition, Qualipak will cease to be a subsidiary of the Company upon completion of the above transactions.

– 138 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

The financial information of Qualipak (as adjusted for the attributable interest to the Company), which constitutes a discontinuing operation as pursuant to Rule 4.06A of the Listing Rules, are as follows:

Consolidated results

REVENUE Cost of sales Gross profit Other income and gains Selling and distribution costs Administrative expenses Other expenses Finance costs Share of profits and losses of associates PROFIT BEFORE TAX Tax PROFIT FOR THE YEAR/PERIOD Minority interests NET PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 202,227 294,351 445,248 128,374 374,497 (142,435) (200,715) (373,110) (102,334) (326,353) 59,792 93,636 72,138 26,040 48,144 13,113 26,927 26,519 9,051 34,490 (4,495) (8,647) (10,794) (4,302) (8,585) (23,007) (36,983) (35,101) (13,244) (24,702) – (9,681) – – (2,341) – – (704) – (1,025) – – 5,211 305 (1,812) 45,403 65,252 57,269 17,850 44,169 (4,970) (15,277) (4,374) (773) (6,811) 40,433 49,975 52,895 17,077 37,358 (10,191) (16,391) (16,436) (6,031) (12,770) 30,242 33,584 36,459 11,046 24,588

– 139 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Consolidated cash flows

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Share of profits and losses of associates Interest income from convertible notes and loans receivable Interest income on bank deposits Dividend income from listed investments Allowance/(write-back of allowance) for doubtful debts, net Fair value gains on investment properties Unrealised holding gains on other investments/fair value gains on investments at fair value through profit or loss Loss/(gain) on disposal of listed equity investments at fair value through profit or loss/other investments Gain on derecognition of investments at fair value through profit or loss Gain on disposal of subsidiaries Gain arising from redemption of a convertible note Losses arising from changes in fair values of convertible notes Negative goodwill recognised as income Excess over the cost of acquisition of an additional interest in a subsidiary Provision against obsolete inventories Depreciation and amortisation Loss/(gain) on disposal of items of property, plant and equipment Finance costs Operating profit before working capital changes

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 45,403 65,252 57,269 27,375 44,169 – – (5,211) (305) 1,812 – – (418) (159) (79) (2,203) (2,280) (5,729) (2,890) (4,280) – – – – (168) – 9,681 (4,463) (5,063) 2,341 – – (1) – (1,330) – (14,886) (3,953) (1,115) (5,168) – – 4,041 2,029 – – – – – (17,229) – – – – (3,082) – – (240) (240) (1,333) – – 1,592 1,221 – (7,755) (7,583) – – – (9,525) (9,525) – – 3,339 – – – 7,494 7,740 9,005 4,102 5,849 (97) (150) 84 (12) (14) – – 704 – 1,026 42,842 61,113 43,155 15,418 22,514

– 140 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

Operating profit before working capital changes Decrease/(increase) in investments at fair value through profit or loss/other investments Decrease/(increase) in inventories Increase in trade debtors and other receivables Increase in convertible note Increase/(decrease) in trade and other payables Cash generated from/(used in) operations Hong Kong profits tax paid Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment Purchases of investment properties Proceeds from disposal of items of property, plant and equipment Proceeds received from disposal of subsidiaries Interest received from bank deposits Dividend received from associates Purchases of convertible debentures and notes Proceeds from redemption of convertible debentures and notes Purchases of other assets Acquisition of subsidiaries Acquisition of associates Loan to an associate Increase in pledged time deposits Net cash inflow/(outflow) from investing activities

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 42,842 61,113 43,155 15,418 22,514 – (37,340) 33,927 30,992 (52,050) 1,854 (4,960) (12,179) (7,181) 2,126 (84,979) 108,052 (18,005) (17,065) (39,378) 10,500 – – – – (203) 11,975 2,716 6,076 6,330 (29,986) 138,840 49,614 28,240 (60,458) (2,414) (6,733) (4,674) (622) (42) (32,400) 132,107 44,940 27,618 (60,500) (2,675) (5,884) (42,028) (38,065) (3,385) – – (44,669) (44,669) – 183 150 35 17 28 – – – – 49,000 2,203 2,280 5,729 2,890 4,280 – – – – 4,797 – (16,000) – – – – 10,500 – – 16,000 (160) – – – – – – (31,144) – – – – (30,549) (30,000) – – – (3,000) (3,000) – – – (2,000) – (1,000) (449) (8,954) (147,626) (112,827) 69,720

– 141 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

								Six months ended	Six months ended
	Year		ended	31 December				30	June
	2003			2004		2005		2005	2006
	HK$’000		HK$’000			HK$’000		HK$’000	HK$’000
							(Unaudited)
CASH FLOWS FROM FINANCING
ACTIVITIES
Additions of bank loans	–				–	–		–	33,495
Repayment of bank loans	–				–	(542)		–	(13,044)
Interest paid	(3,702)				–	(404)		–	(1,025)
Loans from minority shareholders	–				–	3,394		–	–
Dividends paid	(7,131)		(13,788)			(15,758)		(15,758)	(23,637)
Net cash outflow from
financing activities	(10,833)		(13,788)			(13,310)		(15,758)	(4,211)
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS	(43,682)		109,365			(115,996)		(100,967)	5,009
Cash and cash equivalents at
beginning of year/period	244,275		200,593			309,958		309,958	193,685
Effect of foreign exchange
rate changes, net	–				–	(277)		–	–
CASH AND CASH EQUIVALENTS
AT END OF YEAR/PERIOD	200,593		309,958			193,685		208,991	198,694
Consolidated assets and liabilities
					31	December			30 June
			2003			2004		2005	2006
	HK$’000				HK$’000		HK$’000		HK$’000
NON-CURRENT ASSETS
Property, plant and equipment		80,723				79,410		115,559	113,852
Investment properties			–			–		44,670	–
Prepaid land lease payments		42,036				41,485		68,293	68,385
Goodwill			–			–		35,297	35,297
Negative goodwill		(60,233)			(43,950)			–	–
Interests in associates			–			–		41,807	35,197
Convertible debentures and notes		32,000				16,000		14,667	33,702
Other assets			780			781		781	781
Total non-current assets		95,306				93,726		321,074	287,214

– 142 –

APPENDIX I

ACCOUNTANTS’ REPORT ON THE GROUP

CURRENT ASSETS Convertible debentures and notes Investments at fair value through profit or loss/other investments Loans receivable Inventories Tax recoverable Trade debtors and other receivables Prepaid land lease payments Pledged time deposits Time deposits Cash and bank balances Total current assets CURRENT LIABILITIES Trade and other payables Tax payable Interest-bearing bank borrowings Loans from minority shareholders Consideration payable on acquisition of associates Consideration payable on acquisition of subsidiaries Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities Consideration payable on acquisition of associates Consideration payable on acquisition of subsidiaries Total non-current liabilities Net assets Minority interests Net assets attributable to equity holders of the Company	2003 HK$’000 10,500 – 77,900 42,245 126 74,204 974 – 198,737 1,856 406,542 32,605 3,615 – – – – 36,220 370,322 465,628 783 – – 783 464,845 (158,569) 306,276	31 December 2004 2005 HK$’000 HK$’000 – – 84,226 50,211 1,000 – 43,866 86,014 11 294 33,371 103,333 980 1,575 – 2,000 303,735 146,413 6,223 47,272 473,412 437,112 44,580 130,329 9,982 11,310 – 15,448 – 8,000 – – – – 54,562 165,087 418,850 272,025 512,576 593,099 2,845 2,750 – 3,000 – 5,000 2,845 10,750 509,731 582,349 (223,394) (209,306) 286,337 373,043	30 June 2006 HK$’000 – 91,035 – 83,888 294 139,854 1,574 3,000 155,785 42,909 518,339 136,659 18,079 35,899 8,000 3,000 5,000 206,637 311,702 598,916 2,663 – – 2,663 596,253 (213,693) 382,560

– 143 –

APPENDIX I ACCOUNTANTS’ REPORT ON THE GROUP

IV. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or its subsidiaries in respect of any period subsequent to 30 June 2006.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– 144 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

(A) WORKING CAPITAL

Taking into account the Remaining Group’s internal resources, in the absence of unforeseen circumstances, the Board is of the opinion that the Remaining Group will have sufficient working capital to meet its present requirements for the next 12 months from the date of this circular.

(B) MATERIAL ADVERSE CHANGE

The Board confirms that there have not been any material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the last published audited accounts of the Group were made up.

(C) INDEBTEDNESS

Borrowings

As at the close of business on 31 August 2006, being the latest practicable date for this statement of indebtedness prior to printing of this circular, the Group had indebtedness of approximately HK$87,262,000, which comprised bank borrowings (including bank loans, bank overdraft and bills receivable with recourse) of approximately HK$50,560,000, a convertible note of approximately HK$25,895,000, bills payable of approximately HK$2,807,000 and a loan of approximately HK$8,000,000 from minority shareholders of a non-wholly owned subsidiary. All of them were repayable within one year.

Contingent liabilities

As at the close of business on 31 August 2006, the Group had contingent liabilities amounted to HK$12,000,000, being corporate guarantees given to banks for securing general banking facilities granted to an associated company. Apart from this, the Group has no other material contingent liabilities.

Pledge of assets and guarantees

As at the close of business on 31 August 2006, the Group pledged its leasehold and investment properties with an aggregate carrying value of approximately HK$87,070,000 and its time deposits of approximately HK$11,600,000 as securities for general banking facilities granted to the Group.

– 145 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Capital commitments

As at the close of business on 31 August 2006, the Group had a capital commitment of approximately HK$30,590,000 in respect of a sale and purchase agreement entered into by a non-wholly owned subsidiary on 15 August 2006 to acquire a property situate in Hong Kong.

Save as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at the close of business on 31 August 2006, the Group did not have any outstanding debt securities issued and outstanding or authorised or otherwise created but unissued, term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase commitments, mortgages and charges, material contingent liabilities or guarantees outstanding.

(D) MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Year ended 31 December 2003

Business review

The Group’s net profit attributable to the Shareholders for the year ended 31 December 2003 was approximately HK$105.8 million, as compared with a net loss of approximately HK$151.4 million for the year ended 31 December 2002. The Group’s turnover for the year was approximately HK$217.5 million, representing a decrease of approximately 18.4% as compared with the year ended 31 December 2002. The demand for automobile parts remained sluggish and a decline in average selling price of packaging products was recorded.

The outbreak of Severe Acute Respiratory Syndrome in mid-March 2003 pushed the local economy and market confidence to the bottom. However, the local economy strongly rebounded in an accelerated pace during the second half of 2003. Business confidence and market sentiment has gradually been restored after the conclusion of the Closer Economic Partnership Arrangement and the relaxation of travel restriction for individual travelers from the PRC.

Packaging business

The sales of packaging products of the Qualipak Group for the year ended 31 December 2003 was approximately HK$191.9 million, representing a decrease of approximately 12.3% as compared with the year ended 31 December 2002. The performance of packaging business was hindered by the downward pressure on the average selling price.

– 146 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

The net profit after tax of the Qualipak Group for the year was approximately HK$28.9 million, representing an increase of approximately 16.5% as compared with the year ended 31 December 2002.

Property investment business

Y.T Realty Group Ltd (“Y.T. Realty”), a major associated company of the Group and a company listed on the main board of the Stock Exchange, was principally engaged in property investment and property trading. The major investment properties held by Y.T. Realty include the whole block of commercial buildings of Century Square and Prestige Tower situated in the core of Central District and Tsimshatsui respectively and the 2nd Floor of New Mandarin Plaza Retail Podium situated in Tsimshatsui.

The gross rental income of Y.T Realty for the year ended 31 December 2003 was approximately HK$87.8 million, representing a decrease of approximately 20.7% as compared with the year ended 31 December 2002 as a result of the overall decline in rental value of the properties. The net profit after tax was approximately HK$28.5 million (as restated) for the year ended 31 December 2003 as compared with a net profit after tax of approximately HK$19.2 million (as restated) for the year ended 31 December 2002.

Infrastructure business

The Group has an indirect interest in an infrastructure business which was carried on by Cross-Harbour (Holdings) Ltd (“Cross Harbour”), a company listed on the main board of the Stock Exchange. Cross Habour is principally engaged in investment and management of tunnels and highways, motoring schools and electronic toll collection system. Cross Harbour reported a net profit after tax of approximately HK$87.2 million for the year ended 31 December 2003, representing an increase of approximately 41.3% as compared with the year ended 31 December 2002.

Financial review

During the year ended 31 December 2003, the Group recorded a net profit attributable to Shareholders of approximately HK$105.8 million. It was mainly attributable to an exceptional unrealised gain on securities investment of approximately HK$91.1 million as a result of drastic booming of local stock market from the second half of the year.

The other income and gains increased to approximately HK$135 million mainly as a result of a gain of approximately HK$25.7 million, being the recognition of warrant subscription reserve as income upon expiry of warrants during the year and unrealised holding gains on other investments of approximately HK$91.1 million.

As at 31 December 2003, the Group’s net asset value attributable to equity holders was approximately HK$1,797.2 million. The Group’s total asset and liabilities (excluding minority interest of approximately HK$158.6 million) were approximately HK$2,257.7 million and approximately HK$301.9 million respectively as at 31 December 2003.

– 147 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Liquidity and financial resources

As at 31 December 2003, the Group’s cash and cash equivalents were approximately HK$514.9 million and there were sufficient unutilised lines of credit available from financial institutions. The Group had a working capital ratio of approximately 4.7.

As at 31 December 2003, the Group had a bank borrowing of HK$80 million and an outstanding debt of convertible note of HK$100 million. As at 31 December 2003, the Group’s gearing ratio (expressed as a percentage of borrowings over shareholders’ equity) was approximately 10.0%.

Contingent liabilities

As at 31 December 2003, the Group had no contingent liabilities.

Exchange risk

Whilst the sales of the Group were mainly denominated in HK$ and US$, purchases of raw materials were mainly in HK$. Most bank deposits were maintained in HK$ and US$. Hence, the Group’s exposure to foreign exchange risk was minimal.

Capital structure

During the year ended 31 December 2003, the Company issued a convertible note of principal amount of HK$100,000,000 with maturity date on 31 July 2004. There was no conversion of the convertible note during the year.

During the year ended 31 December 2003, the Company also issued 1,312,586,000 warrants through a private placement at an issue price of HK$0.02 per warrant. The net proceeds from the placing of warrants were approximately HK$25.7 million. No subscription right was exercised by the warrant holders up to the expiry date of the warrants on 18 July 2003, and accordingly the subscription rights attaching to these warrants lapsed and the warrants ceased to be valid thereafter.

Pledge of assets

As at 31 December 2003, the Group pledged its leasehold properties and investment property with an aggregate carrying value of approximately HK$77,770,000 and time deposits of approximately HK$8,060,000 as security for general banking facilities granted to the Group.

– 148 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Employees

As at 31 December 2003, the Group employed approximately a total of 88 employees in Hong Kong and a workforce of 3,447 in the PRC. The total remuneration of the employees of the Group amounted to approximately HK$34.8 million for the year ended 31 December 2003.

Other investments

On 18 June 2003, the Group’s investment in convertible note of Qualipak with a principal amount of HK$150,000,000 was due for redemption. The Group then exercised the conversion rights entitled to subscribe for 1,562,500,000 Qualipak Shares.

As at 31 December 2003, the Group maintained its investment in equity interest of Y.T Realty with a carrying value of approximately HK$618.9 million.

Year ended 31 December 2004

Business review

The Group’s net profit attributable to the Shareholders for the year ended 31 December 2004 was approximately HK$224.0 million, representing an increase of approximately 111.7% as compared with the year ended 31 December 2003.

Owing to lower market interest rate maintained during the year ended 31 December 2004, the property and stock market of Hong Kong were driven up by a bullish outlook and sentiment for the year. Capturing this wave of economic recovery of Hong Kong, the Group’s business segments all presented a satisfactory performance during the year, save for the PRC trading business.

Packaging business

The net profit after tax of the Qualipak Group for the year was approximately HK$42.1 million, representing an increase of approximately 45.7% over the year ended 31 December 2003.

During the year ended 31 December 2004, Qualipak achieved a satisfactory growth in sale of packaging products. The demand for packaging products had grown rapidly with a notable increase in sales volume. The customer base and product mix were further broadened when more new high-end design lines were introduced.

Property investment business

During the year ended 31 December 2004, Y.T. Realty recorded a net profit after tax of approximately HK$94.4 million (as restated), representing an increase of approximately 230.7% as compared with the year ended 31 December 2003. The

– 149 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

gross rental income of Y.T. Realty from investment properties for the year was approximately HK$77.9 million, 11.2% lower than the year ended 31 December 2003.

Infrastructure business

Cross Harbour reported a net profit after tax of approximately HK$135 million, representing an increase of approximately 54.8% as compared with that for the year ended 31 December 2003.

Treasury investment

The Group utilised its available fund for treasury investment, which mainly comprised the securities investment and financing activities. The turnover of treasury investment for the year ended 31 December 2004 was approximately HK$138.3 million.

Financial review

The Group’s turnover was approximately HK$392.8 million for the year after taking into account of the turnover of treasury investment of approximately HK$138.3 million. During the year, the turnover of packaging products increased by approximately 32.6% as a result of growing demand of packaging products.

As at 31 December 2004, the Group’s net assets value attributable to equity holders was approximately HK$2,013.3 million. The Group’s total asset and liabilities (before minority interests of approximately HK$223.4 million) were approximately HK$2,432.8 million and approximately HK$196.1 million respectively as at 31 December 2004.

Liquidity and financial resources

As at 31 December 2004, the Group’s cash and cash equivalents were approximately HK$557.6 million and there were sufficient unutilised lines of credit available from financial institutions. The Group had a working capital ratio of approximately 11.1.

As at 31 December 2004, the Group had an outstanding convertible note with a principal amount of HK$70 million. As at 31 December 2004, the Group’s gearing ratio (expressed as a percentage of borrowings over shareholders’ equity) was approximately 3.1%. The reduction in gearing ratio as compared with that as at 31 December 2003 was mainly attributable to repayment of bank borrowings as well as the increase in shareholders’ equity as a result of the profitable operations of the Group.

Contingent liabilities

As at 31 December 2004, the Group did not have significant contingent liabilities.

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APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Exchange risk

Whilst the sales of the Group were mainly denominated in HK$ and US$, purchases of raw materials were mainly in HK$. Most bank deposits were maintained in HK$ and US$. Hence, the Group’s exposure to foreign exchange risk was minimal.

Capital structure

The Company had a convertible note of HK$100,000,000 which was matured and redeemed on 31 July 2004. The Company issued a new convertible note of HK$70,000,000 with an interest rate of 3% per annum payable in arrears on the same date. The new convertible note will be converted into new Shares at the conversion price of HK$0.075 per Share for the first year, HK$0.082 per Share for the second year and HK$0.089 per Share for the third year.

Pledge of assets

As at 31 December 2004, the Group pledged its leasehold and investment properties with an aggregate carrying value of approximately HK$66,693,000 and its time deposits of approximately HK$8,143,000 as security for general banking facilities granted to the Group.

Employees

As at 31 December 2004, the Group employed approximately a total of 92 employees in Hong Kong and a workforce of 3,942 in the PRC. The total remuneration of the employees of the Group amounted to approximately HK$45.6 million for the year ended 31 December 2004.

Other investments

The Group continued to maintain its investment in equity interests of Y.T. Realty with a carrying value of approximately HK$659.9 million as at 31 December 2004.

Year ended 31 December 2005

Business review

During the year ended 31 December 2005, the Group recorded a net loss attributable to Shareholders of approximately HK$26.6 million, as compared with the net profit attributable to Shareholders of HK$224.0 million for the year ended 31 December 2004.

The uncertainties in interest rates led to turbulence in the local stock market. Hence, the treasury investment of the Group incurred a loss of approximately HK$69.3 million for the year, which comprised a fair value loss on securities investment of approximately HK$27.3 million and a loss on disposal of securities investment of approximately HK$35.8 million.

– 151 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

The other business segments of the Group achieved a satisfactory result during the year ended 31 December 2005, particularly the property investment business of Y.T. Realty which generated a net profit after tax of HK$250.7 million, representing an increase of approximately 165.6% as compared with the year ended 31 December 2004.

Packaging business

The net profit after tax and minority interests of Qualipak for the year ended 31 December 2005 was approximately HK$41.2 million.

During the year ended 31 December 2005, the sales of packaging products recorded an increase of approximately 9% to approximately HK$277.4 million. It was mainly attributable to the encouraging increase of approximately 29.5% in the export sales to European market, which has become a major market segment of Qualipak for the year.

Property investment business

During the year, Y.T. Realty recorded a net profit after tax of approximately HK$250.7 million, representing an increase of approximately 165.6% as compared with the year ended 31 December 2004. The gross rental income from investment properties for the year was approximately HK$82.9 million, representing an increase of approximately 6.3% as compared with the year ended 31 December 2004. The increase in rental income in 2005 was the result of adopting a proactive business strategy by transforming the tenant base of the properties from offices usage to commercial and retail usage. During the year, Y.T. Realty recorded a considerable rise in rent upon the renewal of tenancy and fresh letting cases.

Infrastructure business

During the year ended 31 December 2005, Cross Harbour recorded a net profit after tax and minority interests of approximately HK$162 million, representing an increase of approximately 20%.

Treasury investment

The Group utilised the available fund for treasury investment during the year. Due to the volatile performance of local stock market, the business of treasury investment incurred a net loss of approximately HK$69.3 million for the year.

– 152 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Financial review

The Group’s turnover for the year was approximately HK$436.3 million, representing an increase of approximately 11% as compared with the year ended 31 December 2004. During the year, the turnover of packaging products increased by approximately 9% and the turnover of luggage products amounted to approximately HK$170 million. The performance of PRC trading remained inactive and its turnover was approximately HK$590,000.

The operating expenses (including selling and administrative expenses) of the Group for the year increased by approximately 5.5% after the consolidation of Hoi Tin Universal Limited (“Hoi Tin”) into the Group’s financial statements upon the completion of acquisition in July 2005. Selling expenses and administrative expenses for the year increased by approximately HK$2.3 million and approximately HK$3.3 million respectively, representing an increase of approximately 26.2% and approximately 3.6% respectively.

The adoption of a number of new or revised Hong Kong Financial Reporting Standards issued by Hong Kong Institute of Certified Public Accountants (“HKICPA”) with effect from 1 January 2005 had increased the Group’s net profit for the year by an aggregate amount of approximately HK$70.3 million.

As at 31 December 2005, the consolidated net assets value of the Group (excluding minority interests of HK$209.3 million) was HK$2,084 million. The Group’s total asset and liabilities were HK$2,597.5 million and HK$304.2 million respectively as at 31 December 2005.

Liquidity and financial resources

As at 31 December 2005, the cash and cash equivalents of the Group were approximately HK$509.9 million. The Group had bank loans of approximately HK$15.4 million as at 31 December 2005.

As at 31 December 2005, the Group had a working capital ratio of approximately 5.3. As at 31 December 2005, the Group’s gearing ratio (expressed as a percentage of borrowings over shareholders’ equity) was approximately 3.0%, which was similar to that as at 31 December 2004.

Contingent liabilities

The contingent liabilities of the Group were HK$6 million, with respect to the guarantee granted to an associated company of the Company.

Exchange risk

Most bank deposits of the Group were maintained in HK$ and US$ as most of the sales and purchases of raw materials were denominated in these currencies. Hence, the Group’s exposure to foreign exchange risk was minimal.

– 153 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Capital structure

The Company issued a convertible note of HK$70,000,000 on 31 July 2004 with an interest rate of 3% per annum payable in arrears. The convertible note has a maturity date on 31 July 2007 and can be converted into ordinary shares at a conversion price of HK$0.075 per Share in the first year, HK$0.082 per Share in the second year and HK$0.089 per Share in the third year. On 29 July 2005, the conversion rights attaching to the convertible note in respect of an amount of HK$20,325,000 was exercised and a total number of 271,000,000 Shares were issued. The outstanding principal amount of the convertible note as at 31 December 2005 was HK$49,675,000.

Pledge of assets

As at 31 December 2005, the Group pledged its leasehold and investment properties with an aggregate carrying value of approximately HK$67 million and its time deposits of approximately HK$10.3 million as securities for general banking facilities granted to the Group.

Employees

As at 31 December 2005, the Group had approximately 5,800 employees. The total remuneration of the employees of the Group amounted to approximately HK$46.3 million for the year ended 31 December 2005.

Other investments

The Group continued to maintain its investment in equity interest of Y.T. Realty with a carrying value of approximately HK$797.6 million as at 31 December 2005. The net profit after tax of Y.T. Realty for the year was approximately HK$250.7 million.

Six months ended 30 June 2006

Business review

During the six months ended 30 June 2006, the Group’s consolidated net profit attributable to the equity holders was HK$125.4 million, up approximately 9.1% from HK$115 million for the corresponding period of 2005.

The turnover of the Group for the six months ended 30 June 2006 was approximately HK$428.5 million, representing an increase of approximately 246%. It was largely attributable to the acquisition of a 60%-owned subsidiary, Hoi Tin in July 2005. Following the acquisition, the turnover and operating result of Hoi Tin was consolidated into the Group pursuant to the Hong Kong Accounting Standards

– 154 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

issued by HKICPA. Apart from Hoi Tin, other business segments of the Group also recorded a satisfactory growth in the turnover during the six months ended 30 June 2006.

Packaging and luggage business

For the six months ended 30 June 2006, the Qualipak Group recorded a net profit after tax and minority interest of approximately HK$37.5 million, representing an increase of approximately 118.8% from the last corresponding period. The improvement in the performance of the Qualipak Group was mainly attributable to the increase in sales of packaging products to the European and local markets. The gross margin of packaging products remained stable.

The gross margin of packaging products remained stable. The effect of fluctuation in the price of raw materials and increasing labour costs were partly offset by the moderate increase in the average selling prices.

PRC trading business

During the six months ended 30 June 2006, the revenue of the PRC trading business of the Group amounted to approximately HK$20.3 million. There has been a recovery of PRC trading activity as the Group has successfully explored certain trading opportunities in sundry items and scrap metals in addition to automobile parts.

Treasury investment business

The business of treasury investment of the Group comprised securities investment and money lending, and recorded a net profit of approximately HK$56.3 million for the six months ended 30 June 2006. It included a gain on disposal of listed securities of approximately HK$18 million, a dividend income of approximately HK$8.7 million, a fair value gain on securities investment of approximately HK$29.1 million, an interest income on convertible notes and loan receivables of approximately HK$7.9 million and a gain on derecognition of investment at fair value through profit or loss of approximately HK$17.2 million.

Property investment business

During the six months ended 30 June 2006, Y.T. Realty recorded a net profit after tax of approximately HK$155.7 million, representing a decrease of approximately 43.5% from the corresponding period of 2005. The Group’s share of net profit after tax from Y.T. Realty for the period was approximately HK$53.2 million, representing a decrease of approximately HK$37.2 million as compared with the six months ended 30 June 2005.

– 155 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

Infrastructure business

During the six months ended 30 June 2006, the revenue of tunnel operation increased as a result of the rise of daily throughput of the Western Harbour Tunnel. Accordingly, Cross Harbour recorded a net profit after tax and minority interests of approximately HK$85.4 million for the period, representing an increase of approximately 17.1% as compared with the six months ended 30 June 2005.

Financial review

Financial position

As at 30 June 2006, the consolidated net assets value of the Group was approximately HK$2,183.6 million, up approximately 4.8% from approximately HK$2,084 million at 31 December 2005. The Group’s total assets and total liabilities (excluding minority interests of approximately HK$213.7 million) were approximately HK$2,671 million and approximately HK$273.7 million respectively as at 30 June 2006.

Liquidity and financial resources

As at 30 June 2006, the Group had a bank borrowing of approximately HK$35.9 million. The Group’s cash and cash equivalents was HK$364.1 million. As at 30 June 2006, the Group had a working capital ratio of approximately 6.1. In addition, the Group was granted sufficient lines of credit available from financial institutions. As at 30 June 2006, the Group’s gearing ratio (expressed as a percentage of borrowings over shareholders’ equity) was approximately 3.8%. The increase in the gearing ratio was mainly attributable to the increase in bank borrowings during the six months ended 30 June 2006.

Contingent liabilities

As at 30 June 2006, the Group has contingent liabilities amounted to HK$12 million, being corporate guarantees given to banks for securing general banking facilities granted to an associated company of the Company.

Exchange risk

Most bank deposits of the Group are maintained in HK$ and US$ as most of the sales and purchases of goods are denominated in these currencies. Hence, the Group’s exposure to foreign exchange risk is minimal.

Capital structure

The Company issued a convertible note of HK$70,000,000 (the “Note”) on 31 July 2004 with interest bearing at a rate of 3% per annum payable in arrears. The Note will mature on 31 July 2007.

– 156 –

APPENDIX II

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

The principal amount of HK$20,325,000 of the Note had been separately exercised in July 2005 and a total number of 271,000,000 shares of the Company was issued. There was no conversion of the Note during the six months ended 30 June 2006. The outstanding principal amount of the Note as at 30 June 2006 was HK$49,675,000.

Pledge of assets

As at 30 June 2006, the Group pledged its leasehold and investment properties with an aggregate carrying value of approximately HK$67,554,000 and time deposits of approximately HK$11,540,000 as security for general banking facilities granted to the Group.

Employees

As at 30 June 2006, the Group has approximately 6,340 employees. The total remuneration of the employees of the Group amounted to approximately HK$23.2 million for the six months ended 30 June 2006.

Other investments

The Remaining Group maintained its equity investment in Y.T Realty with a carrying value of approximately HK$846.7 million as at 30 June 2006.

As at 30 June 2006, the Group held a portfolio of listed securities with market value of approximately HK$523.9 million.

(E) FINANCIAL AND TRADING PROSPECTS OF THE REMAINING GROUP

On 28 September 2006, the Company and Qualipak jointly announced that Qualipak entered into the Acquisition Agreement on 22 September 2006, pursuant to which Qualipak agreed to purchase the entire issued share capital of the Subject Company for a consideration of approximately HK$3,317,553,298. This constitutes a deemed disposal of Qualipak by the Company under the Listing Rules as a result of substantial dilution of interest in Qualipak to below 50%.

After Completion, the Remaining Group will concentrate on the PRC trading, treasury investment, investments in property and infrastructure business.

After Completion, Qualipak will expand into the property development and property investment in Chongqing, the PRC. Though the PRC government has implemented a series of austerity control measures to reduce the pace of economy growth moderately, the Directors expect the real estate market of Chongqing will be less adversely affected given its current trend of the supply and demand as well as its strategic location in the central-western region of China. Given the favorable location of the properties of the Subject Company as well as the increase of household income in Chongqing, the Directors are of the view that Qualipak’s property development business will have an optimistic prospect in the future. In this respect, the Directors are confident that the Company will benefit from the contribution of Qualipak in the future.

– 157 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

The following is the text of a report, from the reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, as extracted from Appendix III to the circular dated 20 October 2006 issued by Qualipak.

18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

20 October 2006

The Directors

Qualipak International Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding Starthigh International Ltd (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), prepared on the basis set out in Note 1 of Section II below, for each of the three years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006 (the “Relevant Periods”) for inclusion in the circular of Qualipak International Holdings Limited (“Qualipak”) dated 20 October 2006 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of the Company.

The Company was incorporated in the British Virgin Islands (“BVI”) on 17 March 2006 with limited liability under the International Business Companies Ordinance of the BVI. Pursuant to a group reorganisation as detailed in Note 1 of Section II below (the “Reorganisation”), which was completed on 30 June 2006, the Company became the intermediate holding company of Chongqing Zhongyu Property Development Co., Ltd. (“CQ Zhongyu”) which is the holding company of all the subsidiaries established in the People’s Republic of China (the “PRC”) set out in Note 1 of Section II below.

CQ Zhongyu was established in the PRC as a limited liability company on 11 June 1992. During the Relevant Periods, CQ Zhongyu was principally engaged in property development and investment.

All companies now comprising the Group, its associate and jointly-controlled entity have adopted 31 December as their financial year end date. No audited financial statements have been prepared for the Company since its date of incorporation as it was newly incorporated and has not been involved in any significant business transactions since incorporation other than the Reorganisation. The subsidiaries, associate and jointlycontrolled entity of CQ Zhongyu were established in the PRC and have prepared statutory accounts in accordance with the accounting principles and the relevant financial regulations of the PRC (the “PRC GAAP”) applicable to these companies and were not audited by us.

– 158 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

For the purpose of this report, the directors of the Company have prepared accounts for the companies established in the PRC in accordance with the Hong Kong Financial Reporting Standards (the “HKFRS financial statements”) based on their PRC GAAP accounts for the Relevant Periods. We have carried out an independent audit of the HKFRS financial statements for the Relevant Periods in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), and have carried out such additional procedures as are necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

For the purpose of this report, we have performed a review of the comparative financial information which includes the combined income statements, combined statement of changes in equity and combined cash flow statement of the Group for the six months ended 30 June 2005, together with the notes thereon, (the “30 June 2005 Financial Information”) for which the directors of the Company are responsible, in accordance with Statement of Auditing Standards 700 “Engagements to Review Interim Financial Reports” issued by the HKICPA. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets and liabilities and transactions. It is substantially less in scope and provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 30 June 2005 Financial Information.

The combined income statements, the combined statements of changes in equity and the combined cash flow statements of the Group for the Relevant Periods, the combined balance sheets of the Group as at 31 December 2003, 2004 and 2005 and 30 June 2006, together with the notes thereto (collectively the “Financial Information”) as set out in this report have been prepared, and are presented on the basis set out in Section I & II below.

The directors of the Company are responsible for the preparation of the Financial Information and the 30 June 2005 Financial Information. In preparing the Financial Information and the 30 June 2005 Financial Information that give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion and a review conclusion, based on our examination and review, on the Financial Information and the 30 June 2005 Financial Information, respectively, and to report our opinion and review conclusion thereon.

In our opinion, the Financial Information, for the purpose of this report and prepared on the basis set out in Note 1 of Section II below, gives a true and fair view of the combined results and cash flows of the Group for each of the Relevant Periods, and of the state of affairs of the Group as at 31 December 2003, 2004, 2005 and 30 June 2006.

On the basis of our review, which does not constitute an audit, we are not aware of any material modification that should be made to the 30 June 2005 Financial Information.

– 159 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

I. FINANCIAL INFORMATION

Combined income statements

Notes REVENUE 5 Cost of sales Gross profit Other income and gains 5 Selling and distribution costs Administrative expenses Other operating expenses Fair value gains/(losses) on investment properties, net 13 PROFIT/(LOSS) FROM OPERATING ACTIVITIES Finance costs 7 Share of losses of: A jointly-controlled entity 16 An associate PROFIT/(LOSS) BEFORE TAX 6 Tax 9 PROFIT/(LOSS) FOR THE YEAR/PERIOD ATTRIBUTABLE TO: Equity holders of the Company Minority interests Dividends

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 152,243 235,359 214,598 158,026 10,202 (143,924) (174,011) (150,776) (134,685) (3,084) 8,319 61,348 63,822 23,341 7,118 11,939 10,087 5,128 2,274 1,004 (966) (1,860) (1,510) (799) (521) (8,222) (6,932) (14,455) (3,716) (8,560) (2,704) (1,617) (8,428) (40) (1,269) (2,341) 22,164 10,001 3,542 (239) 6,025 83,190 54,558 24,602 (2,467) (18,709) (20,553) (31,799) (13,484) (11,796) (3,152) (6,285) (3,196) (1,598) – (1,956) (1,970) (2,612) (570) (1,187) (17,792) 54,382 16,951 8,950 (15,450) 3,958 (20,860) (8,584) (3,669) 4,699 (13,834) 33,522 8,367 5,281 (10,751) (13,922) 33,522 8,367 5,281 (10,751) 88 – – – – (13,834) 33,522 8,367 5,281 (10,751) – – – – –

– 160 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Combined balance sheets

Notes NON-CURRENT ASSETS Property, plant and equipment 12 Investment properties 13 Prepaid land lease payments 14 Properties under development 15 Interest in a jointly-controlled entity 16 Interest in an associate 18 Available-for-sale equity investments 19 Deferred tax assets, net 28 Pledged deposits 24 Total non-current assets CURRENT ASSETS Properties under development for sale 15 Completed properties for sale 20 Trade receivables 21 Prepayments, deposits and other receivables 22 Tax recoverable Due from related parties 23 Pledged deposits 24 Cash and cash equivalents 24 Total current assets CURRENT LIABILITIES Trade and bills payables 29 Interest-bearing bank loans 27 Tax payable Other payables and accruals 30 Due to related parties 23 Total current liabilities NET CURRENT LIABILITIES	31 December 2003 2004 2005 RMB’000 RMB’000 RMB’000 16,593 19,804 46,094 79,660 141,030 144,840 302 490 847 369,522 373,460 381,774 (98,224) (13,765) 48,175 (55,328) 59,232 65,939 44,165 50,038 46,651 3,358 – – 35,415 104,130 104,130 395,463 734,419 838,450 176,120 21,613 6,437 – 1,806 911 4,080 6,666 2,248 312,636 150,860 16,062 620 – – 181,359 111,416 175,028 114,889 65,053 56,977 88,493 29,842 9,394 878,197 387,256 267,057 93,043 43,862 26,626 650,311 563,730 757,527 – 9,086 10,958 342,791 172,680 182,385 5,672 7,300 17,508 1,091,817 796,658 995,004 (213,620) (409,402) (727,947)	30 June 2006 RMB’000 45,261 143,470 840 396,322 – 77,133 46,798 – 44,870 754,694 7,683 710 404 177,217 – 183,134 114,923 21,301 505,372 21,377 652,127 9,480 108,780 59,962 851,726 (346,354)

– 161 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Notes TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank loans 27 Deferred tax liabilities, net 28 Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the Company: Issued capital 25 Reserves 26(i) Total equity	31 December 2003 2004 2005 RMB’000 RMB’000 RMB’000 181,843 325,017 110,503 125,000 227,280 – – 7,372 11,771 125,000 234,652 11,771 56,843 90,365 98,732 – – – 56,843 90,365 98,732 56,843 90,365 98,732	30 June 2006 RMB’000 408,340
		152,961 7,072
		160,033
		248,307
		– 248,307
		248,307

– 162 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Balance sheet of the Company

Notes NON-CURRENT ASSET Investment in a subsidiary CURRENT ASSET Cash and cash equivalents CURRENT LIABILITY Due to a related party NET CURRENT LIABILITY Net liability EQUITY Issued capital 25 Reserves 26(ii)	30 June 2006 RMB’000 – 8 19 (11) (11) – (11) (11)

Note: The investment in a subsidiary represented 1 share of HK$1 issued at par by Charm Best Investment Ltd., a limited liability company incorporated in Hong Kong on 30 March 2006.

– 163 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Combined statements of changes in equity

Notes At 1 January 2003 Net loss for the year Disposal of a subsidiary 31 At 31 December 2003 and 1 January 2004 Net profit for the year Transfer to statutory reserves 10 At 31 December 2004 and 1 January 2005 Net profit for the year At 31 December 2005 and 1 January 2006 Issuance of shares Net loss for the period At 30 June 2006 At 1 January 2005 Net profit for the period (unaudited) Transfer to statutory reserves (unaudited) 10 At 30 June 2005 (unaudited)		Attributable to equity holders of the	Attributable to equity holders of the	Attributable to equity holders of the	Company	Minority interests RMB’000 532 88 (620) – – – – – – – – – – – – –	Total equity RMB’000 71,297 (13,834) (620) 56,843 33,522 – 90,365 8,367 98,732 160,326 (10,751) 248,307 90,365 5,281 – 95,646
	Issued capital RMB’000 – – – – – – – – – – – – – – – –	Merger reserve RMB’000 (Note) 63,191 – – 63,191 – – 63,191 – 63,191 160,326 – 223,517 63,191 – – 63,191	Statutory reserves RMB’000 – – – – – 892 892 – 892 – – 892 892 – 334 1,226	Retained profits RMB’000 7,574 (13,922) – (6,348) 33,522 (892) 26,282 8,367 34,649 – (10,751) 23,898 26,282 5,281 (334) 31,229	Total RMB’000 70,765 (13,922) – 56,843 33,522 – 90,365 8,367 98,732 160,326 (10,751) 248,307 90,365 5,281 – 95,646

Note: The merger reserve of the Group represents the difference between the issued capital of CQ Zhongyu and the nominal value of the share capital issued by the Company upon the Reorganisation as discussed in note 1 of this section.

– 164 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Combined cash flow statements

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Finance costs 7 Share of losses of a jointly- controlled entity and an associate Bank interest income 5 Reversal of business tax provision 5 Gain on disposal of a subsidiary 5 Loss on disposal of a jointly- controlled entity Dividend income from an unlisted investment 5 Loss on disposal of investment properties 6 Depreciation 6 Amortisation of prepaid land lease payments 6 Fair value losses/(gains) on investment properties 13 Loss on cancellation of available-for-sale equity shares 6 Operating profit/(loss) before working capital changes Decrease/(increase) in properties under development Decrease/(increase) in completed properties for sale Decrease/(increase) in trade receivables Decrease/(increase) in prepayments, deposits and other receivables Decrease/(increase) in amounts due from related parties Increase/(decrease) in trade and bills payables Increase/(decrease) in other payables and accruals Increase in amounts due to related parties

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (17,792) 54,382 16,951 8,950 (15,450) 18,709 20,553 31,799 13,484 11,796 5,108 8,255 5,808 2,168 1,187 (3,255) (5,107) (4,209) (1,477) (769) (4,383) (4,040) – – – (2,367) – – – – – – – – 1,188 (1,754) (682) (744) (744) (147) 3,209 53 1,566 1,282 202 1,068 1,905 2,486 582 1,454 5 5 14 4 7 2,341 (22,164) (10,001) (3,542) 239 – – 4,131 – – 889 53,160 47,801 20,707 (293) 21,151 136,545 3,545 14,517 (3,218) – (1,806) 895 198 201 4,040 (2,586) 4,418 4,971 1,844 (88,649) 161,776 134,798 (124,914) (114,168) (14,373) 69,943 (63,612) (40,215) (8,106) 51,223 (49,181) (17,236) (21,116) (5,249) 28,493 (170,111) 9,705 209,553 (73,605) 3,672 1,628 10,208 5,000 42,454

– 165 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Notes Cash generated from/(used in) operations Interest received Interest paid Business tax refund received PRC corporate income tax paid Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Dividends received Purchases of items of property, plant and equipment Additions to investment properties Proceeds from disposal of investment properties Purchase of available-for-sale equity investments Proceeds from disposal of a subsidiary 31 Advance to a jointly-controlled entity Advance to an associate Net decrease/(increase) in pledged deposits Net decrease/(increase) in non-pledged deposits with original maturity of more than three months when acquired Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from capital contribution from a shareholder New bank loans Repayment of bank loans Net cash inflow/(outflow) from financing activities

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 6,446 199,368 130,522 68,701 (160,140) 3,255 5,107 4,209 1,477 769 (46,436) (51,475) (54,965) (25,001) (24,372) 4,383 4,040 – – – (1,186) (424) (2,313) (2,315) (1,478) (33,538) 156,616 77,453 42,862 (185,221) 865 – – – – (284) (1,863) (4,623) (22) (621) – – (103) – – 11,850 2,241 6,687 5,138 929 (150) (5,191) – – – 7,343 – – – – (1,521) (90,744) (65,136) (21,226) – (18,302) (116,530) (9,319) (4,280) (12,381) (43,686) (18,879) 8,076 (1,309) 1,314 7,345 33,923 (1,243) (1,130) (395) (36,540) (197,043) (65,661) (22,829) (11,154) – – – – 160,326 501,920 607,000 449,730 383,130 404,550 (416,387) (591,301) (481,810) (403,710) (356,550) 85,533 15,699 (32,080) (20,580) 208,326

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APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Notes NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year/period Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 24	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 15,455 (24,728) (20,288) (547) 11,951 39,105 54,570 29,842 29,842 8,151 10 – (1,403) – (439) 54,570 29,842 8,151 29,295 19,663 54,570 29,842 8,151 29,295 19,663

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

II. NOTES TO THE FINANCIAL INFORMATION

1. GROUP REORGANISATION AND BASIS OF PRESENTATION

The Company was incorporated in the British Virgin Islands (“BVI”) on 17 March 2006 with limited liability under the International Business Companies Ordinance of the BVI. On 30 June 2006, the Group underwent a reorganisation (the “Reorganisation”). Prior to the Reorganisation, Mr. Cheung Chung Kiu (“Mr. Cheung”) was the sole shareholder of Chongqing Zhongyu Property Development Co., Ltd. (hereinafter referred to as “CQ Zhongyu”). CQ Zhongyu was the then holding company of all the other subsidiaries, associate and jointly-controlled entity comprising the Group. As part of the Reorganisation, the Company acquired from Mr. Cheung the entire equity interest in CQ Zhongyu, and became a holding company of the Group.

Since the Company and CQ Zhongyu were wholly-owned and controlled by Mr. Cheung before and after the completion of the Reorganisation, the Reorganisation is considered as a business combination under common control. Accordingly, the Financial Information includes the results, assets and liabilities, and cash flows of CQ Zhongyu, its subsidiaries, associate and jointlycontrolled entity now comprising the Group as if the current group structure had been in existence from the beginning of the Relevant Periods or since the respective dates of their registration, whichever is a shorter period. All material intra-group transactions and balances have been eliminated on combination.

Particulars of the companies comprising the Group, which have characteristics substantially similar to a private company incorporated in Hong Kong, are set out below:

	Date of	Issued/	Percentage of	Percentage of
	incorporation/	registered and	equity	interest
	registration	fully paid share	attributable to the
	and	capital at the date	Group during the		Principal
Company name	operations	of this report	Relevant Periods		activities
			Direct	Indirect
Subsidiary – incorporated
in Hong Kong:
Charm Best Investment Ltd.	30 March 2006	HK$1	100	–	Investment holding
(note a)
Subsidiaries – established
in the PRC:
Chongqing Zhongyu Property	11 June 1992	USD31,000,000	–	100	Property
Development Co., Ltd.					development
(重慶中渝物業發展有限公司)					and investment
(note e)
Chongqing Shuaitong Property	7 April 2006	RMB10,000,000	–	100	Dormant
Development Co. Ltd.
(重慶帥通物業發展有限公司)
(note b)
Chongqing Jiazhou Agricultural	25 October 1995	RMB8,880,000	–	90	Lease of a
Sideline Products Wholesale					wholesale market
Market
(重慶加州農副產品批發市場)
(note c)

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

	Date of	Issued/	Percentage of	Percentage of
	incorporation/	registered and	equity	interest
	registration	fully paid share	attributable to the
	and	capital at the date	Group during the		Principal
Company name	operations	of this report	Relevant Periods		activities
			Direct	Indirect
Jointly-controlled entity
– established in the PRC:
Chongqing Pacific Housing	23 April 1993	USD9,500,000	–	40	Property
Development Co. Ltd.					development
(重慶太平洋屋業發展有限公司)
(notes d, e)
Associate – established in the PRC:
Chongqing Technological City Stock	12 April 2002	RMB100,000,000	–	30	Property
Co. Ltd. (重慶科技城有限					development
責任公司)(note e)

Notes:

• (a) Charm Best Investment Ltd. was incorporated on 30 March 2006 with registered capital and paid-up capital of HK$1, and no statutory accounts have been prepared since its date of incorporation.

• (b) 重慶帥通物業發展有限公司 was established by CQ Zhongyu on 7 April 2006 with registered capital and paid-up capital of RMB10,000,000, and no statutory accounts have been prepared since its date of incorporation.

• (c) Pursuant to share transfer agreements dated 5 November 2003, the Group sold its entire interest in 重慶加州農副產品批發市場 . No statutory accounts have been prepared for the 10 months ended 31 October 2003.

• (d) Pursuant to a share transfer agreement dated 18 April 2006, the Group sold its entire interest in 重慶太平洋屋業發展有限公司.

• (e) The statutory accounts of these companies for the years ended 31 December 2003, 2004 and 2005 were audited by 北京永拓會計師事務所有限責任公司重慶分公司 and no statutory accounts have been prepared for the six months ended 30 June 2006.

The Financial Information set out in this report has been prepared under the going concern concept, notwithstanding that the Group had net current liabilities of approximately RMB346,354,000 as at 30 June 2006, because the ultimate shareholder has agreed to provide adequate funds for the Group to meet its liabilities as and when they fall due.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. HKFRS 1 “First-time Adoption of Hong Kong Financial Reporting Standards” has been applied in preparing the Financial Information. The Financial Information has been prepared under the historical cost convention, except for investment properties, which have been measured at fair value. The Financial Information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

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 a subsidiary are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s interest in a subsidiary is stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture entity and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture is treated as:

• (a) a subsidiary, if the Group/Company has unilateral control, directly or indirectly, over the joint venture;

• (b) a jointly-controlled entity, if the Group/Company does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;

• (c) an associate, if the Group/Company does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or

• (d) an equity investment accounted for in accordance with HKAS 39, if the Group/Company holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither unilateral/joint control of, nor is in a position to exercise significant influence over, the joint venture.

Jointly-controlled entities

A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointlycontrolled entity.

The Group’s share of the post-acquisition results and reserves of a jointly-controlled entity is included in the combined income statement and combined reserves, respectively. Where the profit sharing ratio is different to the Group’s equity interest, the share of post-acquisition results of the jointly-controlled entities is determined based on the agreed profit sharing ratio. The Group’s interest in a jointly-controlled entity is stated in the combined balance sheet at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill arising from the acquisition of a jointly-controlled entity is included as part of the Group’s interest in a jointly-controlled entity. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Jointly-controlled operations

The arrangements entered into by the Group with other parties for property development without establishing separate entities are considered to be jointly-controlled operations pursuant to HKAS 31 “Interests in Joint Ventures”. In respect of its interests in such operations, the Group recognises the land costs and other expenses incurred by the Group as properties under development. The Group’s profit earned from the sale of properties under the operations is recognised upon the registration of property certificates by the purchasers, after netting off any related balance in properties under development at that time.

Associates

An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of an associate is included in the combined income statement and combined reserves, respectively. The Group’s interest in an associate is stated in the combined balance sheets at the Group’s share of net assets under the equity method of accounting, less any impairment losses. Goodwill arising from the acquisition of associate is included as part of the Group’s interest in an associate. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

Goodwill

Goodwill arising on the acquisition of subsidiaries, associates and jointly-controlled entities represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquirees’ identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition.

Goodwill arising on acquisition is recognised in the combined balance sheets as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. In the case of an associate and a jointly-controlled entity, goodwill is included in the carrying amount thereof, rather than as a separately identified asset on the combined balance sheet.

The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

• represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

• is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with HKAS 14 “Segment Reporting”.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

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APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

An impairment loss recognised for goodwill is not reversed in a subsequent period.

Excess over the cost of business combinations

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries, associates and jointly-controlled entities (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement.

The excess for an associate and a jointly-controlled entity is included in the Group’s share of the associate’s and jointly-controlled entity’s profit or loss in the period in which the investments are acquired.

Impairment of assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than properties under development, completed properties for sale, deferred tax assets, financial assets, investment properties and goodwill), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cashgenerating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Related parties

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

• (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

• (b) the party is an associate;

• (c) the party is a jointly-controlled entity;

• (d) the party is a member of the key management personnel of the Group or its parent;

• (e) the party is a close member of the family of any individual referred to in (a) or (d); or

• (f) 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, any individual referred to in (d) or (e).

Property, plant and equipment and depreciation

Property, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Buildings 5% Furniture, fixtures and office equipment 20% Motor vehicles 20%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents a building under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Investment properties

Investment properties are interests in land and buildings (including the leasehold interest under an operating lease for property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the balance sheet date.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the year in which they arise.

Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal.

Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases net of any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms.

Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. When the lease payments cannot be allocated reliably between the land and buildings elements, the entire lease payments are included in the cost of the land and buildings as a finance lease in property, plant and equipment.

Properties under development

Properties under development are stated at the lower of cost and net realisable value and comprise construction costs, borrowing costs, professional fees, prepaid land lease payments and other costs directly attributable to such properties incurred during the development period.

Properties under development which have been pre-sold or intended for sale and are expected to be completed within one year from the balance sheet date are classified under current assets. On completion, the properties are transferred to completed properties for sale.

Revenue is only recognised upon completion of the development. Sales deposits/instalments received and receivable from purchasers in respect of pre-sale of properties under development prior to completion of the development are included in current liabilities.

Completed properties for sale

Completed properties for sale are stated at the lower of cost and net realisable value. Cost is determined by an apportionment of the total land and building costs attributable to unsold properties. Net realisable value is estimated by the directors based on the prevailing market prices, on an individual property basis.

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, i.e., the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Financial assets at fair value through profit or loss

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

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the 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). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in profit or loss.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is transferred from equity to the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through profit or loss.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

• the rights to receive cash flows from the asset have expired;

• the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a “pass-through” arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in profit or loss.

Cash and cash equivalents

For the purpose of the combined cash flow statements, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheets, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

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APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

• in respect of taxable temporary differences associated with investments in subsidiaries, an associate and interest in a joint venture, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except:

• where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, an associate and interest in a joint venture, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (a) from the sale of properties, when the risks and rewards of the properties are transferred to the purchasers, which is when the construction of the relevant properties has been completed and the properties have been delivered to the purchasers pursuant to the sales agreement, and the collectibility of related receivables is reasonably assured;

• (b) rental income, in the period in which the properties are let out on the straight-line basis over the lease terms;

• (c) property management income, when the related management services are provided; and

• (d) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset.

– 178 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Retirement benefits schemes

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiaries are required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. Where funds have been borrowed generally, and used for the purpose of obtaining qualifying assets, a capitalisation rate ranging between 5.63% and 6.52% has been applied to the expenditure on the individual assets.

Foreign currencies

These financial statements are presented in RMB, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Operating lease commitments – Group as lessor

The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases.

Classification between investment properties and owner-occupied properties

The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.

– 179 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as investment property.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Estimation of fair value of investment properties

Investment properties are stated at fair value based on the valuation performed by independent professional valuers. In determining the fair value, the valuers have based on a method of valuation which involves certain estimates. In relying on the valuation report, the directors of the Company have exercised their judgement and are satisfied that the method of valuation is reflective of the current market conditions.

Land appreciation tax (“LAT”)

The provision of land appreciation tax is estimated and made according to the requirements set forth in the relevant PRC tax laws and regulations. The actual LAT liabilities are subject to the determination by the tax authorities upon completion of the property development projects and the tax authorities might disagree with the basis on which the provision for land appreciation tax is calculated.

4. SEGMENT INFORMATION

The Group’s turnover and profit for the Relevant Periods were mainly derived from sale of properties in the PRC. The principal assets employed by the Group are located in the PRC. Accordingly, no segmental analysis by business or geographical segments is provided.

– 180 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

5. REVENUE, OTHER INCOME AND GAINS

Revenue, which is also the Group’s turnover, represents the gross proceeds, after business tax, from the sale of properties, and the gross rental income received and receivable from investment properties during the Relevant Periods.

An analysis of the Group’s revenue, other income and gains is as follows:

Revenue Sale of properties Gross rental income Less:_Business tax Other income and gains Bank interest income Reversal of business tax provision Gain on disposal of a subsidiary (note 31)_ Dividend income from an unlisted investment Others

Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 151,602 239,746 213,979 161,132 2,152 8,359 7,658 11,961 4,850 8,508 159,961 247,404 225,940 165,982 10,660 (7,718) (12,045) (11,342) (7,956) (458) 152,243 235,359 214,598 158,026 10,202 3,255 5,107 4,209 1,477 769 4,383 4,040 – – – 2,367 – – – – 1,754 682 744 744 147 180 258 175 53 88 11,939 10,087 5,128 2,274 1,004

– 181 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

6. PROFIT/(LOSS) BEFORE TAX

The Group’s profit/(loss) before tax is arrived at after charging/(crediting):

				Six months ended	Six months ended
	Year	ended 31 December		30 June
	2003	2004	2005	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Cost of properties sold	135,643	172,226	149,878	134,424	2,406
Depreciation_(note 12)_	1,068	1,905	2,486	582	1,454
Amortisation of prepaid land lease
payments_(note 14)_*	5	5	14	4		7
Loss on cancellation of available-for-sales
equity shares	–	–	4,131	–		–
Litigation settlement expenses	–	–	3,000	–		–
Minimum lease payments under
operating leases of land and buildings	550	550	754	382		107
Auditors’ remuneration	30	30	35	–		300
Employee benefits expense (including
directors’ remuneration –note (8)):
Salaries, allowances and benefits in kind	1,887	1,967	1,610	971	1,146
Retirement benefits scheme contributions	217	364	194	94		38
	2,104	2,331	1,804	1,065	1,184
Foreign exchange differences, net	38	14	4,701	–		889
Loss on disposal of interest in a
jointly-controlled entity	–	–	–	–	1,188
Loss on disposal of investment properties	3,209	53	1,566	1,282		202

* The amortisation of prepaid land lease payments is included in “Administrative expenses” on the face of the combined income statements.

7. FINANCE COSTS

Interest on bank loans wholly repayable within five years Interest on bills receivable Total interest _Less:_Interest capitalised	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 44,190 45,511 49,108 22,889 23,446 2,246 5,964 5,857 2,112 926 46,436 51,475 54,965 25,001 24,372 (27,727) (30,922) (23,166) (11,517) (12,576 18,709 20,553 31,799 13,484 11,796	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 44,190 45,511 49,108 22,889 23,446 2,246 5,964 5,857 2,112 926 46,436 51,475 54,965 25,001 24,372 (27,727) (30,922) (23,166) (11,517) (12,576 18,709 20,553 31,799 13,484 11,796
		24,372 (12,576
		11,796

– 182 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

8. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS

(i) Directors’ remuneration

No remuneration has been paid or is payable in respect of any of the Relevant Periods by the Company or its subsidiary to the directors of the Company.

No directors of the Company waived or agreed to waive any remuneration during the Relevant Periods.

(ii) Five highest paid individuals

During the Relevant Periods, none of the five highest paid individuals is director of the Company. The remuneration of each of the non-director highest paid employees for each of the Relevant Periods fell within the range of nil to RMB1,040,000 (equivalent to HK$1,000,000), and an analysis of which is as follows:

Salaries, bonuses, allowances and benefits in kind Retirement benefits scheme contributions	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 190 251 232 114 113 – 3 3 1 2 190 254 235 115 115	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 190 251 232 114 113 – 3 3 1 2 190 254 235 115 115
		115

(iii) During the Relevant Periods, no emoluments were paid by the Group to the directors 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.

9. TAX

No Hong Kong profits tax has been provided because the Group did not generate any assessable profits arising in Hong Kong during the Relevant Periods. The income tax provision of the Group in respect of operations in Mainland China has been calculated at the applicable tax rate on the estimated assessable profits for each of the Relevant Periods, based on the existing legislation, interpretations and practices in respect thereof.

Current – Mainland China Deferred_(note 28)_ Total tax charge/(credit) for the year/period	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 1,050 10,130 4,185 3,082 – (5,008) 10,730 4,399 587 (4,699 (3,958) 20,860 8,584 3,669 (4,699	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) 1,050 10,130 4,185 3,082 – (5,008) 10,730 4,399 587 (4,699 (3,958) 20,860 8,584 3,669 (4,699
		(4,699

– 183 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

A reconciliation of the tax expense applicable to profit before tax using the statutory income tax rate to the tax expense at the Group’s effective income tax rate for each of the Relevant Periods is as follows:

Profit/(loss) before tax At statutory income tax rate of 33% Loss attributable to a jointly-controlled entity and an associate Expenses not deductible Tax charge/(credit) at the Group’s effective rate	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Unaudited) (17,792) 54,382 16,951 8,950 (15,450) (5,871) 17,946 5,594 2,953 (5,099) 1,685 2,723 1,916 716 392 228 191 1,074 – 8 (3,958) 20,860 8,584 3,669 (4,699)

10. DISTRIBUTION OF PROFIT

According to the articles of association of the respective subsidiaries established in the PRC, which are foreign investment enterprises, the companies shall appropriate certain percentage of net profit after tax (after offsetting any prior years’ losses) calculated under the accounting principles generally applicable to the PRC enterprises to reserve fund, enterprise expansion fund and staff bonus and welfare fund. The reserve fund and enterprise expansion fund form part of the equity. The staff bonus and welfare shall be accounted for as liabilities. The appropriation to such funds is at the discretion of the board of directors of the respective companies. There has not been any appropriation to enterprise expansion fund and staff bonus and welfare fund during the Relevant Periods.

11. EARNINGS PER SHARE

Earnings per share information is not presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the preparation of the Group’s results for the Relevant Periods on the combined basis as disclosed in note 1 above.

– 184 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

12. PROPERTY, PLANT AND EQUIPMENT

Buildings RMB’000 Cost: At 1 January 2003 7,096 Additions – Transfer from properties under development_(note 15) 13,768 Disposal of a subsidiary(note 31) – At 31 December 2003 and 1 January 2004 20,864 Additions 1,367 Transfer from properties under development(note 15) 3,253 At 31 December 2004 and 1 January 2005 25,484 Additions 4,563 Transfer from properties under development(note 15) 24,153 Disposals – At 31 December 2005 and 1 January 2006 54,200 Additions 210 At 30 June 2006 54,410 Accumulated depreciation At 1 January 2003 4,802 Depreciation provided during the year 672 Disposal of a subsidiary(note 31)_ – At 31 December 2003 and 1 January 2004 5,474 Depreciation provided during the year 1,564 At 31 December 2004 and 1 January 2005 7,038 Depreciation provided during the year 2,204 Disposals – At 31 December 2005 and 1 January 2006 9,242 Depreciation provided during the period 1,312 At 30 June 2006 10,554 Net carrying amount: At 31 December 2003 15,390 At 31 December 2004 18,446 At 31 December 2005 44,958 At 30 June 2006 43,856	Furniture, fixtures and office equipment RMB’000 3,086 64 – (65) 3,085 115 – 3,200 60 – – 3,260 411 3,671 2,302 189 (41) 2,450 178 2,628 163 – 2,791 83 2,874 635 572 469 797	Con- Motor struction vehicles in progress RMB’000 RMB’000 9,730 368 220 – – – – (368) 9,950 – 381 – – – 10,331 – – – – – (421) – 9,910 – – – 9,910 – 9,175 – 207 – – – 9,382 – 163 – 9,545 – 119 – (421) – 9,243 – 59 – 9,302 – 568 – 786 – 667 – 608 –	Total RMB’000 20,280 284 13,768 (433) 33,899 1,863 3,253 39,015 4,623 24,153 (421) 67,370 621 67,991 16,279 1,068 (41) 17,306 1,905 19,211 2,486 (421) 21,276 1,454 22,730 16,593 19,804 46,094 45,261

– 185 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

At 31 December 2005 and 30 June 2006, the Group’s buildings with aggregate net carrying amounts of RMB17,302,000 and RMB16,950,000 were pledged to secure banking facilities granted to the Group (note 27).

13. INVESTMENT PROPERTIES

At beginning of year/period Additions Net profit/(loss) from a fair value adjustment Transfer from properties under development (note 15) Disposal At end of year/period	31 December 2003 2004 RMB’000 RMB’000 97,060 79,660 – – (2,341) 22,164 – 41,500 (15,059) (2,294) 79,660 141,030	2005 RMB’000 141,030 103 10,001 1,959 (8,253) 144,840	30 June 2006 RMB’000 144,840 – (239) – (1,131) 143,470

The Group’s investment properties were located in Mainland China and were held under long term leases.

The Group’s investment properties were revalued on 20 October 2006 by Savills Valuation and Professional Services Limited, independent professionally qualified valuers, on an open market, existing use basis. The investment properties are either held for capital appreciation or leased to third parties under operating leases, further summary details of which are included in note 33(a).

At each of the balance sheet dates during the Relevant Periods, the aggregate net carrying amounts of the Group’s investment properties pledged to secure banking facilities were as follows:

Secured banking facilities granted to: The Group_(note 27) A jointly-controlled entity A joint venture partner An independent third party PREPAID LAND LEASE PAYMENTS At beginning of year/period Transfer from properties under development (note 15)_ Amortisation At end of year/period	31 December 2003 2004 RMB’000 RMB’000 28,318 48,613 – 2,321 17,890 33,290 – – 46,208 84,224 31 December 2003 2004 RMB’000 RMB’000 – 302 307 193 (5) (5) 302 490	2005 RMB’000 37,744 2,517 34,660 5,329 80,250 2005 RMB’000 490 371 (14) 847	30 June 2006 RMB’000 37,737 – 34,510 – 72,247 30 June 2006 RMB’000 847 – (7) 840

14. PREPAID LAND LEASE PAYMENTS

The Group’s interests in land use rights in the PRC were held under long term leases.

– 186 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

15. PROPERTIES UNDER DEVELOPMENT

At beginning of the year/period Additions (including development costs and capitalised interests) Transfer to completed properties for sale Transfer to property, plant and equipment (note 12) Transfer to investment properties_(note 13) Transfer to prepaid land lease payments (note 14)_ At end of the year/period Properties under development classified as non-current assets Properties under development held for sale classified as current assets	31 December 2003 2004 RMB’000 RMB’000 550,300 545,642 85,837 41,859 (76,420) (147,482) (13,768) (3,253) – (41,500) (307) (193) 545,642 395,073 369,522 373,460 176,120 21,613 545,642 395,073	2005 RMB’000 395,073 47,883 (28,262) (24,153) (1,959) (371) 388,211 381,774 6,437 388,211	30 June 2006 RMB’000 388,211 15,794 – – – –
			404,005
			396,322 7,683
			404,005

The Group’s properties under development were located in Mainland China and were held under long term leases.

At each of the balance sheet dates during the Relevant Periods, the aggregate carrying amounts of the Group’s properties under development pledged to secure banking facilities were as follows:

Secured banking facilities granted to: The Group_(note 27)_ A jointly-controlled entity An associate A joint venture partner An independent third party	31 December 2003 2004 RMB’000 RMB’000 198,211 183,542 48,195 47,585 37,751 38,809 18,837 10,757 – 15,871 302,994 296,564	2005 RMB’000 159,192 51,486 48,073 13,093 15,406 287,250	30 June 2006 RMB’000 247,511 – – – 1,953
			249,464

– 187 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

16. INTEREST IN A JOINTLY-CONTROLLED ENTITY

Share of net assets Goodwill on acquisition, at cost Due from/(to) a jointly-controlled entity	31 December 2003 2004 RMB’000 RMB’000 20,966 14,681 20,157 20,157 41,123 34,838 (139,347) (48,603) (98,224) (13,765)	2005 RMB’000 11,485 20,157 31,642 16,533 48,175	30 June 2006 RMB’000 – –
			– –
			–

The balances with the jointly-controlled entity are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of these balances approximate to their fair values.

The Group’s investment in the jointly-controlled entity was held through a wholly-owned subsidiary of the Company. Particulars of the jointly-controlled entity are set out in note 1 of this section.

The Group’s investment in the jointly-controlled entity was disposed of by the Group in the period ended 30 June 2006.

The following table illustrates the summarised financial information of the Group’s jointlycontrolled entity:

Share of the jointly-controlled entity’s assets and liabilities: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of the jointly-controlled entity’s results: Turnover Other revenue Total revenue Total expenses Tax Loss after tax	31 December 2003 2004 RMB’000 RMB’000 100,760 76,990 29,723 30,040 (94,540) (80,560) (14,977) (11,789) 20,966 14,681 3,676 3,162 123 795 3,799 3,957 (6,951) (10,242) – – (3,152) (6,285)	2005 RMB’000 83,734 35,983 (106,364) (1,868) 11,485 3,415 58 3,473 (6,669) – (3,196)	30 June 2006 RMB’000 – – – –
			–
			– –
			– – –
			–

– 188 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

17. INTEREST IN A JOINTLY-CONTROLLED OPERATION

The Group entered into an agreement with Chongqing Tongya Real Estate Co., Ltd (重慶通亞房 地產開發有限公司 ) (the “joint venture partner”) for the development of a property in Mainland China. Pursuant to the terms of the agreement, the Group contributes the subject development site and the joint venture partner bears all the other development costs. At the respective balance sheet dates, the aggregate amounts of assets and results recognised in the Group’s financial statements in relation to the interest in the jointly-controlled operation are as follows:

Assets Turnover Profit/(loss) before tax INTEREST IN AN ASSOCIATE Share of net assets Due from/(to) an associate	31 December 2003 2004 RMB’000 RMB’000 40,463 42,118 48,278 – 10,744 – 31 December 2003 2004 RMB’000 RMB’000 27,775 25,805 (83,103) 33,427 (55,328) 59,232	2005 RMB’000 61,451 147,728 19,767 2005 RMB’000 23,193 42,746 65,939	30 June 2006 RMB’000 61,408
			859
			(215
			30 June 2006 RMB’000 22,006 55,127
			77,133

18. INTEREST IN AN ASSOCIATE

The balances with an associate are unsecured, interest-free and have no fixed terms of repayment. The carrying amount of these balances approximate to their fair values.

The Group’s investment in the associate is held through a wholly-owned subsidiary of the Company. Particulars of the associate are set out in note 1 of this section.

The following table illustrates the summarised financial information of the Group’s associate extracted from its financial statements:

		31 December		30 June
	2003	2004	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000
Assets	258,154	274,486	263,227	173,353
Liabilities	165,570	188,470	185,919	100,001
Revenue	–	–	–	–
Loss	6,520	6,567	8,708	3,956

19. AVAILABLE-FOR-SALE EQUITY INVESTMENTS

The available-for-sale equity investments as at each balance sheet date include the unlisted equity shares in Bank of Communication Co. Ltd. and Chongqing Commercial Bank, which are entities established in the PRC.

The unlisted equity investments of the Group were stated at cost less any impairment losses and not at fair value because they did not have quoted market price in an active market, the range of reasonable fair value estimates is significant, and the probabilities of the various estimates cannot be reasonably assessed.

– 189 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

At 31 December 2003, the Group’s available-for-sale equity investments with an aggregate net carrying amount of approximately RMB12,723,000 was pledged to secure banking facilities granted to the Group (note 27).

20. COMPLETED PROPERTIES FOR SALE

The Group’s completed properties for sale were located in Mainland China and were held under long term leases.

21. TRADE RECEIVABLES

The Group’s trade receivables mainly arise from the sale of properties. Consideration in respect of properties sold is payable by the purchasers in accordance with the terms of the related sale and purchase agreements. Trade receivables are non-interest-bearing. An aged analysis of the trade receivables net of provision at the respective balance sheet dates is as follows:

Within 3 months 4 to 6 months 7 to 12 months 1 to 2 years Over 2 years	31 December 2003 2004 RMB’000 RMB’000 442 437 – 4,321 736 340 1,602 178 1,300 1,390 4,080 6,666	2005 RMB’000 1,260 – 126 338 524 2,248	30 June 2006 RMB’000 346 – – – 58
			404

The carrying amounts of trade receivables approximate to their fair values.

22. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Advance to suppliers Deposits and other debtors	31 December 2003 2004 RMB’000 RMB’000 1,301 769 311,335 150,091 312,636 150,860	2005 RMB’000 464 15,598 16,062	30 June 2006 RMB’000 1,050 176,167
			177,217

The carrying amounts of prepayments, deposits and other receivables approximate to their fair values.

– 190 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

23. DUE FROM/TO RELATED PARTIES

Notes Due from key management personnel (i) Due from a joint venture partner (ii) Due from other related parties Due to key management personnel (i) Due to other related parties	31 December 2003 2004 RMB’000 RMB’000 12,486 15,363 32,548 29,759 136,325 66,294 181,359 111,416 2,284 – 3,388 7,300 5,672 7,300	2005 RMB’000 13,141 100,879 61,008 175,028 – 17,508 17,508	30 June 2006 RMB’000 12,847 106,174 64,113
			183,134
			15,217 44,745
			59,962

All the balances with related parties are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of these balances approximate to their fair values.

• (i) The key management personnel are directors of CQ Zhongyu during the Relevant Periods.

• (ii) The amount comprises cash advances to and the Group’s share of sales proceeds from the jointly-controlled operation received on behalf by the joint venture partner.

24. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

Cash and bank balances Time deposits Less:_Amounts pledged for short-term banking facilities(note 27)_ Cash and cash equivalents Denominated in RMB Denominated in other currencies Pledged time deposits _Less:_Portion classified as current assets Non-current portion	31 December 2003 2004 RMB’000 RMB’000 54,570 29,842 184,227 169,183 238,797 199,025 (150,304) (169,183) 88,493 29,842 83,710 28,524 155,087 170,501 238,797 199,025 150,304 169,183 (114,889) (65,053) 35,415 104,130	2005 RMB’000 8,151 162,350 170,501 (161,107) 9,394 8,451 162,050 170,501 161,107 (56,977) 104,130	30 June 2006 RMB’000 19,663 161,431
			181,094 (159,793
			21,301
			19,542 161,552
			181,094
			159,793 (114,923
			44,870

The cash and cash equivalents of the Group denominated in RMB are not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

– 191 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

Cash at banks earns interest at floating rates based on daily bank deposit rates. Time deposits are made for varying periods of between three months and three years depending on the immediate cash requirements of the Group, and earn interest at the respective time deposit rates. The carrying amounts of the cash and cash equivalents and the pledged deposits approximate to their fair values.

25. ISSUED CAPITAL

The Company was incorporated on 17 March 2006 with an authorised capital of US$50,000 divided into 50,000 shares of US$1 each. On 12 April 2006, 1 share of US$1 was issued at par for cash. At 30 June 2006, the issued capital of the Company is detailed below:

Authorised: 50,000 shares of US$1 each Issued: 1 share of US$1	US$50,000
	RMB8

As set out in note 1 above, the Financial Information has been prepared as if the current group structure had been in existence throughout the Relevant Periods. For the purpose of the preparation of the combined balance sheets, the balance of issued capital of CQ Zhongyu at 31 December 2003, 2004, and 2005 was included in the merger reserve account.

26. RESERVES

(i) Group

The amounts of the Group’s reserves and the movements therein for each of the Relevant Periods are presented in the combined statements of changes in equity.

(ii) Company

	Accumulated
	losses
	RMB’000
At 17 March 2006 (date of incorporation)	–
Net loss for the period	(11)
At 30 June 2006	(11)

– 192 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

27. INTEREST-BEARING BANK LOANS

Effective interest rate (%) Maturity Current Secured 4.50-8.34 2004-2007 Unsecured 5.84-7.14 2004-2005 Non-current Secured 4.94-7.72 2005-2009 Unsecured 5.49 2005 Analysed into: Bank loans repayable: Within one year or on demand In the second year	31 December 2003 2004 RMB’000 RMB’000 647,111 555,730 3,200 8,000 650,311 563,730 120,000 227,280 5,000 – 125,000 227,280 775,311 791,010 31 December 2003 2004 RMB’000 RMB’000 650,311 563,730 125,000 227,280 775,311 791,010	2005 RMB’000 757,527 – 757,527 – – – 757,527 2005 RMB’000 757,527 – 757,527	30 June 2006 RMB’000 652,127 –
			652,127
			152,961 –
			152,961
			805,088
			30 June 2006 RMB’000 652,127 152,961
			805,088

Notes:

(a) Certain bank loans are secured by the Group’s assets with aggregate values as listed below:

			31 December		30 June
		2003	2004	2005	2006
Pledged assets	Notes	RMB’000	RMB’000	RMB’000	RMB’000
Property, plant and
equipment	12	–	–	17,302	16,950
Investment properties	13	28,318	48,613	37,744	37,737
Properties under
development	15	198,211	183,542	159,192	247,511
Available-for-sale equity
investments	19	12,723	–	–	–
Time deposits	24	150,304	169,183	161,107	159,793

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ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

• (b) Certain bank loans with aggregate carrying amounts as listed below are secured or guaranteed by other parties:

		31 December		30 June
	2003	2004	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000
Secured by properties of independent
third parties	23,000	23,000	23,000	53,000
Secured by properties of a jointly-
controlled entity	93,000	174,500	187,500	–
Guaranteed by a jointly-controlled
entity	–	8,000	48,900	–
Guaranteed by Mr. Zeng Wei Cai,
a director of CQ Zhongyu (secured)	–	–	31,000	31,000
Guaranteed by a joint venture partner
and an independent third party
(secured)	–	–	–	100,000

• (c) Except for the secured bank loans equivalent to approximately RMB56,282,000, RMB56,280,000, RMB54,877,360 and RMB54,877,360 as at 31 December 2003, 2004, 2005 and 30 June 2006, respectively, which are denominated in United States dollars, all other borrowings are denominated in RMB.

Other interest rate information:

Fixed rate: Secured bank loans Unsecured bank loans Floating rate: Secured bank loans Unsecured bank loans	31 December 2003 2004 RMB’000 RMB’000 – 84,900 – 3,000 – 87,900 767,111 698,110 8,200 5,000 775,311 703,110 775,311 791,010	2005 RMB’000 82,100 – 82,100 675,427 – 675,427 757,527	30 June 2006 RMB’000 239,100 –
			239,100
			565,988 –
			565,988
			805,088

The carrying amounts of the Group’s borrowings approximate to their fair values.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

28. DEFERRED TAX

The movements in deferred tax liabilities and assets during the Relevant Periods are as follows:

Gross deferred tax liabilities

Accelerated Revaluation tax of investment depreciation properties RMB’000 RMB’000 At 1 January 2003 1,240 1,088 Deferred tax charged/(credited) to the income statement during the year_(note 9) 402 (1,764) At 31 December 2003 and 1 January 2004 1,642 (676) Deferred tax charged to the income statement during the year(note 9) 426 7,254 At 31 December 2004 and 1 January 2005 2,068 6,578 Deferred tax charged to the income statement during the year(note 9) 691 2,434 At 31 December 2005 and 1 January 2006 2,759 9,012 Deferred tax charged/(credited) to the income statement during the period(note 9)_ 362 (196) At 30 June 2006 3,121 8,816 Gross deferred tax assets

Total RMB’000 2,328 (1,362) 966 7,680 8,646 3,125 11,771 166 11,937

Income tax charged based on deemed profit RMB’000 At 1 January 2003 678 Deferred tax credited to the income statement during the year_(note 9) 1,050 At 31 December 2003 and 1 January 2004 1,728 Deferred tax charged to the income statement during the year(note 9) (454) At 31 December 2004 and 1 January 2005 1,274 Deferred tax charged to the income statement during the year(note 9) (1,274) At 31 December 2005 and 1 January 2006 – Deferred tax credited to the income statement during theperiod(note 9)_ – At 30 June 2006 –	Losses available for offset against future taxable profit RMB’000 – 2,596 2,596 (2,596) – – – 4,865 4,865	Total RMB’000 678 3,646 4,324 (3,050) 1,274 (1,274) – 4,865 4,865

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APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

The movement of net deferred tax liabilities/(assets) balances after offsetting is as follows:

At beginning of year/period Deferred tax charged/(credited) to the income statement during the year_(note 9)_ At end of year/period	31 December 2003 2004 RMB’000 RMB’000 1,650 (3,358) (5,008) 10,730 (3,358) 7,372	2005 RMB’000 7,372 4,399 11,771	30 June 2006 RMB’000 11,771 (4,699
			7,072

There are no unrecognised deferred tax assets or liabilities during the Relevant Periods.

29. TRADE AND BILLS PAYABLES

An aged analysis of trade and bills payables of the Group at the respective balance sheet dates, based on the invoice date, is as follows:

Within 3 months 4 to 6 months 7 to 12 months 1 to 2 years Over 2 years	31 December 2003 2004 RMB’000 RMB’000 32,960 9,127 27,270 6,453 17,928 2,891 12,594 14,592 2,291 10,799 93,043 43,862	2005 RMB’000 5,447 2,361 4,037 9,858 4,923 26,626	30 June 2006 RMB’000 379 76 5,008 11,300 4,614
			21,377

The carrying amounts of trade and bills payables approximate to their fair values.

At 31 December 2005, included in the Group’s trade payables are amounts due to a related company of approximately RMB2,622,000, which are repayable on credit terms similar to those offered by the major suppliers of the Group.

30. OTHER PAYABLES AND ACCRUALS

Accruals Receipt in advance Other tax payables Other liabilities	31 December 2003 2004 RMB’000 RMB’000 10,110 10,100 204,298 16,291 9,467 37,959 118,916 108,330 342,791 172,680	2005 RMB’000 14,100 21,843 41,037 105,405 182,385	30 June 2006 RMB’000 13,847 23,079 37,515 34,339
			108,780

The carrying amounts of other payables and accruals approximate to their fair values.

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

31. DISPOSAL OF A SUBSIDIARY

		Year ended	Year ended
		31	December
			2003
	Notes		RMB’000
Net assets disposed of:
Property, plant and equipment	12		392
Prepayments, deposits and other receivables			66,733
Cash and bank balances			657
Trade and bills payables			(2)
Interest-bearing bank loans			(60,850)
Tax payable			(85)
Other payables and accruals			(592)
Minority interests			(620)
			5,633
Gain on disposal of a subsidiary	5		2,367
			8,000
Satisfied by:
Cash			8,000

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

	Year ended
	31 December
	2003
	RMB’000
Cash consideration	8,000
Cash and bank balances disposed of	(657)
Net inflow of cash and cash equivalents in respect of the disposal
of a subsidiary	7,343

The results of the subsidiary disposed of in the year ended 31 December 2003 had no significant impact on the Group’s combined revenue or result for that year.

– 197 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

32. CONTINGENT LIABILITIES

The Group had the following contingent liabilities at each of the balance sheet dates during the Relevant Periods:

Notes Guarantees in respect of mortgage facilities for certain customers (i) Guarantees in respect of bank loans of independent third parties (ii)	31 December 2003 2004 RMB’000 RMB’000 28,127 29,669 13,000 13,000 41,127 42,669	2005 RMB’000 29,859 4,000 33,859	30 June 2006 RMB’000 29,859 –
			29,859

• (i) As at 31 December 2003, 2004, 2005 and 30 June 2006, the Group provided guarantees in respect of the mortgage facilities granted by certain banks to certain purchasers of the Group’s properties. Under the arrangement, in the event of default in mortgage payments by the purchasers, the Group is obliged to repay the outstanding mortgage principals together with the accrued interest and penalty owed by the purchasers to the banks.

The directors consider that in case of default in payments, the net realisable value of the related properties can cover the repayment of the outstanding mortgage principals together with the accrued interest and penalty and therefore no provision for the guarantees has been made in the financial statements.

• (ii) These represent guarantees provided to banks in respect of the bank loans obtained by certain independent third parties. The directors consider that the risk of default in payment was remote, and therefore no provision for the guarantees has been made in the financial statements.

33. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases its investment properties (note 13) under operating lease arrangements, with leases negotiated for terms ranging from 6 months to 10 years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions.

At each of the balance sheet dates during the Relevant Periods, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

Within one year In the second to fifth years, inclusive	31 December 2003 2004 RMB’000 RMB’000 1,322 1,797 – – 1,322 1,797	2005 RMB’000 1,835 – 1,835	30 June 2006 RMB’000 4,716 1,441
			6,157

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APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

(b) As lessee

The Group leased certain of its office premises and subleased properties under operating lease arrangements. Leases for the properties are negotiated for terms ranging from 1 year to 10 years.

At each of the balance sheet dates during the Relevant Periods, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	31 December 2003 2004 RMB’000 RMB’000 550 567 550 – 1,100 567	2005 RMB’000 17 – 17	30 June 2006 RMB’000 17 –
			17

The Company did not have any operating lease commitment at each of the balance sheet dates during the Relevant Periods.

34. COMMITMENTS

In addition to the operating lease commitment detailed in note 33(b) above, the Group had the following commitments at each of the balance sheet dates during the Relevant Periods:

		31 December		30 June
	2003	2004	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000
Contracted, but not provided for:
Property development expenditure	28,676	7,004	2,908	6,539

35. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed details in notes 16,18,23 and 27 of this section, the Group had the following material transactions with related parties during the Relevant Periods:

(a) Assets pledged to secure banking facilities of a jointly-controlled entity

At 31 December 2003, 2004 and 2005, the Group’s properties under development and investment properties with aggregate net carrying amounts of approximately RMB48,195,000, RMB49,906,000 and RMB54,003,000, respectively, were pledged to secure the banking facilities granted to a jointly-controlled entity.

(b) Assets pledged to secure banking facilities of an associate

At 31 December 2003, 2004 and 2005, the Group’s properties under development with aggregate net carrying amounts of approximately RMB37,751,000, RMB38,809,000, RMB48,073,000, respectively, were pledged to secure banking facilities granted to an associate.

– 199 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

(c) Assets pledged to secure banking facilities of a joint venture partner

At 31 December 2003, 2004, 2005 and 30 June 2006, the Group’s properties under development and investment properties with aggregate net carrying amounts of approximately RMB36,727,000, RMB44,047,000, RMB47,753,000 and RMB34,510,000, respectively, were pledged to secure banking facilities granted to a joint venture partner.

(d) Provision of buildings to a related party for the operation of a school at nil rental

At 31 December 2003, 2004, 2005 and 30 June 2006, the Group’s buildings and prepaid land lease payments with aggregate carrying amounts of approximately RMB14,076,000, RMB13,442,000, RMB12,809,000 and RMB12,492,000, respectively, were provided to a family member of a director of CQ Zhongyu for the operation of a school at nil rental.

(e) Compensation of key management personnel of the Group

				Six months ended	Six months ended
	Year	ended 31 December		30 June
	2003	2004	2005	2005	2006
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Short term employee benefits	36	49	48	22	23

The directors are of the opinion that the above transactions were conducted in the ordinary course of business of the Group.

36.

FINANCIAL INSTRUMENTS

The financial assets of the Group mainly include cash and bank balances, trade receivables, available-for-sale equity investments and other current assets. Financial liabilities of the Group mainly include trade and other payables and interest-bearing bank loans.

The carrying amounts of the Group’s financial instruments approximated to their fair value as at each of the balance sheet dates. Fair value estimates are made at a specific point in time and based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

37. CONCENTRATION OF RISK

The main risks arising from the Group’s financial instruments are business risk, cash flow interest rate risk , foreign currency risk, credit risk and liquidity risk. The Group does not have any written risk management policies and guidelines. Generally, the Group introduces conservative strategies on its risk management. As the Group’s exposure to these risks is kept to a minimum, the Group has not used any derivatives and other instruments for hedging purposes. The Group does not hold or issue derivative financial instruments for trading purposes. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below:

(i) Business risk

The Group conducts its operations in the PRC, and accordingly, it is subject to special considerations and significant risks. These include risks associated with, among others, the political, economic and legal environment, the influence of national authorities over pricing, and financing regulations in the property development industry.

– 200 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE SUBJECT COMPANY

(ii) Cash flow interest rate risk

The Group has no significant interest-bearing assets. The Group’s exposure to changes in market interest rates relates primarily to the Group’s bank loans with floating interest rates. The Group has not used any interest rate swaps to hedge its interest rate risk.

(iii) Foreign currency risk

The Group’s businesses are located in the PRC and all transactions are conducted in RMB. Most of the Group’s assets and liabilities are denominated in RMB except for US dollar bank loans and short term bank deposits. Fluctuations of the exchange rates of RMB against foreign currencies do not have significant effects on the Group’s results. The Group has not hedged its foreign exchange rate risk.

(iv) Credit risk

The Group has no concentration of credit risk. The carrying amounts of trade and other receivables, cash and cash equivalents included in the combined balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. The Group has no other financial assets which carry significant exposure to credit risk.

The Group has arranged bank financing for certain purchasers of property units and provided guarantees to secure obligation of such purchasers for repayments. Detailed disclosure of these guarantees is made in note 32.

(v) Liquidity risk

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

III. SUBSEQUENT EVENTS

No significant events took place subsequent to 30 June 2006.

IV. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or its subsidiary in respect of any period subsequent to 30 June 2006.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

– 201 –

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION ON THE SUBJECT COMPANY

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SUBJECT COMPANY

Year ended 31 December 2003

Business review

During the year ended 31 December 2003, the construction of the Jiazhou City Garden project was nearly completed and pre-sales of property units was launched. Phase I of the Huijing Terrace development, (a joint-venture project in which the Subject Company has an interest of 70%) was completed with a total gross floor area of approximately 23,700 sq.m.. The Subject Company expanded its scale of operation through co-operation with other parties in property development, which forms a strong foundation for its longterm development in the area to build a particular type of community and lifestyle. During the year, the income from the joint venture development alone accounted for approximately RMB48.3 million. There were strong demands for the property units in Jiazhou Garden, a completed project development. The Subject Company retained ownership of several rental portfolios which included shopping malls, retail properties, car parks and residential properties, which together generated a steady rental income of approximately RMB8.4 million during the year.

Financial review

Liquidity and financial resources

The Subject Company had cash and bank deposits of approximately RMB238.8 million as at 31 December 2003. The Subject Company’s cash and cash equivalents at 31 December 2003 were mostly deposits in HK$ and US$. As at 31 December 2003, the total assets of the Group amounted to approximately RMB1,273.7 million, in which current assets accounted for approximately RMB878.2 million.

Total liabilities accounted for approximately RMB1,216.8 million, in which current liabilities amounted to approximately RMB1,091.8 million and non-current liabilities amounted to approximately RMB125.0 million. Bank borrowings of approximately RMB775.3 million were mainly used to finance the property development projects of the Subject Company. With the exception of bank borrowings equivalent to approximately RMB56.3 million which was denominated in US$, all other bank borrowings were denominated in RMB in meeting daily operation payments.

As at 31 December 2003, the Subject Company’s gearing ratio (expressed as a percentage of bank borrowings net of cash and bank balances over shareholders’ equity) was approximately 943.9%. The high gearing ratio was mainly due to the fact that substantial bank borrowings had been obtained to finance property developments.

– 202 –

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION ON THE SUBJECT COMPANY

Pledge of assets

As at 31 December 2003, assets with an aggregate carrying value of approximately RMB512.2 million were pledged to banks as security for banking facilities granted to the Subject Company, an associate of the Subject Company, a jointly-controlled entity, and a joint venture partner.

Employees

The total number of staff at 31 December 2003 was 114.

Exchange risk

The Subject Company conducted its business operations almost exclusively in RMB and hence had minimal exposure to exchange risk.

Contingent liabilities

As at 31 December 2003, the Subject Company had the following contingent liabilities:

• (i) guarantees given to banks as security for the mortgage loans obligations of purchasers from the Subject Company amounted to approximately RMB28.1 million; and

• (ii) guarantees in respect of bank loans of independent third parties amounted to approximately RMB13.0 million.

Year ended 31 December 2004

Business review

The Subject Company achieved a profit after tax of approximately RMB33.5 million for the year ended 31 December 2004. The Subject Company’s turnover recorded a significant growth of approximately 54.6% to approximately RMB235.4 million, of which approximately 96.9% was contributed by property sales and approximately 3.1% by rental income. Property sales in the year comprised:

• (i) three residential blocks of Jiazhou City Garden with a gross floor area of approximately 72,000 sq.m. were completed and sold;

• (ii) Kechuang Building, a 15-storey office complex with a gross floor area of about 25,000 sq.m. was sold which gave rise to a turnover of approximately RMB59.2 million; and

• (iii) sales of a construction site with superstructures thereon to the People’s Bank of China provided a revenue of approximately RMB54.5 million.

– 203 –

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION ON THE SUBJECT COMPANY

Financial review

Liquidity and financial resources

As at 31 December 2004, the Subject Company had interest-bearing bank borrowings of approximately RMB791.0 million. Cash and bank balances were approximately RMB199.0 million, of which approximately 85.7% was dominated in US$ and HK$. With the continuous cash inflow from property sales, existing banking facilities and cash on hand, the Subject Company was able to meet its on-going cash requirements.

As at 31 December 2004, about 71.3% of the Subject Company’s bank loans was due within one year. Most of the borrowings were of floating-rate in nature. As at 31 December 2004, the Subject Company’s gearing ratio (expressed as a percentage of bank borrowings net of cash and bank balances over shareholders’ equity) was approximately 655.1%. The decrease in gearing ratio (as compared with that as at 31 December 2003) was attributable to upsurge in property sales in the year, which in turn increased the shareholders’ equity.

Pledge of assets

As at 31 December 2004, certain assets of the Subject Company with an aggregate carrying value of approximately RMB549.9 million (2003: RMB512.2 million) were pledged with banks for loan facilities used by the Subject Company, an associate of the Subject Company, a jointly-controlled entity, a joint venture partner and an independent third party.

Employees

As at 31 December 2004, the Subject Company had 90 staff.

Exchange risk

The Subject Company conducted its business operations almost exclusively in RMB and hence had minimal exposure to exchange risk.

Contingent liabilities

As at 31 December 2004, the Subject Company had the following contingent liabilities

• (i) guarantees given to banks as security for the mortgage loans granted to purchasers of properties from the Subject Company amounting to approximately RMB29.7 million; and

• (ii) guarantees in respect to bank loans granted to independent third parties amounting to approximately RMB13 million.

– 204 –

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION ON THE SUBJECT COMPANY

Year ended 31 December 2005

Business review

Turnover remained high at approximately RMB214.6 million. The gross profit margin increased from approximately 26.1% to approximately 29.7%. The consolidated profit attributable to shareholders was substantially reduced to approximately RMB8.4 million due to an increase in administrative and operating expenses and finance costs.

There was a strong demand for luxury houses. Phase II of Huijing Terrace, a jointventure luxury project development with a gross floor area of 69,603 sq.m. provided a revenue of approximately RMB147.7 million, while sales of remaining units in both the Jiazhou Garden and Jiazhou City Garden provided a revenue of approximately RMB7.8 million. The sales of a piece of land to the Chongqing Municipal Authority generated a revenue of approximately RMB43 million.

Financial review

Liquidity and financial resources

As at 31 December 2005, the total assets of the Subject Company amounted to approximately RMB1,105.5 million and the total liabilities amounted to approximately RMB1,006.8 million, representing a decrease of approximately RMB16.2 million and approximately RMB24.5 million respectively as compared with the corresponding amounts as at 31 December 2004.

As at 31 December 2005, the Subject Company had cash and bank deposits of approximately RMB170.5 million (2004: RMB199.0 million), of which approximately RMB161.1 million (2004: RMB169.2 million) were pledged for the Group’s banking facilities to finance construction costs. The Subject Company’s gearing was expected to gradually decline in the medium term with the cash flow from future developments. As at 31 December 2005, the Subject Company’s gearing ratio (expressed as a percentage of bank borrowings net of cash and bank balances over shareholders’ equity) was approximately 594.6%. The improved gearing ratio (as compared with that as at 31 December 2004) was attributable to contribution from property sales, which in turn increased shareholders’ equity.

Pledge of assets

As at 31 December 2005, certain assets of the Subject Company with an aggregate carrying value of approximately RMB545.9 million (2004: RMB549.9 million) were pledged with banks for loan facilities used by the Subject Company, an associate of the Subject Company, a jointly-controlled entity, a joint venture partner and an independent third party.

– 205 –

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION ON THE SUBJECT COMPANY

Employees

As at 31 December 2005, the Subject Company and its subsidiaries had 89 employees.

Exchange risk

Transactions of sales and purchases of properties of the Subject Company were primarily denominated in RMB whilst most of the Subject Company’s bank loans were denominated in RMB. The exposure to foreign exchange risk was thus minimal.

Contingent Liabilities

As at 31 December 2005, the Subject Company had the following contingent liabilities

• (i) guarantees given to banks as security for the mortgage loans granted to purchasers of properties from the Subject Company amounting to approximately RMB29.9 million; and

• (ii) guarantees with respect to bank loans granted to independent third parties amounting to RMB4 million.

Six months ended 30 June 2006

Business review

In the first half of 2006, the Subject Company focused on corporate planning and no new property development was embarked. Revenue from property sales was approximately RMB2.2 million while rental income amounted to approximately RMB8.5 million.

Financial review

Liquidity and financial resources

As at 30 June 2006, the Subject Company had bank deposits, cash and bank balances of approximately RMB181.1 million. Shareholders’ equity increased by approximately RMB149.6 million to approximately RMB248.3 million was mainly due to the increase in the registered capital of the PRC Company of approximately RMB160.3 million during the period.

As at 30 June 2006, the Subject Company had outstanding bank borrowings of approximately RMB805.1 million, representing an increase of approximately 6.3 % from the amount outstanding at 31 December 2005. The increase in bank borrowings was largely due to payment for construction in progress. The bank borrowings were largely secured by the Subject Company’s portfolio of properties and pledged deposits. About 81.0 % of the bank borrowings were repayable within one year. Most of the Subject Company’s bank borrowings were floating-rate in nature.

– 206 –

APPENDIX IV

ADDITIONAL FINANCIAL INFORMATION ON THE SUBJECT COMPANY

As at 30 June 2006, the Subject Company’s gearing ratio (expressed as a percentage of bank borrowings net of cash and bank balances over shareholders’ equity) was approximately 251.3%. The gearing ratio improved from 31 December 2005 due to additional contribution of registered capital amounting to US$20 million during the six months ended 30 June 2006.

Pledge of assets

At 30 June 2006, certain banking facilities used by the Subject Company, an associate of the Subject Company, a joint-venture partner and an independent third party, were secured by certain assets of the Subject Company with an approximate amount of approximately RMB498.5 million.

Employees

As at 30 June 2006, the Subject Company had 81 employees. The Subject Company has established an incentive bonus scheme for its employees, in which the benefits are determined based on the performance of the Subject Company and individual employees. Other benefits such as medical benefits, unemployment benefits and provident fund are also offered to employees.

Exchange risk

The Subject Company’s income was primarily denominated in RMB. Bank borrowings in RMB were used to finance construction and operating costs. Thus, the Subject Company was not exposed to foreign exchange risk.

Contingent liabilities

As at 30 June 2006, guarantees given to banks as security for mortgage loans granted to purchasers of properties from the Subject Company amounted to approximately RMB29.9 million.

– 207 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

The following is an illustrative and unaudited pro forma consolidated balance sheet, pro forma consolidated income statement and pro forma consolidated cash flow statement of the Remaining Group, which have been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the Acquisition and the deemed disposal of interest in Qualipak by the Company (the “Deemed Disposal”), as if the Acquisition and Deemed Disposal had taken place on 30 June 2006 for the pro forma consolidated balance sheet and as if the Acquisition and Deemed Disposal had taken place on 1 January 2006 for the pro forma consolidated income statement and the pro forma consolidated cash flow statement. This unaudited pro forma financial information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position, results and cash flows of the Remaining Group had the Acquisition and Deemed Disposal been completed as at 1 January 2006 or 30 June 2006, where appropriate, or at any future date.

1. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE REMAINING GROUP

As at 30 June 2006

NON-CURRENT ASSETS Property, plant and equipment Investment properties Properties under development Prepaid land lease payments Goodwill Interests in associates Convertible debentures and notes Loans receivable Available-for-sale equity investment/ long term investment Pledged time deposits Other assets Total non-current assets CURRENT ASSETS Investment at fair value through profit or loss/other investments Properties under development for sale Completed properties for sale Loans receivable Inventories Tax recoverable Trade debtors and bills receivable Other debtors, deposits and prepayments Prepaid land lease payments Due from related parties Pledged time deposits Time deposits Cash and bank balances Total current assets	The Group HK$’000 131,333 11,100 – 142,040 35,297 881,921 95,427 1,000 – – 13,141 1,311,259 523,868 – – 209,991 83,888 294 141,557 21,553 2,921 – 11,540 307,189 56,958 1,359,759	The Subject Group RMB’000 Note 1 45,261 143,470 396,322 840 – 77,133 – – 46,798 44,870 – 754,694 – 7,683 710 – – – 404 177,217 – 183,134 114,923 1,638 19,663 505,372	The Pro forma Subject Remaining Group Pro forma adjustments Group HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes 44,374 27,768 (a) (185,994 ) 17,481 140,657 (140,657 ) 11,100 388,551 5,920,193 (b) (6,308,744 ) – 824 (69,209 ) 73,655 – (35,297 ) – 75,621 1,368,416 2,325,958 – (33,702 ) 61,725 – 1,000 45,880 (45,880 ) – 43,990 (43,990 ) – – (781) 12,360 739,879 2,503,279 – (91,035 ) 432,833 7,532 80,404 (b) (87,936 ) – 696 (696) – – 209,991 – (83,888 ) – – (294) – 396 (132,930 ) 9,023 173,742 (181,062 ) 14,233 – (1,574) 1,347 179,543 (67,553 ) (c) (111,990 ) – 112,670 (115,670) 8,540 1,606 (157,391 ) 151,404 19,277 (62,186 ) 14,049 495,462 841,420	The Pro forma Subject Remaining Group Pro forma adjustments Group HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes 44,374 27,768 (a) (185,994 ) 17,481 140,657 (140,657 ) 11,100 388,551 5,920,193 (b) (6,308,744 ) – 824 (69,209 ) 73,655 – (35,297 ) – 75,621 1,368,416 2,325,958 – (33,702 ) 61,725 – 1,000 45,880 (45,880 ) – 43,990 (43,990 ) – – (781) 12,360 739,879 2,503,279 – (91,035 ) 432,833 7,532 80,404 (b) (87,936 ) – 696 (696) – – 209,991 – (83,888 ) – – (294) – 396 (132,930 ) 9,023 173,742 (181,062 ) 14,233 – (1,574) 1,347 179,543 (67,553 ) (c) (111,990 ) – 112,670 (115,670) 8,540 1,606 (157,391 ) 151,404 19,277 (62,186 ) 14,049 495,462 841,420
				2,503,279
				432,833 – – 209,991 – – 9,023 14,233 1,347 – 8,540 151,404 14,049
				841,420

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APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

CURRENT LIABILITIES Trade creditors, other payables and accrued expenses Tax payable Customers’ deposits received Interest-bearing bank borrowings Due to related parties Consideration payable on acquisition of associates Consideration payable on acquisition of subsidiaries Loans from minority shareholders Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank borrowings Convertible note Deferred tax liabilities, net Total non-current liabilities NET ASSETS EQUITY Equity attributable to equity holders of the Company: Issued capital Share premium Equity component of convertible note Other reserves Minority interests TOTAL EQUITY	The Group HK$’000 136,393 23,356 10,942 35,899 – 3,000 5,000 8,000 222,590 1,137,169 2,448,428 – 47,590 3,549 51,139 2,397,289 87,243 858,931 5,407 1,232,015 2,183,596 213,693 2,397,289	The Subject Group RMB’000 Note 1 130,157 9,480 – 652,127 59,962 – – – 851,726 (346,354 ) 408,340 152,961 – 7,072 160,033 248,307 – – – 248,307 248,307 – 248,307	The Pro forma Subject Remaining Group Pro forma adjustments Group HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes 127,606 20,000 (d) (273,498 ) 10,501 9,294 (27,373 ) 5,277 – (10,767 ) 175 639,340 (675,239 ) – 58,786 (58,786 ) – – 250,000 (c) (253,000 ) – – (5,000) – – (8,000) – 835,026 15,953 (339,564) 825,467 400,333 3,328,746 149,962 (149,962 ) – – 1,315,765 (c)&(e) (1,315,765 ) 47,590 6,933 1,989,360 (f) (1,998,956 ) 886 156,895 48,476 243,438 3,280,270 – 87,243 – 858,931 – 5,407 243,438 853,236 2,328,689 243,438 3,280,270 – (213,693 ) – 243,438 3,280,270	The Pro forma Subject Remaining Group Pro forma adjustments Group HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes 127,606 20,000 (d) (273,498 ) 10,501 9,294 (27,373 ) 5,277 – (10,767 ) 175 639,340 (675,239 ) – 58,786 (58,786 ) – – 250,000 (c) (253,000 ) – – (5,000) – – (8,000) – 835,026 15,953 (339,564) 825,467 400,333 3,328,746 149,962 (149,962 ) – – 1,315,765 (c)&(e) (1,315,765 ) 47,590 6,933 1,989,360 (f) (1,998,956 ) 886 156,895 48,476 243,438 3,280,270 – 87,243 – 858,931 – 5,407 243,438 853,236 2,328,689 243,438 3,280,270 – (213,693 ) – 243,438 3,280,270
				15,953
				825,467 3,328,746 – 47,590 886
				48,476
				3,280,270
				87,243 858,931 5,407 2,328,689
				3,280,270 –
				3,280,270

– 209 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

Notes:

1. The balances are extracted from the audited financial information of the Subject Group as at 30 June 2006 as set out in Appendix III to this circular and was translated into Hong Kong dollars at the exchange rate of RMB1.02 = HK$1.00.

2. The unaudited pro forma adjustments reflect the estimated effect on the pro forma consolidated balance sheet of the Group arising from the Acquisition, details of which are set out as follows:

3. (a) The fair value adjustment for buildings of approximately HK$27,768,000 represents the excess of the estimated fair value of property, plant and equipment of approximately HK$72,142,000, by reference to the valuation of the properties as at 31 August 2006 as set out in Appendix VII to this circular, above the aggregate carrying amount of the property, plant and equipment of approximately HK$44,374,000 in the audited financial statements of the Subject Group as at 30 June 2006, as set out in Appendix III to this circular.

4. (b) The fair value adjustment for properties under development of approximately HK$6,000,597,000 represents the excess of the estimated fair value of the properties upon completion of approximately HK$6,396,680,000, by reference to the valuation of the properties as at 31 August 2006 as set out in Appendix VII to this circular, above the aggregate carrying amount of the properties of approximately HK$396,083,000 in the audited financial statements of the Subject Group as at 30 June 2006, as set out in Appendix III to this circular.

5. (c) The adjustments represent consideration of HK$3,317,553,298 for the Acquisition, being as to:

   • (i) HK$448,000,000 to be satisfied by the issue of the Consideration Qualipak Shares at Completion.

   • (ii) HK$2,552,000,000 to be satisfied by the Convertible Note.

   • (iii) a sum representing such amount of Receivables up to the equivalent of HK$250,000,000 as may be recovered by the Qualipak Group, which will only be due and payable by the Purchaser to the Vendor on a dollar-for-dollar basis (but net of all taxes, costs and expenses) within 30 days after the later of (A) the Completion Date and (B) receipt by the PRC Company from time to time. The Purchaser is expected to settle the sum by cash out of the proceeds recovered (if any) from the Receivables or from the internal resources of the Qualipak Group; and

   • (iv) HK$67,553,000 to be satisfied by the assumption by the Purchaser of the obligations to repay the Debts.

6. (d) This adjustment represents the estimated expenses of direct legal and professional costs related to the acquisition including, among others, the preparation of this circular in respect of the Acquisition, are approximately HK$20,000,000.

7. (e) The Convertible Note, being compound financial instrument, contains both financial liability and equity components, is split between the equity component of HK$1,236,235,000 and a liability component of HK$1,315,765,000. The liability component was determined based on the present value of the estimated future cash outflows discounted at the prevailing market rate for an equivalent non-convertible loan at the balance sheet date, representing the fair value of the contractual obligation to deliver cash to the Convertible Note holder.

– 210 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

• (f) This adjustment represents the deferred tax liabilities calculated at 33%, being the applicable tax rate of the Subject Group, of the fair value adjustment for the property, plant and equipment and properties under development as set out in Notes 2(a) and 2(b) above, respectively. The relevant portion of the deferred tax liabilities will be reversed and credited to the income statement upon depreciation of property, plant and equipment over its useful life or future sales of the properties.

• The adjustment relates to the exclusion of all assets and liabilities of the enlarged Qualipak Group (comprising the Qualipak Group and the Subject Group) as if the Acquisition and the issue of Consideration Qualipak Shares constituting the Deemed Disposal of Qualipak by the Company had been completed on 30 June 2006, as well as accounting for the interests in the enlarged Qualipak Group using the equity method of accounting.

– 211 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

2. UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT OF THE REMAINING GROUP

For the six months ended 30 June 2006

REVENUE Cost of sales Gross profit Other income and gains Selling and distribution costs Administrative expenses Other expenses Fair value gains on investment properties, net Gain on disposal of subsidiaries Gain on deemed disposal of subsidiaries Finance costs Share of profits and losses of: A jointly-controlled entity Associates PROFIT/(LOSS) BEFORE TAX Tax PROFIT/(LOSS) FOR THE YEAR Attributable to: Equity holders of the Company Minority interests	The The Pro forma The Subject Subject Remaining Group Group Group Pro forma adjustments Group HK$’000 RMB’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Notes 428,466 10,202 10,002 (374,418 ) (10,002 ) 54,048 (346,270 ) (3,084 ) (3,024 ) 326,353 3,024 (19,917 ) 82,196 7,118 6,978 34,131 58,784 1,004 984 (30,157 ) (984 ) 28,627 (8,585 ) (521) (511 ) 8,585 511 – (57,197 ) (8,560 ) (8,392 ) (695 ) (b) 24,797 9,087 (32,400 ) (11,682 ) (1,269 ) (1,244 ) 2,341 1,244 (9,341 ) 1,930 (239 ) (234 ) (1,330 ) 234 600 36,144 – – (3,082 ) – 33,062 – – – 1,096,120 1,096,120 (6,961 ) (11,796 ) (11,565 ) (59,209 ) (a) 60,140 11,565 (6,030 ) (359 ) – – (359 ) 53,777 (1,187 ) (1,163 ) 1,812 1,163 (15,008 ) 40,581 148,047 (15,450 ) (15,147 ) 1,184,991 (9,842 ) 4,699 4,607 229 (b) 6,811 (4,836 ) (3,031 ) 138,205 (10,751 ) (10,540 ) 1,181,960 125,435 (7,035 ) (6,897 ) (38,514 ) 13,626 7,198 1,096,120 (15,008 ) 1,181,960 12,770 (3,716 ) (3,643 ) (21,161 ) 8,226 3,808 – 138,205 (10,751 ) (10,540 ) 1,181,960	The The Pro forma The Subject Subject Remaining Group Group Group Pro forma adjustments Group HK$’000 RMB’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 1 Note 2 Note 3 Note 4 Note 5 Note 6 Notes 428,466 10,202 10,002 (374,418 ) (10,002 ) 54,048 (346,270 ) (3,084 ) (3,024 ) 326,353 3,024 (19,917 ) 82,196 7,118 6,978 34,131 58,784 1,004 984 (30,157 ) (984 ) 28,627 (8,585 ) (521) (511 ) 8,585 511 – (57,197 ) (8,560 ) (8,392 ) (695 ) (b) 24,797 9,087 (32,400 ) (11,682 ) (1,269 ) (1,244 ) 2,341 1,244 (9,341 ) 1,930 (239 ) (234 ) (1,330 ) 234 600 36,144 – – (3,082 ) – 33,062 – – – 1,096,120 1,096,120 (6,961 ) (11,796 ) (11,565 ) (59,209 ) (a) 60,140 11,565 (6,030 ) (359 ) – – (359 ) 53,777 (1,187 ) (1,163 ) 1,812 1,163 (15,008 ) 40,581 148,047 (15,450 ) (15,147 ) 1,184,991 (9,842 ) 4,699 4,607 229 (b) 6,811 (4,836 ) (3,031 ) 138,205 (10,751 ) (10,540 ) 1,181,960 125,435 (7,035 ) (6,897 ) (38,514 ) 13,626 7,198 1,096,120 (15,008 ) 1,181,960 12,770 (3,716 ) (3,643 ) (21,161 ) 8,226 3,808 – 138,205 (10,751 ) (10,540 ) 1,181,960
	138,205
	125,435 12,770
	138,205

– 212 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

Notes:

1. The balances are extracted from the audited financial information of the Subject Group for the six months ended 30 June 2006 as set out in Appendix III to this circular and was translated into Hong Kong dollars at the exchange rate of RMB1.02 = HK$1.00.

2. The unaudited pro forma adjustments reflect the estimated effect on the pro forma consolidated income statement of the Group arising from the Acquisition, details of which are set out as follows:

3. (a) The adjustment represents the imputed interest expenses on the Convertible Note of HK$59,209,000 at 9% per annum, as if the Convertible Note was issued on 1 January 2006. The effective interest rate of the Convertible Note is determined by reference to the assessment made by Grant Sherman Appraisal Limited, an independent valuer.

4. (b) The adjustment represents the depreciation of the buildings arising from the fair value adjustment as set out in Note 2(a) to the unaudited consolidated pro forma balance sheet and the related deferred tax calculated at 33% of the fair value adjustment, on the basis that the Acquisition was completed on 1 January 2006. The buildings are depreciated on the straight-line basis to write off the cost of the buildings to its residual value over their estimated useful life of 20 years.

5. The adjustment represents the exclusion of income and expenses attributable to the Qualipak Group for the six months ended 30 June 2006, as if the Acquisition and the issue of Consideration Qualipak Shares had been completed on 1 January 2006.

6. The adjustment represents the exclusion of income and expenses attributable to the Subject Group for the six months ended 30 June 2006, as if the Acquisition and the issue of Consideration Qualipak Shares had been completed on 1 January 2006.

7. The adjustment represents the gain on the Deemed Disposal of approximately HK$1,096,120,000 attributable to the Remaining Group.

8. The adjustment represents the share of result of the enlarged Qualipak Group using the equity method of accounting for the six months ended 30 June 2006, as if the Acquisition and the issue of Consideration Qualipak Shares had been completed on 1 January 2006.

– 213 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

3. UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE REMAINING GROUP

For the six months ended 30 June 2006

CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax Adjustments for: Depreciation Amortisation of prepaid land lease payments Finance costs Share of loss of a jointly-controlled entity Loss on disposal of jointly controlled entities Share of profits and losses of associates Dividend income from listed investments Interest income from convertible notes and loans receivable Interest income on bank deposits Gain on disposal of items of property, plant and equipment Loss on disposal of investment properties Gain on disposal of listed equity investments at fair value through profit or loss/other investments Gain on disposal of subsidiaries Gain on deemed disposal of subsidiaries Gain on derecognition of investments at fair value through profit or loss Gain on redemption of investments at fair value through profit or loss Impairment on trade and other receivables Losses arising from changes in fair values of convertible notes Fair value gains on investments at fair value through profit or loss Gain arising from redemption of a convertible note Fair value loss/(gain) on investment properties Operating loss before working capital changes	The Group HK$’000 148,047 6,370 1,509 6,961 359 – (53,777) (8,716) (7,862) (8,048) (82) – (17,996) (36,144) – (17,229) (32) 2,341 9,341 (29,111) (1,333) (1,930) (7,332)	The Subject Group RMB’000 Note 1 (15,450) 1,454 7 11,796 – 1,188 1,187 (147) – (769) – 202 – – – – – – – – – 239 (293)	The Subject Group Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes (15,147) 1,021,208 30,883 1,425 695 (a) (7,182) 7 (794) 11,565 18,526 (b) (12,891) – 1,165 (1,165) 1,164 15,008 (d) (2,976) (144) 312 – (754) 5,034 – 14 198 (198) – – 3,082 – (1,096,120) (c) – 17,229 – – (2,341) – 79 – 5,168 – 1,333 234 1,096 (287)	Pro forma Remaining Group HK$’000 1,184,991 1,308 722 6,030 359 – (40,581) (8,548) (7,862) (3,768) (68) – (17,996) (33,062) (1,096,120) – (32) – 9,420 (23,943) – (600) (29,750)

– 214 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

Operating loss before working capital changes – page 178 Increase in properties under development Decrease in completed properties for sale Decrease in inventories Increase in trade debtors, other debtors, deposits and prepayments Increase in amounts due from related parties Decrease in bills payable and trust receipt loans Decrease in trade creditors, other payables and accrued expenses Increase in amounts due to related parties Increase in loans receivable Increase in investments at fair value through profit or loss/other investments Dividend received from listed investments Interest received from convertible notes and loans receivable Cash used in operations: Hong Kong profits tax paid PRC income tax paid Net cash outflow from operating activities	The Group HK$’000 (7,332) – – 2,126 (51,675) – (418) (2,741) – (34,485) (64,802) 2,289 9,352 (147,686) (42) – (147,728)	The Subject Group RMB’000 Note 1 (293) (3,218) 201 – (112,324) (8,116) – (78,854) 42,464 – – – – (160,140) – (1,478) (161,618)	The Subject Group Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes (287) (3,155) 3,155 197 (197) – (2,126) (110,121) 148,876 (7,957) 7,957 – (77,308) 71,505 41,631 (41,631) – – – 52,050 – – (157,000) – 42 (1,449) 1,449 (158,449)	Pro forma Remaining Group HK$’000 (29,750) – – – (12,920) – (418) (8,544) – (34,485) (12,752) 2,289 9,352 (87,228) – – (87,228)

– 215 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

CASH FLOW FROM INVESTING ACTIVITIES Purchase of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment Proceeds from contribution of shareholder Purchase of convertible notes and debentures Proceeds received from disposal of subsidiaries Advance to an associate Dividends received from associates Interest received from bank deposits Proceeds from sale of investment properties Proceeds from redemption of convertible notes and debentures Proceeds from redemption of investments at fair value through profit or loss/other investments Proceeds from exchange of investments at fair value through profit or loss Increase in non-pledged time deposits with original maturity of more than three months when acquired Increase in pledged bank deposits Net cash inflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to minority shareholders Dividend paid Interest paid Additions of bank loans Repayment of bank loans Net cash inflow/(outflow) from financing activities	The Group HK$’000 (7,421) 96 – (68,000) 56,000 – 11,622 8,145 – 16,000 1,280 4,825 – (1,195) 21,352 (8,383) (26,173) (5,311) 313,495 (293,044) (19,416)	The Subject Group RMB’000 Note 1 (621) – 160,326 – – (12,381) – 769 929 – – – (395) 1,314 149,941 – – (24,372) 404,550 (356,550) 23,628	The Subject Group Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes (609) 3,994 – (28) 157,182 (157,182) – – (49,000) (12,138) 12,138 – (4,797) 754 (5,034) 911 (911) – (16,000) – – (387) 387 1,288 (288) 147,001 – – 23,637 (23,894) 24,919 396,618 (430,113) (349,559) 362,603 23,165	Pro forma Remaining Group HK$’000 (4,036) 68 – (68,000) 7,000 – 6,825 3,865 – – 1,280 4,825 – (195) (48,368) (8,383) (2,536) (4,286) 280,000 (280,000) (15,205)

– 216 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of the period Effect of foreign exchange rate changes, net Cash and cash equivalents at end of the period ANALYSIS OF BALANCE OF CASH AND CASH EQUIVALENTS Cash and bank balances Non-pledged time deposits with original maturity of less than three months when acquired	The Group HK$’000 (145,792) 509,939 – 364,147 56,958 307,189 364,147	The Subject Group RMB’000 Note 1 11,951 8,151 (439) 19,663 19,663 – 19,663	The Subject Group Pro forma adjustments HK$’000 HK$’000 HK$’000 Note 1 Note 2 Note 3 Notes 11,717 (16,726) 7,991 (201,676) (430) 430 19,277 19,277 (62,186) – (155,785) 19,277	Pro forma Remaining Group HK$’000 (150,801) 316,254 – 165,453 14,049 151,404 165,453

Notes:

1. The balances are extracted from the audited financial information of the Subject Group for the six months ended 30 June 2006 as set out in Appendix III to this circular and was translated into HK$ at the exchange rate of RMB1.02 = HK$1.00.

2. The unaudited pro forma adjustments reflect the estimated effect on the pro forma consolidated cash flow statement of the Group arising from the Acquisition, details of which are set out as follows:

3. (a) The adjustment represents the depreciation of the buildings arising from the fair value adjustment, details of which are set out in Note 2(b) to the unaudited consolidated pro forma income statement.

4. (b) The adjustment represents the imputed interest expenses on the Convertible Note, details of which are set out in Note 2(a) to the unaudited consolidated pro forma income statement.

5. (c) The adjustment represents the gain on the Deemed Disposal, details of which are set out in Note 5 to the unaudited consolidated pro forma income statement.

6. (d) The adjustment represents the share of result of the enlarged Qualipak Group for the six months ended 30 June 2006, details of which are set out in Note 6 to the unaudited consolidated pro forma income statement.

7. The adjustment represents the exclusion of cash flows attributable to the enlarged Qualipak Group for the six months ended 30 June 2006, as if the Acquisition and the issue of Consideration Qualipak Shares had been completed on 1 January 2006.

– 217 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

4. LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of a report received from the auditors and reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

20 October 2006

The Directors Yugang International Limited

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of Yugang International Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued share capital of Starthigh International Limited by Qualipak International Holdings Limited (“Qualipak”), a subsidiary of the Company, and the Company’s related deemed disposal of interest in Qualipak might have affected the historical financial information in respect of the Group for inclusion as Appendix V to the circular dated 20 October 2006 (the “Circular”) issued by the Company. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on pages 210 to 211, 213 and 217 to the Circular.

RESPONSIBILITIES

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information 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 (the “HKICPA”).

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

– 218 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

BASIS OF OPINION

We conducted our work 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 HKICPA. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

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

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, 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 had the transactions actually occurred as at the date indicated therein or at any future dates; or

• the results and cash flows of the Group for the six months ended 30 June 2006 or any future periods.

OPINION

In our opinion:

• (a) the accompanying Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

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

• (c) the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully, Ernst & Young

Certified Public Accountants Hong Kong

– 219 –

APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

Set out below are the texts of the letter, summary of values and valuation certificates received from Savills, an independent property valuer, in connection with its valuation as at 31 August 2006 of the property interests of the Group.

==> picture [69 x 69] intentionally omitted <==

T: (852) 2801 6100 F: (852) 2501 5590 23/F Two Exchange Square Central, Hong Kong

EA LICENCE: C-023750 savills.com

The Board of Directors Yugang International Limited Rooms 3301-3307 China Resources Building 26 Harbour Road Wanchai Hong Kong

20 October 2006

Dear Sirs

RE: VALUATION OF VARIOUS PROPERTIES IN HONG KONG

In accordance with your recent instructions for us to value various property interests held by Yugang International Limited (referred to as the “Company”) and its subsidiaries other than Qualipak International Holdings Limited and its subsidiaries (hereinafter together referred to as the “Group”) located in Hong Kong. We confirm that we have carried out inspections, made relevant enquiries and carried out searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of these property interests as at 31 August 2006.

Our valuation of each of the property interests is our opinion of its market value which we would define as intended to mean “the estimated amount for which a Property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

– 220 –

APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

We have valued the property interest in Group I with reference to sales evidence as available on the market and where appropriate on the basis of capitalisation of the net income shown on schedules handed to us. We have allowed for outgoings and in appropriate cases made provisions for reversionary income potential.

In respect of property interest in Group II which is rented by the Group under tenancy agreement, we are of the opinion that it has no commercial value due to the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rent and/or the short term nature of the property interest.

We have not been provided with any title document relating to the property interests in Group I but we have caused searches to be made at the Land Registry. For the property interest in Group II, we have been provided with copy of relevant tenancy agreement. We have not, however, searched the original documents to verify ownership or to verify any amendment which does not appear on the copies obtained by us.

We have relied to a very considerable extent on information given by you and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, lettings and floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations.

We have inspected the exterior of the properties valued and, where possible, we have also inspected the interior of the premises. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report whether the properties are free from rot, infestation or any other structural defect. No tests were carried out on any of the services.

No allowance has been made in our valuation for any charge, mortgage or amount owing on the properties nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

We enclose herewith our summary of values and valuation certificate.

Yours faithfully For and on behalf of Savills Valuation and Professional Services Limited Charles C K Chan MSc FRICS FHKIS MCIArb RPS(GP) Managing Director

Note: Mr Charles C K Chan, Chartered Estate Surveyor, MSc, FRICS, MCIArb, RPS(GP), has about 22 years’ experience in the valuation of properties in Hong Kong and about 17 years’ experience in the valuation of properties in the PRC.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

SUMMARY OF VALUES

		Capital value in
	existing state as at
	Property	31 August 2006
Group I – Property Interests held by the Group in Hong Kong
1.	Flat No. 16 on 18th Floor, Apartment Tower on The Western Side,	HK$13,200,000
	Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong
2.	Flat No. 17 on 39th Floor, Apartment Tower on The Western Side,	HK$12,200,000
	Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong
3.	Flat No. 18 on 37th Floor, Apartment Tower on The Western Side,	HK$7,500,000
	Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong
4.	Flat No. 11 on 42nd Floor, Apartment Tower on The Western Side,	HK$7,300,000
	Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong
5.	Flat 02 on 11th Floor, Block A and Car Park Nos. 18, 19 and 32	HK$18,600,000
	on 1st Carport, Villa Lotto, 18 Broadwood Road, Happy Valley,
	Hong Kong
6.	Flat 61 on 6th Floor of Tower 10 (of Parkview Crescent),	HK$24,000,000
	Hong Kong Parkview, 88 Tai Tam Reservoir Road, Tai Tam,
	Hong Kong
7.	Car Parking Space No. 2 on Car Park Entrance 3 (Level 4)	HK$500,000
	of the Garage, Hong Kong Parkview, 88 Tai Tam Reservoir Road,
	Tai Tam, Hong Kong
8.	Flat C on 38th Floor including A/C platform thereof, Tower 1,	HK$18,000,000
	The Leighton Hill, 2B Broadwood Road, Happy Valley, Hong Kong
9.	Flat D on 25/F, Block 2, Parc Palais, 18 Wylie Road, Ho Man Tin,	HK$8,400,000
	Kowloon
10.	Private Carparking Space No. 70, Level 2, Parc Palais,	HK$600,000
	18 Wylie Road, Ho Man Tin, Kowloon
11.	Workshop No. 1 on 4th Floor, Kodak House II,
	39 Healthy Street East, North Point, Hong Kong	HK$3,800,000
12.	Workshop No. 2 on 4th Floor, Kodak House II,	HK$3,400,000
	39 Healthy Street East, North Point, Hong Kong
13.	Workshop No. 7 on 4th Floor, Kodak House II,	HK$3,900,000
	39 Healthy Street East, North Point, Hong Kong
	Subtotal:	HK$121,400,000
Group II – Property Interest Rented by the Group in Hong Kong
14.	A Portion of 33rd Floor (Portion A of Rooms 3301-3307),	No commercial
	China Resources Building, 26 Harbour Road,	value
	Wanchai, Hong Kong
	Subtotal:	No commercial
		value
	Grand Total:	HK$121,400,000

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

VALUATION CERTIFICATE

Group I – Property Interests held by the Group in Hong Kong

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2006

1. Flat No. 16 on Convention Plaza’s Apartment 18th Floor, Tower is a 35-storey residential Apartment Tower building completed in 1990. It is on The Western a part of a composite Side, development known as Hong Convention Plaza, Kong Convention and Exhibition 1 Harbour Road, Centre, which comprises 1 office Wan Chai, tower, 2 hotels, 1 serviced Hong Kong apartment building and a podium accommodating

872/4,000,000th convention and exhibition equal and facilities. undivided shares of and in Inland The property comprises a Lot No. 8593. residential unit on the 18th Floor of the apartment tower with a gross floor area of approximately 118.17 sq.m. (1,272 sq.ft).

The property is ownerHK$13,200,000 occupied.

Inland Lot No. 8593 is held under Conditions of Grant No. UB11784 for a term of 75 years commencing from 19 February 1985 at an annual Government rent of HK$1,000.

Notes: (1) The registered owner of the property is Chase Create Investments Limited in which the Company has a 100% interest.

• (2) The property is subject to a mortgage in favour of Bank of China (Hong Kong) Limited to secure general banking facilities of the Company.

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VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
2.	Flat No. 17 on	Convention Plaza’s Apartment	The property is owner-	HK$12,200,000
	39th Floor,	Tower is a 35-storey residential	occupied.
	Apartment Tower	building completed in 1990. It is
	on The Western	a part of a composite
	Side,	development known as Hong
	Convention Plaza,	Kong Convention and Exhibition
	1 Harbour Road,	Centre, which comprises 1 office
	Wan Chai,	tower, 2 hotels, 1 serviced
	Hong Kong	apartment building and a
		podium accommodating
	901/4,000,000th	convention and exhibition
	equal and	facilities.
	undivided shares
	of and in Inland	The property comprises a
	Lot No. 8593.	residential unit on the 39th Floor
		of the apartment tower with a
		gross floor area of approximately
		122.17 sq.m. (1,315 sq.ft).
		Inland Lot No. 8593 is held
		under Conditions of Grant No.
		UB11784 for a term of 75 years
		commencing from 19 February
		1985 at an annual Government
		rent of HK$1,000.

Notes: (1) The registered owner of the property is Chase Create Investments Limited in which the Company has a 100% interest.

• (2) The property is subject to a mortgage in favour of Bank of China (Hong Kong) Limited to secure general banking facilities of the Company.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
3.	Flat No. 18 on	Convention Plaza’s Apartment	The property is owner-	HK$7,500,000
	37th Floor,	Tower is a 35-storey residential	occupied.
	Apartment Tower	building completed in 1990. It is
	on The Western	a part of a composite
	Side,	development known as Hong
	Convention Plaza,	Kong Convention and Exhibition
	1 Harbour Road,	Centre, which comprises 1 office
	Wan Chai,	tower, 2 hotels, 1 serviced
	Hong Kong	apartment building and a
		podium accommodating
	568/4,000,000th	convention and exhibition
	equal and	facilities.
	undivided shares
	of and in Inland	The property comprises a
	Lot No. 8593.	residential unit on the 37th Floor
		of the apartment tower with a
		gross floor area of approximately
		77.02 sq.m. (829 sq.ft).
		Inland Lot No. 8593 is held
		under Conditions of Grant No.
		UB11784 for a term of 75 years
		commencing from 19 February
		1985 at an annual Government
		rent of HK$1,000.

Notes: (1) The registered owner of the property is Chase Create Investments Limited in which the Company has a 100% interest.

• (2) The property is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation Limited to secure general banking facilities of the Company.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
4.	Flat No. 11 on	Convention Plaza’s Apartment	The property is owner-	HK$7,300,000
	42nd Floor,	Tower is a 35-storey residential	occupied.
	Apartment Tower	building completed in 1990. It is
	on The Western	a part of a composite
	Side,	development known as Hong
	Convention Plaza,	Kong Convention and Exhibition
	1 Harbour Road,	Centre, which comprises 1 office
	Wan Chai,	tower, 2 hotels, 1 serviced
	Hong Kong	apartment building and a
		podium accommodating
	666/4,000,000th	convention and exhibition
	equal and	facilities.
	undivided shares
	of and in Inland	The property comprises a
	Lot No. 8593.	residential unit on the 42nd
		Floor of the apartment tower
		with a gross floor area of
		approximately 90.30 sq.m.
		(972 sq.ft).
		Inland Lot No. 8593 is held
		under Conditions of Grant No.
		UB11784 for a term of 75 years
		commencing from 19 February
		1985 at an annual Government
		rent of HK$1,000.

Note: The registered owner of the property is Time Lander Limited in which the Company has a 100% interest.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
5.	Flat 02 on 11th	Villa Lotto is an residential	The property is owner-	HK$18,600,000
	Floor, Block A and	development comprising four 25	occupied.
	Car Parks Nos. 18,	to 26-storey residential buildings
	19 and 32 on	surmounting on 4-storey car
	1st Carport,	parking podium. The
	Villa Lotto, 18	development was completed in
	Broadwood Road,	1987.
	Happy Valley,
	Hong Kong	The property comprises a
		residential unit on the 11th Floor
	258/51,274th	of Block A of the development
	equal and	with a gross floor area of
	undivided shares	approximately 223.52 sq.m.
	of and in Inland	(2,406 sq.ft).
	Lot No. 8525.
		The property also comprises 3
		covered car parking spaces on
		the 1st Floor of the car parking
		podium.
		Inland Lot No. 8525 is held
		under Conditions of Exchange
		No. UB11617 for a term of 75
		years commencing from 7 April
		1913 renewable for a further
		term of 75 years at an annual
		Government rent at HK$9,540.

Notes: (1) The registered owner of the property is Kent Smart Investments Limited in which the Company has a 100% interest.

(2) The property is subject to a mortgage in favour of The Hongkong and Shanghai Banking Corporation Limited to secure general banking facilities of the Company.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
6.	Flat 61 on 6th	Hong Kong Parkview is a private	The property is owner-	HK$24,000,000
	Floor of Tower 10	residential development	occupied.
	(of Parkview	comprising eighteen 20-storey
	Crescent),	residential buildings (4th, 13th
	Hong Kong	and 14th floors are omitted in
	Parkview,	floor numbering) built over a
	88 Tai Tam	multi-story recreational and car
	Reservoir Road,	parking podium. The
	Tai Tam,	development was completed in
	Hong Kong	1989.
	240/190,149th	The property comprises a
	equal and	residential unit on the 6th Floor
	undivided shares	of Tower 10 of the development
	of and in Rural	with a gross floor area of
	Building Lot No.	approximately 257.43 sq.m.
	1051 and the	(2,771 sq.ft).
	Extension thereto.
		Rural Building Lot No. 1051 and
		the Extension thereto are held
		under Conditions of Sale No.
		UB11574 and Conditions of
		Extension No. 11953 respectively
		both for a term of 75 years
		commencing from 3 December
		1981 renewable for a further
		term of 75 years at a total annual
		Government rent of HK$2,000.

Note: The registered owner of the property is Big Brother Resources Limited in which the Company has a 100% interest.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
7.	Car Parking Space	Hong Kong Parkview is a private	The property is owner-	HK$500,000
	No. 2, Entrance 3	residential development	occupied
	(Level 4) of the	comprising eighteen 20-storey
	Garage, Hong	residential buildings (4th, 13th
	Kong Parkview,	and 14th floors are omitted in
	88 Tai Tam	floor numbering) built over a
	Reservoir Road,	multi-story recreational and car
	Tai Tam,	parking podium. The
	Hong Kong	development was completed in
		1989.
	3/190,149th equal
	and undivided	The property comprises a
	shares of and in	covered car parking space on
	Rural Building	Level 4 of the recreational and
	Lot No. 1051 and	carparking podium of the
	the Extension	development.
	thereto.
		Rural Building Lot No. 1051 and
		the Extension thereto are held
		under Conditions of Sale No.
		UB11574 and Conditions of
		Extension No. 11953 respectively
		both for a term of 75 years
		commencing from 3 December
		1981 renewable for a further
		term of 75 years at a total annual
		Government rent of HK$2,000.

Note: The registered owner of the property is Big Brother Resources Limited in which the Company has a 100% interest.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
8.	Flat C on 38th	The Leighton Hill is a large	The property is owner-	HK$18,000,000
	Floor including	residential development	occupied.
	A/C platform	comprising eight 30 to 31-storeys
	thereof, Tower 1,	residential buildings
	The Leighton Hill,	surmounting on 3-storey car
	2B Broadwood	parking podium. The
	Road,	development was completed in
	Happy Valley,	2002.
	Hong Kong
		The property comprises a
	212/279,977th	residential unit on the 38th Floor
	equal and	of Tower 1 of the development
	undivided shares	with a gross floor area of
	of and in the	approximately 135.17 sq.m.
	Remaining	(1,455 sq.ft).
	Portion of Inland
	Lot No. 8882.	Inland Lot No. 8882 is held
		under a Conditions of Sale No.
		12519 for a term of 50 years
		commencing from 14 May 1998
		at an annual Government rent
		equivalent to 3% of the rateable
		value for the time being of the
		property.

Note: The registered owner of the property is Megaspace Asia Limited in which the Company has a 100% interest.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

	Property	Description and tenure
9.	Flat D on 25th	Parc Palais is a private
	floor of Block 2,	residential development
	Parc Palais,	comprising of eight 24-storeys
	18 Wylie Road,	residential towers (14, 24 and 34
	Ho Man Tin,	floors are omitted in floor
	Kowloon	numbering) built over a car
		parking/recreational podium
	166/341,874th	completed in 2004.
	equal and
	undivided shares	The property comprises a
	of and in	residential unit on the 25th Floor
	Kowloon Inland	of Block 2 of the development
	Lot No. 11118.	with a gross floor area of
		approximately 103.96 sq.m.
		(1,119 sq.ft).
		Kowloon Inland Lot No. 11118 is
		held under Conditions of Sale
		No. 12575 for a term of 50 years
		commencing from 29 June 2000
		at an annual Government rent
		equivalent to 3% of the rateable
		value for the time being of the
		property.

Capital value in Particulars of existing state as at occupancy 31 August 2006

The property is ownerHK$8,400,000 occupied

Note: The registered owner of the property is Bonco Limited in which the Company has a 100% interest.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

Property Description and tenure 10. Carparking Space Parc Palais is a private No. 70, Level 2, residential development Parc Palais, 18 comprising of eight 24-storeys Wylie Road, residential towers (14, 24 and 34 King’s Road, floors are omitted in floor Ho Man Tin, numbering) built over a car Kowloon parking/recreational podium completed in 2004. 25/341,874th equal and The property comprises a undivided shares covered car parking space on of and in Level 2 of the carparking Kowloon Inland podium of the development. Lot No. 11118. Kowloon Inland Lot No. 11118 is held under Conditions of Sale No. 12575 for a term of 50 years commencing from 29 June 2000.

Particulars of occupancy

The property is owneroccupied.

Capital value in existing state as at 31 August 2006

HK$600,000

Note: The registered owner of the property is Bonco Limited in which the Company has a 100% interest.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
11.	Workshop No. 1	Kodak House is a 23-storey	The property is let under	HK$3,800,000
	on 4th Floor,	industrial building erected upon	a tenancy for a term of 3
	Kodak House II,	a 4-storey car parking podium	years expiring on
	39 Healthy Street	completed in 1992.	January 2008 yielding a
	East,		monthly rental of
	North Point,	The property comprises an	HK$23,000 inclusive of
	Hong Kong	industrial unit on the 4th Floor	rates, government rent
		of the building with a saleable	and management fee.
	280/100,000th	area of approximately
	equal and	137.50 sq.m. (1,480 sq.ft).
	undivided shares
	of and in the	Marine Lot No. 705 and the
	Remaining	Extension thereto are held under
	Portion of Marine	a Government Lease and
	Lot No. 705 and	Conditions of Extension No.
	the Extension	11688 respectively both for a
	thereto.	term of 999 years commencing
		from 25 December 1869 at a total
		annual Government rent of
		HK$3,000.

Notes: (1) The registered owner of the property is New Wealth Limited in which the Company has a 100% interest.

(2) The property is subject to a mortgage in favour of Bank of China (Hong Kong) Limited to secure general banking facilities of the Company.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
12.	Workshop No. 2	Kodak House is a 23-storey	The property is let under	HK$3,400,000
	on 4th Floor,	industrial building erected upon	a tenancy for a term of 3
	Kodak House II,	a 4-storey car parking podium	years expiring on April
	39 Healthy Street	completed in 1992.	2009 yielding a monthly
	East,		rental of HK$18,720
	North Point,	The property comprises an	exclusive of rates,
	Hong Kong	industrial unit on the 4th Floor	government rent and
		of the building with a saleable	management fee.
	236/100,000th	area of approximately
	equal and	124.77 sq.m (1,343 sq.ft).
	undivided shares
	of and in the	Marine Lot No. 705 and the
	Remaining	Extension thereto are held under
	Portion of Marine	a Government Lease and
	Lot No. 705 and	Conditions of Extension No.
	the Extension	11688 respectively both for a
	thereto.	term of 999 years commencing
		from 25 December 1869 at a total
		annual Government rent of
		HK$3,000.

Notes: (1) The registered owner of the property is New Wealth Limited in which the Company has a 100% interest.

(2) The property is subject to a mortgage in favour of Bank of China (Hong Kong) Limited to secure general banking facilities of the Company.

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APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
13.	Workshop No. 7	Kodak House is a 23-storey	The property is let under	HK$3,900,000
	on 4th Floor,	industrial building erected upon	a tenancy for a term of 2
	Kodak House II,	a 4-storey car parking podium	years expiring on
	39 Healthy Street	completed in 1992.	August 2006 yielding a
	East,		monthly rental of
	North Point,	The property comprises an	HK$21,870 exclusive of
	Hong Kong	industrial unit on the 4th of the	rates, government rent
		building with a saleable area of	and management fee.
	276/100,000th	approximately 140.93 sq.m.
	equal and	(1,517 sq.ft).
	undivided shares
	of and in the	Marine Lot No. 705 and the
	Remaining	Extension thereto are held under
	Portion of Marine	a Government Lease and
	Lot No. 705 and	Conditions of Extension No.
	the Extension	11688 both for a term of 999
	thereto.	years commencing from 25
		December 1869 at a total annual
		Government rent of HK$3,000.

Notes: (1) The registered owner of the property is New Wealth Limited in which the Company has a 100% interest.

(2) The property is subject to a mortgage in favour of Bank of China (Hong Kong) Limited to secure general banking facilities of the Company.

– 235 –

APPENDIX VI

VALUATION ON THE PROPERTY INTERESTS OF THE GROUP

Group II – Property Interest Rented by the Group in Hong Kong

Capital value in existing state as at 31 August 2006

Description and Particulars of existing state as at Property tenancy particulars occupancy 31 August 2006 A Portion of China Resources Building is a The property is occupied No commercial 33rd Floor high-rise office building by the Group as office. value

1. A Portion of China Resources Building is a 33rd Floor high-rise office building (Portion A completed in 1982. of Rooms 3301-3307), The property comprises a China Resources portion of the office on the 33rd Building, Floor of the building with a 26 Harbour Road, lettable area of approximately Wanchai, 371.70 sq.m. (4,001 sq.ft.). Hong Kong

By a sub-tenancy agreement dated 30 July 2005 made between Chongqing Industrial Limited as tenant and Yugang Management Limited as sub-tenant, the property was rented by the Group for a term from 1 August 2005 to 31 July 2008 at a monthly rent of HK$83,000 inclusive of management fees, airconditioning charges and rates.

– 236 –

APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Set out below are the texts of the letter, summary of values and valuation certificates received from Savills, an independent property valuer, in connection with its valuation as at 31 August 2006 of the property interests of the Subject Group.

==> picture [69 x 69] intentionally omitted <==

T: (852) 2801 6100 F: (852) 2501 5590

23/F Two Exchange Square Central, Hong Kong

EA LICENCE: C-023750 savills.com

The Board of Directors Yugang International Limited Rooms 3301-7 China Resources Building 26 Harbour Road Wanchai Hong Kong

The Board of Directors Qualipak International Holdings Limited 7th Floor, China United Centre 28 Marble Road North Point Hong Kong

20 October 2006

Dear Sirs,

In accordance with the instructions from Yugang International Limited (“Yugang”) and Qualipak International Holdings Limited (“Qualipak”) (collectively referred to as the “Companies”) to value various property interests held by 重慶中渝物業發展有限公司 (Chongqing Zhongyu Property Development Company Limited) (“Chongqing Zhongyu”) in the People’s Republic of China (“PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of values of such property interests as at 31 August 2006.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Our valuation of each of the property interests is our opinion of its market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, joint ventures, management agreements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

In the course of our valuation, we have assumed that, unless otherwise stated, transferable land use rights in respect of the properties for respective specific terms at nominal annual land use fees have been granted and that any premium payable has already been fully paid. We have also assumed that, unless otherwise stated, the owners of the properties have enforceable title to the properties and have free and uninterrupted rights to use, occupy or assign the properties for the whole of the terms as granted.

In valuing the properties in Group I, which are held by Chongqing Zhongyu for future development, we have valued them by direct comparison approach assuming sale of each of the properties in its existing state and by making reference to the comparable sales transactions as available in the relevant market and the latest development proposals supplied to us. Based on the supplied preliminary development proposals, we consider that the gross floor areas to be built are reasonable based on the prevailing urban planning.

In valuing the interest held by Chongqing Zhongyu in a development project in Group II, we have made reference to the comparable sales transactions as available on the market and information provided by the Companies including development proposal, development programme, development contract and other relevant information.

In valuing the properties in Group III, which are held by Chongqing Zhongyu for occupation or investment, we have valued them by making reference to comparable sales transactions as available in the market and where appropriate on the basis of capitalization of net income shown on the schedule handed to us with due allowance for reversionary income potential of these properties.

We have been provided with copies of extracts of title documents relating to the properties. However, we have not inspected the original documents to verify ownership or to ascertain the existence of any amendments which may not appear on the copies handed to us. In the course of our valuation, we have relied to a very considerable extent on the information given by the Companies and their legal advisers on PRC laws, Chongqing Zhibo Law Firm, regarding the titles and other legal matters relating to the

– 238 –

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

property interests and have accepted advice given to us on matters such as planning approvals or statutory notices, easements, tenure, identification of the properties, particulars of occupancy, development proposals, estimated construction costs, estimated completion dates, site and floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the Companies and are therefore only approximations. We have no reason to doubt the truth and accuracy of the information provided to us by the Companies which is material to our valuation. We were also advised by the Companies that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view.

We have inspected the exterior of the properties valued. During the course of our inspection, we did not note any serious defects. However, no structural survey has been made and we are therefore unable to report whether the properties are free from rot, infestation or any other structural defects. No tests were carried out on any of the services. We have not carried out investigations on site to determine the suitability of the ground conditions and the services etc for any future development. Our valuations are prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the construction period.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any of the properties nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that all the properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

In valuing the property interests, we have complied with all the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited and Valuation Standards on Properties (1st Edition) published by the Hong Kong Institute of Surveyors.

Unless otherwise stated, all monetary amounts stated are in Renminbi.

We enclose herewith our summary of values and valuation certificate.

Yours faithfully For and on behalf of

Savills Valuation and Professional Services Limited

Charles C K Chan MSc FRICS FHKIS MCIArb RPS(GP) Managing Director

Note: Charles C K Chan, Chartered Estate Surveyor, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has about 22 years’ experience in the valuation of properties in Hong Kong and about 17 years’ experience in the valuation of properties in the PRC.

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SUMMARY OF VALUES

Group I – Properties held by Chongqing Zhongyu for future development in the PRC

No. Property

Capital value in existing state as at 31 August 2006

1. Three parcels of land located at the south of Xingai Road, (Lot Nos. 15, 16 and 17-1), Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC 2. A site located at east of Songpai Road, (Lot No. 9), Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC 3. A site located at the southeast of the junction of Xingai Road and Nation Road No. 201, (Lot No. 10-1), Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC

RMB1,540,000,000

RMB740,000,000

RMB1,105,000,000

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No. Property

1. A site located at the west of Nation Road No. 201, (Lot No. 6-1) Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC 5. Three parcels of land (Lot No. 19), Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC

2. A site located at the east of Nation Road No. 201, (Lot No. 3-1), Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC

3. A site located at the west of Nation Road No. 201, (Lot No. 4), Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC

Capital value in existing state as at 31 August 2006

RMB142,000,000

RMB825,000,000

RMB600,000,000

RMB1,000,000,000

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No. Property 8. A site located at Longtoushi (Lot No. 035) Renhe Tuenzhu Gaoxinyuan Northern New District Chongqing PRC 9. Two sites (Lot No. 20 and Lot No. 11-1) located at Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC 10. A site (Lot No. 22) located at Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC 11. A site (Lot No. 7-1) located at Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC Sub-total:

Capital value in existing state as at 31 August 2006 RMB430,000,000 RMB80,000,000 RMB24,614,000 RMB8,000,000

RMB6,494,614,000

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Group II – Interest held by Chongqing Zhongyu in a development project in the PRC

No. Property

1. A site (Lot No. 1) located at Chongqing International Finance and Trade Development Area, Xinpaifang, Longxi Town, Yubei District, Chongqing, PRC

Capital value in existing state as at 31 August 2006 RMB30,000,000

Sub-total RMB30,000,000

– Group III Properties held by Chongqing Zhongyu for owner-occupation or investment in the PRC

Capital value in existing state as at No. Property 31 August 2006 13. Portion of Levels 1, 2 and 3, Units 3 and 4 on Level 17 RMB6,320,000 and Unit 7 on Level 26, Block A2, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 14. Portion of Levels 1, 2 and 3, Units 1 and 2 on Level 6 RMB13,250,000 and Unit 4 on Level 32/33, Block A3, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC

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No. Property

1. Unit 5 on Level 3, Block A4, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 16. Units 3 to 6 on Level 1 and Units 5 and 6 on Level 2, Block A9, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 17. Unit 2 on Level 20, Block B1, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 18. Portion of Levels 1 to 4, Block B2, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 19. Portion of Levels 1, 2 and 3 and Unit 1 on Level 24/25, Block B4, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC

Capital value in existing state as at 31 August 2006

RMB320,000

RMB1,750,000

RMB227,000

RMB12,590,000

RMB25,852,000

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Capital value in existing state as at No. Property 31 August 2006 20. Portion of Levels 1 and 2 of Block C2, RMB5,960,000 Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 21. Portion of Levels 1 and 2 RMB3,918,500 and 11 residential units in Block C3, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 22. Units 1 and 4 on Level 4, Unit 1 on Level 5, RMB1,200,000 Unit 4 on Level 6 and Unit 4 on Level 7, Block C4, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 23. A market located at RMB3,950,000 Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 24. A two-level basement car park of Jiazhou Garden, RMB17,670,000 Longxi Town, Yubei District, Chongqing, PRC

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Capital value in existing state as at No. Property 31 August 2006 25. Education Building, RMB9,460,000 Jiazhou Primary School, Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 26. Composite Building of Jiazhou Primary School, RMB6,460,000 Jiazhou Garden, Longxi Town, Yubei District, Chongqing, PRC 27. The car park basement of RMB470,000 connective level between Blocks 4 and 5, Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC 28. Block 7, RMB40,920,000 Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC 29. Portion of Levels 1 to 3, RMB22,570,000 Blocks 8 and 9, Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC

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Capital value in existing state as at No. Property 31 August 2006 30. The basement car park of connective floor RMB600,000 between Blocks 9 and 10, Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC 31. The car park in the basement, RMB14,400,000 Levels 1 to 3, Units 5 on Levels 15, 16, 17 and 24 of Block 13, Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC 32. Jiazhou City Garden Kindergarten, RMB3,620,000 Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC 33. Carports A and B located at RMB9,000,000 Jiazhou City Garden, Longxi Town, Yubei District, Chongqing, PRC 34. Basement Levels 1 to 2, RMB4,240,000 Kechuang Building, Longxi Town, Yubei District, Chongqing, PRC Sub-total: RMB204,747,500 Grant Total: RMB6,729,361,500

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VALUATION CERTIFICATE

Group I – Properties held by Chongqing Zhongyu for future development in the PRC

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2006

The property comprises three contiguous parcels of irregularshaped level site with a total site area of approximately 261,343.2 sq.m. (2,813,098 sq.ft.).

1. Three parcels of The property comprises three land located at the contiguous parcels of irregularsouth of Xingai shaped level site with a total site Road, (Lot Nos. area of approximately 261,343.2 15, 16 and 17-1), sq.m. (2,813,098 sq.ft.). Chongqing International The property is planned to be Finance and Trade developed into a residential and commercial composite

Development development with a total

Area, Xinpaifang, planned gross floor area of

Longxi Town, approximately 764,112 sq.m.

Yubei District, (8,224,901 sq.ft.).

Chongqing, PRC

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:–

Portion of Lot No. 15 of the property is subject to two tenancy agreements for respective terms expiring on 31 December 2006 and 8 February 2007 at annual rents of RMB80,000 and RMB246,873.60 respectively.

A temporary driving range is erected on portion of Lot No. 16 of the property for a term expiring on 31 December 2006 for an annual rent of RMB40,000.

RMB1,540,000,000

Use Residential High-rise apartment bldg. Semi-detached Townhouse Villas Commercial Ancillary Facilities Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 663,464 7,141,526 12,940 139,286 9,690 104,303 68,018 732,146 10,000 107,640 764,112 8,224,901	Approximate Gross Floor Area (sq.m.) (sq.ft.) 663,464 7,141,526 12,940 139,286 9,690 104,303 68,018 732,146 10,000 107,640 764,112 8,224,901
		8,224,901

The remaining portion of the property is currently vacant and pending for development.

The proposed development will also comprise 6,543 car parking spaces.

As advised by the Companies, the construction of the proposed development is expected to commence in early 2007 and expected for completion by the end of 2009. Estimated pre-sale commencement time will be in the second half of 2007.

The property is held under a land use rights for a term expiring on 29 May 2063 for residential uses.

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Notes:

1. Pursuant to three Certificates for Use of State-owned Land Nos. Yu Wai Guo Yong (2003) Zi 076, Yu Wai Guo Yong (2003) Zi 077 and Yu Wai Guo Yong (2003) Zi 078 all issued by Chongqing Stateowned Land Resources and Housing Administration Bureau on 4 November 2003, the land use rights of three parcels of land with respective site areas of 152,504.135 sq.m. (Lot No. 15), 100,696.21 sq.m. (Lot No. 16) and 41,476.35 sq.m. (Lot No. 17-1) were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a land use term expiring on 29 May 2063 for residential uses.

2. According to the information provided by the Companies, portion of Lot No. 15 with a site area of approximately 33,330.0 sq.m. has been resumed by Chongqing State-owned Land Resources and Housing Administration Bureau and is to be excluded from our valuation.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable;

5. (ii) Lot No. 16 is subject to a mortgage in favour of Bank of Communications Xinpaifang Subbranch for an amount of RMB117,500,000; and

6. (iii) Lot No. 17-1 is subject to a mortgage in favour of Chongqing Commercial Bank Daxigou Sub-branch for an amount of RMB39,000,000.

7. (iv) Based on a reply letter – Yu Gui Han Fu (2006) Bei Long Zi No. 0031 issued by the Chongqing Planning Bureau on 14 April 2006, the usage of Lot Nos. 15, 16 and 17 is residential and commercial.

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Description and tenure

Property

1. A site located at The property comprises a parcel east of Songpai of irregular-shaped level site Road, (Lot No. 9), with a site area of approximately Chongqing 81,339.02 sq.m. (875,533 sq.ft.). International Finance and Trade The property is planned to be Development developed into a residential, Area, Xinpaifang, hotel and commercial composite Longxi Town, development with a total Yubei District, planned gross floor area of Chongqing, approximately 307,354.00 sq.m. PRC (3,308,358 sq.ft.).

Particulars of occupancy

The property is currently vacant and pending for development.

Capital value in existing state as at 31 August 2006

RMB740,000,000

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:–

Use Residential High-rise apartment Serviced apartment Commercial Hotel Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 170,098 1,830,935 25,003 269,132 73,503 791,186 38,750 417,105 307,354 3,308,358	Approximate Gross Floor Area (sq.m.) (sq.ft.) 170,098 1,830,935 25,003 269,132 73,503 791,186 38,750 417,105 307,354 3,308,358
		3,308,358

The proposed development will also comprise a car park basement with a floor area of approximately 57,079 sq.m. (614,398 sq.ft.).

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2007 and expected for completion in mid 2010. Estimated pre-sale commencement time will be in the first half of 2008.

The property is held under a land use rights for a term expiring on 25 May 2063 for composite uses.

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Notes:

1. Pursuant to the Certificate for Use of State-owned Land Yu Wai Guo Yong (2004) Zi 013 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 7 January 2004, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property with a site area of 81,339.02 sq.m. for a term expiring on 25 May 2063 for composite uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land price or land premium payable; and

4. (ii) the property is subject to a mortgage in favour of Agricultural Bank of China Jiangbei Subbranch for an amount of RMB47,600,000.

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Description and tenure

Property

The property comprises a parcel of irregular-shaped level site with site area of approximately 103,434.88 sq.m. (1,113,373 sq.ft.).

1. A site located at The property comprises a parcel the southeast of of irregular-shaped level site the junction of with site area of approximately Xingai Road and 103,434.88 sq.m. (1,113,373 sq.ft.). Nation Road No. 201, (Lot No. The property is planned to be 10-1), Chongqing developed into a residential, International office and commercial composite Finance and Trade development with a total Development planned gross floor area of Area, Xinpaifang, approximately 312,669 sq.m. Longxi Town, (3,365,570 sq.ft.). Yubei District, Chongqing, According to the development PRC proposal provided, the details of the proposed development of the property are summarised as follows:–

Particulars of occupancy

Portion of the property with a land area of approximately 2,250.5 sq.m. (24,224 sq.ft.) is subject to a tenancy agreement for a term commencing on 10 January 2006 and expiring on the date when Zhong Yu commences its redevelopment work.

The remaining portion of the property is currently vacant and pending for development.

Capital value in existing state as at 31 August 2006

RMB1,105,000,000

Use Residential Office Commercial Ancillary Facilities Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 112,849 1,214,707 82,072 883,423 102,590 1,104,279 15,158 163,161 312,669 3,365,570	Approximate Gross Floor Area (sq.m.) (sq.ft.) 112,849 1,214,707 82,072 883,423 102,590 1,104,279 15,158 163,161 312,669 3,365,570
		3,365,570

The proposed development will also comprise a car park basement with a floor area of approximately 37,293 sq.m. (401,422 sq.ft.).

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2007 and expected for completion in mid 2009. Estimated pre-sale commencement time will be in the first half of 2008.

The property is held under a land use rights for a term expiring on 29 May 2063 for residential uses.

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Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2003) Zi 072 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 4 November 2003, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property for a term expiring on 29 May 2063 for residential uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable; and

4. (ii) portions of the property with site areas of 33,350 sq.m. and 10,000 sq.m. are subject to respective mortgages in favour of Chongqing Commercial Bank Jianxin Bei Road Sub-branch and China Minsheng Bank Corporation Limited Chongqing Sub-branch for amounts of RMB23,000,000 and RMB9,700,000 respectively; and

5. (iii) there is no legal impediment to confirm the usage of Lot No. 10-1 as quoted from the Certificate for Use of State-owned Land as composite commercial uses.

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Property

Description and tenure

Capital value in Particulars of existing state as at occupancy 31 August 2006

1. A site located at The property comprises a parcel the west of Nation of irregular-shaped level site Road No. 201, with a site area of approximately 29,224.74 sq.m. (314,575 sq.ft.). (Lot No. 6-1), Chongqing The property is planned to be International developed into a residential and Finance and Trade commercial composite Development development with a total planned gross floor area of Area, Xinpaifang, approximately 84,747 sq.m. Longxi Town, (912,217 sq.ft.). Yubei District, Chongqing, According to the development PRC proposal provided, the details of the proposed development of the property are summarised as follows:–

A temporary structure with a floor area of approximately 3,106.45 sq.m. (33,438 sq.ft.) is erected on the property and is leased out on temporary basis.

The remaining portion of the property is currently vacant.

RMB142,000,000

Use Residential Commercial Ancillary Facilities Car Park Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 38,710 416,674 23,297 250,769 6,850 73,733 15,890 171,040 84,747 912,217	Approximate Gross Floor Area (sq.m.) (sq.ft.) 38,710 416,674 23,297 250,769 6,850 73,733 15,890 171,040 84,747 912,217
		912,217

As advised by the Companies, the construction of the proposed development is expected to commence in early 2007 and expected for completion by the end of 2008. Estimated pre-sale commencement time will be in the second half of 2007.

The property is held under a land use rights for a term expiring on 25 May 2063 for composite uses.

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2004) Zi 008 issued by Chongqing Land Resources and Housing Administration Bureau on 7 January 2004, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property for a term expiring on 25 May 2063 for composite uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable; and

4. (ii) portion of the property with site areas of 28,410 sq.m. is subject to a mortgage in favour of China Everbright Bank Jiangbei Sub-branch for an amount of RMB33,800,000.

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Description and tenure

Property

1. Three parcels of The property comprises 3 parcels land (Lot No. 19), of adjoining irregular-shaped Chongqing level site with a total site area of International approximately 143,868.63 sq.m. Finance and Trade (1,548,602 sq.ft.). Development Area, Xinpaifang, The property is planned to be Longxi Town, developed into a residential, Yubei District, office and commercial composite Chongqing, development with a total PRC planned gross floor area of approximately 300,740.00 sq.m. (3,237,165 sq.ft.). The proposed development will also comprise 1,172 car parking spaces.

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:–

Particulars of occupancy

Portion of the land together with Lot No. 4 are subject to three tenancy agreements with the latest one expiring on 9 February 2008 at a total annual rent of approximately RMB3,126,000.

There is a temporary structure erected on portion of the property.

The remaining portion of the property is vacant and pending for development.

Capital value in existing state as at 31 August 2006

RMB825,000,000

Use Residential Commercial Office Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 170,875 1,839,299 68,350 735,719 61,515 662,147 300,740 3,237,165	Approximate Gross Floor Area (sq.m.) (sq.ft.) 170,875 1,839,299 68,350 735,719 61,515 662,147 300,740 3,237,165
		3,237,165

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2008 and expected for completion in mid 2010. Estimated pre-sale commencement time will be in the first half of 2009.

The property is held under land use rights for respective terms expiring on 25 May 2062, 29 May 2063 and 29 May 2063 respectively for residential uses.

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Notes:

1. Pursuant to three Certificates for Use of State-owned Land No. Yu Guo Yong (1997) Zi 061, Yu Wai Guo Yong (2003) 079 and Yu Wai Guo Yong (2003) 080 all issued by Chongqing Land Resources and Housing Administration Bureau on 23 June 1997, 4 November 2003 and 4 November 2003 respectively, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property for respective terms expiring on 25 May 2062, 29 May 2063 and 29 May 2063 respectively for residential uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable; and

4. (ii) portions of the property with site areas of 50,000.251 sq.m. and 4,241.53 sq.m. are subject to respective mortgages in favour of Agricultural Bank of China Chengdu Zongfu Sub-branch and Chongqing Commercial Bank Jianxin Bei Road Sub-branch for amounts of RMB126,800,000 and RMB8,000,000 respectively; and

5. (iii) there is no legal impediment to confirm the usage of Lot No. 19 as quoted from the Certificate for Use of State-owned Land as composite commercial uses.

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Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2006

The property comprises a parcel of irregular-shaped level site with site area of approximately 47,936.97 sq.m. (515,994 sq.ft.).

1. A site located at The property comprises a parcel the east of Nation of irregular-shaped level site Road No. 201, with site area of approximately 47,936.97 sq.m. (515,994 sq.ft.).

(Lot No. 3-1), Chongqing The property is planned to be International developed into a residential, Finance and Trade office and commercial composite Development development with a total planned gross floor area of

Area, Xinpaifang, approximately 236,729 sq.m.

Longxi Town, (2,548,151 sq.ft.). The proposed

Yubei District, development will also comprise Chongqing, 922 car parking spaces. PRC

The property is currently vacant and pending for development.

RMB600,000,000

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:–

Use Residential Commercial Office Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 134,505 1,447,812 53,802 579,125 48,422 521,214 236,729 2,548,151	Approximate Gross Floor Area (sq.m.) (sq.ft.) 134,505 1,447,812 53,802 579,125 48,422 521,214 236,729 2,548,151
		2,548,151

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2008 and expected for completion in mid 2010. Estimated pre-sale commencement time will be in the first half of 2009.

The property is held under a land use rights for a term expiring on 29 May 2063 for residential uses.

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2003) Zi 070 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 4 November 2003, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property for a term expiring on 29 May 2063 for residential uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable; and

4. (ii) portion of the property with a site area of 45,038.06 sq.m. is subject to a mortgage in favour of Bank of Communications Chongqing Sub-branch for an amount of US$6,800,000; and

5. (iii) there is no legal impediment to confirm the usage of Lot No. 3-1 as quoted from the Certificate for Use of State-owned Land as composite commercial uses.

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Property

Description and tenure

Capital value in Particulars of existing state as at occupancy 31 August 2006

1. A site located at The property comprises a parcel the west of Nation of irregular-shaped level site Road No. 201, with site area of approximately (Lot No. 4), 96,917.17 sq.m. (1,043,216 sq.ft.). Chongqing International The property is planned to be Finance and Trade developed into a residential, Development office and commercial composite Area, Xinpaifang, development with a total Longxi Town, planned gross floor area of Yubei District, approximately 468,555 sq.m. Chongqing, (5,043,526 sq.ft.). The proposed PRC development will also comprise 1,826 car parking spaces.

The property together with portion of Lot No. 19 is subject to a tenancy agreement for a term of three years commencing on 10 November 2003 and expiring on 10 November 2006 at a current annual rent of RMB3,000,000.

There is a temporary structure erected on the property.

RMB1,000,000,000

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:

The remaining portion of the property is vacant and pending for development.

Use Residential Commercial Office Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 266,224 2,865,635 106,490 1,146,258 95,841 1,031,633 468,555 5,043,526	Approximate Gross Floor Area (sq.m.) (sq.ft.) 266,224 2,865,635 106,490 1,146,258 95,841 1,031,633 468,555 5,043,526
		5,043,526

As advised by the Companies, the construction of the proposed development is expected to commence in early 2009 and expected for completion by the end of 2010. Estimated pre-sale commencement time will be in the second half of 2009.

The property is held under a land use rights for a term expiring on 25 May 2063 for composite uses.

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2004) Zi 012 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 9 January 2004, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property for a term expiring on 25 May 2063 for composite uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable; and

4. (ii) the property is subject to a mortgage in favour of Bank of Communications Xinpaifang Subbranch for an amount of RMB100,000,000.

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2006

1. A site located at The property comprises a parcel Longtoushi (Lot of irregular-shaped level site No. 035) Renhe with a site area of approximately Tuenzhu 69,316.85 sq.m. (746,127 sq.ft.). Gaoxinyuan Northern New The property is planned to be District developed into a residential, Chongqing office and commercial composite PRC development with a total planned gross floor area of approximately 209,545 sq.m. (2,255,543 sq.ft.). The proposed development will also comprise 816 car parking spaces.

The property is currently vacant and pending for development.

RMB430,000,000

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:–

Use Residential Commercial Office Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 119,060 1,281,562 47,624 512,625 42,861 461,356 209,545 2,255,543	Approximate Gross Floor Area (sq.m.) (sq.ft.) 119,060 1,281,562 47,624 512,625 42,861 461,356 209,545 2,255,543
		2,255,543

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2008 and expected for completion in mid 2010. Estimated pre-sale commencement time will be in the first half of 2009.

The property is held under land use rights for respective terms of 40 and 70 years commencing on 17 June 2005 and expiring on 17 June 2045 and 17 June 2075 for commercial and residential uses respectively.

Notes:

1. Pursuant to the Real Estate Title Certificate No. 100 Fang Di Zheng 2006 Zi 817 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 31 August 2006, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of the property for a term expiring on 17 June 2045 for commercial uses and a term expiring on 17 June 2075 for residential uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable.

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Description and tenure

Property

1. Two sites (Lot No. The property comprises two 20 and Lot No. parcels of irregular-shaped level 11-1) located at site with site areas of Chongqing approximately 2,584.80 sq.m. International (27,823 sq.ft.) and 17,337.76 sq.m. Finance and Trade (186,624 sq.ft.). Development Area, Xinpaifang, The property is planned to be Longxi Town, developed into a residential Yubei District, development with a total Chongqing, planned gross floor area of PRC approximately 80,859 sq.m. (870,366 sq.ft.).

Particulars of occupancy

The property is currently vacant and pending for development.

Capital value in existing state as at 31 August 2006

RMB80,000,000

According to the development proposal provided, the details of the proposed development of the property are summarised as follows:–

Use Residential Car park Total	Approximate Gross Floor Area (sq.m.) (sq.ft.) 61,453 661,480 19,406 208,886 80,859 870,366	Approximate Gross Floor Area (sq.m.) (sq.ft.) 61,453 661,480 19,406 208,886 80,859 870,366
		870,366

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2007 and expected for completion in mid 2009. Estimated pre-sale commencement time will be in the first half of 2008.

Lot No. 20 of the property is held under a land use rights for a term expiring on 25 May 2063 for composite uses.

Lot No. 11-1 is held under a land use rights for a term expiring on 29 May 2063 for residential uses.

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Guo Yong (1994) Zi 112 issued by Chongqing State-owned Land Bureau on 12 December 1994, Chongqing Zhongyu (an indirect whollyowned subsidiary of the Subject Company) was granted with the land use rights of a parcel of land of the property with a site area of 2,584.80 sq.m. for a term of 70 years for composite uses.

2. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2003) Zi 074 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 4 November 2003, Chongqing Zhongyu was granted with the land use rights of a parcel of land with a site area of 81,137.67 sq.m. for a term expiring on 29 May 2063 for residential uses.

Portion of the land of the said Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2003) Zi 074 has been developed as Phases I and II of Huijing Terrace. The remaining vacant site area of the land is approximately 17,337.759 sq.m. which is included in our valuation.

1. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land premium payable.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2006

1. A site (Lot No. 22) The property comprises a parcel located at of irregular-shaped level site Chongqing with a site area of approximately International 7,118.67 sq.m. (76,625 sq.ft.). Finance and Trade Development Portion of the property with a Area, Xinpaifang, site area of approximately Longxi Town, 5,325.33 sq.m. (57,322 sq.ft.) is Yubei District, planned to be developed into a Chongqing, residential development with a PRC total planned gross floor area of approximately 16,009.00 sq.m. (172,321 sq.ft.). The proposed development will also comprise a car park with a floor area of approximately 3,842 sq.m. (41,355 sq.ft.).

The property is currently RMB24,614,000 vacant and pending for (see note 3) development.

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2007 and expected for completion in mid 2009. Estimated pre-sale commencement time will be in the first half of 2008.

Portion of the property with a site area of approximately 1,793.34 sq.m. (19,304 sq.ft.) is subject to an Agreement for joint development (see note 2 (ii)).

The property is held under a land use rights for a term of 70 years commencing on 26 May 1992 and expiring on 25 May 2062 for residential uses.

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Guo Yong (1997) Zi 062 issued by Chongqing State-owned Land Bureau on 23 June 1997, Chongqing Zhongyu (an indirect whollyowned subsidiary of the Subject Company) was granted with the land use rights of a parcel of land with a site area of 11,965.05 sq.m. for a term of 70 years commencing on 26 May 1992 and expiring on 25 May 2062 for residential uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) Chongqing Zhongyu Yu is entitled to use and develop the property within the land use terms without any land price or land premium payable; and

4. (ii) Chongqing Zhongyu entered into a contract with Chongqing Long Xi Zhi Ye Consulting Company Limited (重慶市龍溪置業諮詢有限公司) on 13 June 2003 to jointly develop a project. Chongqing Zhongyu has invested a parcel of land with an area of approximately 1,793.34 sq.m. in the project in return for a sum of RMB1,614,000. The said amount of RMB1,614,000 was received by Chongqing Zhongyu.

5. The said amount of money as mentioned in item 2 has been taken into account in our valuation.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Property

Description and tenure

Particulars of occupancy

Capital value in existing state as at 31 August 2006

The property comprises a parcel of irregular-shaped level site with a site area of approximately 5,245.88 sq.m. (56,467 sq.ft.).

1. A site (Lot No. The property comprises a parcel 7-1) located at of irregular-shaped level site Chongqing with a site area of approximately International 5,245.88 sq.m. (56,467 sq.ft.). Finance and Trade Development The property is planned to be Area, Xinpaifang, developed into a residential Longxi Town, development with a total Yubei District, planned gross floor area of Chongqing, approximately 8,161.00 sq.m. PRC (87,845 sq.ft.). The proposed development will also comprise a car park with a floor area of approximately 1,638 sq.m. (17,631 sq.ft.).

The property is currently vacant and pending for development.

RMB8,000,000

As advised by the Companies, the construction of the proposed development is expected to commence in mid 2007 and expected for completion in mid 2009. Estimated pre-sale commencement time will be in the first half of 2008.

The property is held under a land use rights for a term expiring on 25 May 2063 for composite uses.

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2004) Zi 007 issued by Chongqing State-owned Land Resources and Housing Administration Bureau in January 2004, Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) was granted with the land use rights of a parcel of land with a site area of 5,245.88 sq.m. for a term expiring on 25 May 2063 for composite uses.

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

Chongqing Zhongyu is entitled to use and develop the property within the land use term at no or extra land premium payable.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Group II – Interest held by Chongqing Zhongyu in a development project in the PRC

Property

Description and tenure

Capital value in Particulars of existing state as at occupancy 31 August 2006

1. A site (Lot No. 1) The property comprises a parcel located at of land with a site area of Chongqing approximately 11,778.79 sq.m. International (126,787 sq.ft.). Finance and Trade Development The property is planned to be Area, Xinpaifang, developed into a residential and Longxi Town, commercial composite Yubei District, development with a total Chongqing, planned gross floor area of PRC approximately 52,491.32 sq.m. (565,017 sq.ft.) which is scheduled to be completed by the end of 2007.

The property is vacant

RMB30,000,000

The property is held under a land use rights for a term expiring on 29 May 2063 for residential uses.

Notes:

1. Pursuant to the Certificate for Use of State-owned Land No. Yu Wai Guo Yong (2003) Zi 066 issued by the People’s Government of Chongqing, the land use rights of the property with a site area of approximately 11,778.79 sq.m. were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 29 May 2063 for residential uses.

2. Pursuant to a Site of Jiazhou No. 1 Development Contract entered into between Chongqing Zhongyu and Chongqing Zhong Rui Enterprises Company Ltd (“Zhong Rui”) (重慶中瑞實業有限公司 ) on 6 April 2005 (“Contract”), Chongqing Zhongyu and Zhong Rui agreed to jointly develop the property. Under the contract, Zhong Rui will pay an amount of RMB25,000,000 to Chongqing Zhongyu. Chongqing Zhongyu is also entitled to share an extra profit of RMB1,000,000 when the average selling price of the residential units of the proposed development upon completion is RMB100 per sq.m above RMB3,200 per sq.m. and get another RMB1,000,000 when the average selling price is RMB100 per sq.m. more than before with a cap of RMB5,000,000.

Zhong Rui has already paid RMB19,000,000 to Chongqing Zhongyu. We have taken into account such amount in our valuation.

1. We have been provided with a legal opinion on the title to the property issued by the Companies’ legal adviser, which contains, inter-alia, the following information:

2. (i) Chongqing Zhongyu is entitled to use and develop the property within the land use terms at no or extra land price or land premium payable;

3. (ii) the property is subject to a mortgage in favour of Bank of Communications Chongqing Subbranch for an amount of US$6,800,000; and

4. (iii) the contract as mentioned as item (2) is lawful and binding on both parties.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

– Group III Properties held by Chongqing Zhongyu for owner-occupation or investment in the PRC

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
13.	Portion of Levels	The property comprises portion	Portion of Level 1 of the	RMB6,320,000
	1, 2 and 3, Units 3	of Levels 1, 2 and 3 of the	property with a floor
	and 4 on Level 17	commercial podium and 3	area of approximately
	and Unit 7 on	residential units of a 30-storey	40.00 sq.m. is currently
	Level 26,	residential tower erected upon a	subject to a tenancy
	Block A2,	3-level commercial podium	expiring on 31 December
	Jiazhou Garden,	completed in about 1997.	2008 at a monthly rental
	Longxi Town,		of RMB1,040. Portion of
	Yubei District,	The commercial and residential	Level 1 with a floor area
	Chongqing,	portions of the property have	of approximately 276.03
	PRC	gross floor areas of	sq.m. is occupied as
		approximately 1,822.78 sq.m.	property management
		(19,620 sq.ft.) and 449.29 sq.m.	office and the remaining
		(4,836 sq.ft.).	portion of the property
			is currently vacant.
		The land use rights of the
		property were granted for a term
		of 70 years commencing on 30
		June 1992 and expiring on 29
		June 2062 for commercial and
		residential uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 041 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the land use rights of a parcel of land of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for commercial and residential uses.

2. Pursuant to Building Ownership Certificate Nos. Fang Quan Zheng 201 Zi 0162364 and Yu Bei Qu Zi 29899 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee;

6. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered; and

7. (iv) except for Levels 2 and 3 of the property which are mortgaged to Zhongqing Commercial Bank Jian Xin Bei Road Sub-branch, the reminder of the property is not subject to any mortgages.

8. The breakdown of our valuation is as follows:

9. Commercial : RMB5,400,000 Residential : RMB920,000

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
14.	Portion of Levels	The property comprises portion	Portion of Level 2 of the	RMB13,250,000
	1, 2 and 3, Units 1	of Levels 1, 2 and 3 of the	property is currently
	and 2 on Level 6	commercial podium and 3	subject to two tenancies
	and Unit 4 on	residential units of a 30-storey	with the latest one
	Level 32/33,	residential tower erected upon a	expiring in March 2008
	Block A3,	3-level commercial podium	at a total monthly rental
	Jiazhou Garden,	completed in about 1997.	of approximately
	Longxi Town,		RMB7,000. The
	Yubei District,	The commercial and residential	remaining portion of the
	Chongqing,	portions of the property have	property is currently
	PRC	gross floor areas of	vacant.
		approximately 4,736.79 sq.m.
		(50,987 sq.ft.) and 549.22 sq.m.
		(5,912 sq.ft.).
		The land use rights of the
		property were granted for a term
		of 70 years commencing on 26
		May 1992 and expiring on 25
		May 2062 for residential uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 075 issued by Chongqing State-owned Land Resources and Housing Administration Bureau dated on 28 August 1997, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 26 May 1992 and expiring on 25 May 2062 for residential uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 073125 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 19 December 2001, the building ownership of the commercial podium of Block A3 with a gross floor area of 4,736.79 sq.m. is held by Chongqing Zhongyu.

3. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 073126 issued by the Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the three residential units of the property with a total gross floor area of approximately 549.22 sq.m. is held by Chongqing Zhongyu.

4. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

5. (i) the property is held by Chongqing Zhongyu;

6. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

7. (iii) the tenancy agreements are lawful and legally binding on both landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered;

8. (iv) the property is not subject to any mortgages; and

9. (v) there is no legal impediment to confirm the usage of the land on which Block A3 is erected as quoted from the Certificate for Use of State-owned Land as composite commercial uses.

10. The breakdown of our valuation is as follows:

Commercial : RMB12,120,000 Residential : RMB1,130,000

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 August 2006 15. Unit 5 on Level 3, The property comprises a The property is currently RMB320,000 Block A4, residential unit on Level 3 of a subject to a tenancy Jiazhou Garden, 33-storey residential tower commencing on 1 Longxi Town, erected upon a 4-level October 2004 and Yubei District, commercial podium completed expiring on 30 Chongqing, in about 1997. September 2006 at a PRC monthly rental of The property has a gross floor RMB1,150. area of approximately 154.10 sq.m. (1,659 sq.ft.). The land use rights of the property were granted for a term of 70 years commencing on 26 February 1992 and expiring on 25 February 2062 for residential uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 074 issued by the Chongqing State-owned Land Resources and Housing Administration Bureau, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 26 February 1992 and expiring on 25 February 2062 for residential uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 074115 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

6. (iii) the tenancy agreement is lawful and legally binding on both the landlord and the tenant but not liable to other third parties as the said tenancy agreement has not been registered; and

7. (iv) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Property Description and tenure

1. Units 3 to 6 on The property comprises six Level 1 and residential units of a 30-storey Units 5 and 6 residential tower completed in on Level 2, about 1997. Block A9, Jiazhou Garden, The property has a total gross Longxi Town, floor area of approximately Yubei District, 848.64 sq.m. (9,135 sq.ft.). Chongqing, PRC The land use rights of the property were granted for a term of 70 years commencing on 26 May 1992 and expiring on 25 May 2062 for residential uses.

Capital value in Particulars of existing state as at occupancy 31 August 2006 The property is currently RMB1,750,000 vacant.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 081 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 26 May 1992 and expiring on 25 May 2062 for residential uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 034924 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property; and

6. (iii) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
17.	Unit 2 on	The property comprises a	The property is currently	RMB227,000
	Level 20,	residential unit on Level 20 of a	vacant.
	Block B1,	30-storey residential tower
	Jiazhou Garden,	completed in about 1997.
	Longxi Town,
	Yubei District,	The property has a gross floor
	Chongqing,	area of approximately 130.62
	PRC	sq.m. (1,406 sq.ft.).
		The land use rights of the
		property were granted for a term
		of 70 years commencing on 30
		June 1992 and expiring on 29
		June 2062 for commercial and
		residential uses.

Notes:

1. Pursuant to Certificate for Use of State-owned Land No. Yu Guo Yong (1997) Zi 043 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for commercial and residential uses.

2. Pursuant to Building Ownership Certificate No. Yu Te Fang Zi 60293 issued by Chongqing Stateowned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. According to the information provided by the Companies, the property has been sold to an independent third party at a consideration of RMB227,017.56 and the sales is to be completed on or before 31 December 2006.

4. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

5. (i) the property is held by Chongqing Zhongyu;

6. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

7. (iii) the property is not subject to any mortgages; and

8. (iv) Chongqing Zhongyu has entered into a sales contract with an independent third party to sell the property. The said sales contract is lawful and legally binding. The purchaser has paid part of the consideration and there is no legal impediment for the transfer of ownership.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
18.	Portion of	The property comprises portion	Portion of the property	RMB12,590,000
	Levels 1 to 4,	of Levels 1 to 4 of the	with a total floor area of
	Block B2,	commercial podium of a 25-	approximately
	Jiazhou Garden,	storey residential tower erected	973.53 sq.m. is currently
	Longxi Town,	upon a 3-level commercial	subject to various
	Yubei District,	podium completed in about	tenancies with latest one
	Chongqing,	1997.	expiring in November
	PRC		2008 at a total monthly
		The property have a total gross	rental of approximately
		floor area of approximately	RMB16,200. The
		3,813.66 sq.m. (41,050 sq.ft.).	remaining portion of the
			property is partly
		The land use rights of the	occupied as offices and
		property were granted for a term	activities rooms for the
		of 70 years commencing on 30	elderly and partly
		June 1992 and expiring on 29	vacant.
		June 2062 for commercial and
		residential uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 043 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 14 April 1997, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for commercial and residential uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 0162097 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the commercial podium of Block B2 with a gross floor area of 3,813.66 sq.m. is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

6. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements has not been registered; and

7. (iv) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
19.	Portion of	The property comprises portion	Portion of the	RMB25,852,000
	Levels 1, 2 and	of Levels 1, 2 and 3 of the	commercial portion of
	3 and Unit 1	commercial podium and a	the property with a
	on Level 24/25	residential unit of a 25-storey	gross floor area of
	Block B4,	residential tower erected upon a	approximately 6,808.77
	Jiazhou Garden,	5-level commercial podium	sq.m. is currently subject
	Longxi Town,	completed in about 1997.	to various tenancies with
	Yubei District,		the latest one expiring in
	Chongqing,	The commercial and residential	December 2014 at a total
	PRC	portions of the property have	monthly rental of
		gross floor areas of	approximately
		approximately 6,994.17 sq.m.	RMB203,600.
		(75,285 sq.ft.) and 227.71 sq.m.
		(2,451 sq.ft.).	The remaining portion of
			the property is currently
		The land use rights of the	vacant.
		property were granted for a term
		of 70 years commencing from 30
		June 1992 and expiring on 29
		June 2062 for commercial and
		residential uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 043 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for commercial and residential uses.

2. According to the information provided by the Companies, the residential unit of the property with a gross floor area of approximately 227.71 sq.m. has been sold to an independent third party at a consideration of RMB341,565. The sales is to be completed on or before 31 December 2006. The said amount has been taken into account in our valuation.

3. Pursuant to the Building Ownership Certificates Nos. Fang Quan Zheng 201 Zi 0104644 and Fang Quan Zheng 201 Zi 033957 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

4. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

5. (i) the property is held by Chongqing Zhongyu;

6. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee;

7. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered;

8. (iv) the commercial portion of the property is mortgaged to Bank of Agriculture Long Xi Subbranch; and

9. (v) the sales contract as mentioned in note 2 is lawful and legally binding. The purchaser has paid part of the consideration. There is no legal impediment for the application of the transfer of ownership.

10. The breakdown of our valuation is as follows:

Commercial : RMB25,510,000 Residential : RMB342,000

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
20.	Portion of Levels	The property comprises portion	Portion of Level 2 with a	RMB5,960,000
	1 and 2 of	of Levels 1 and 2 of a 16-storey	gross floor area of
	Block C2,	composite building completed in	approximately 300 sq.m.
	Jiazhou Garden,	about 1997.	is subject to a tenancy
	Longxi Town,		for a term expiring on 17
	Yubei District,	The property has a total gross	March 2007 at a monthly
	Chongqing,	floor area of approximately	rental of RMB11,700.
	PRC	1,626.83 sq.m. (17,511 sq.ft.).
			The remaining portion of
		The land use rights of the	the property is currently
		property were granted for a term	vacant.
		of 70 years commencing on 30
		June 1992 and expiring on 29
		June 2062 for residential and
		commercial uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 042 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 14 April 1997, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for residential and commercial uses.

2. Pursuant to Building Ownership Certificate Nos. Fang Quan Zheng 201 Zi 0162095 and Fang Quan Zheng 201 Zi 0146890 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which will require the consent of the mortgagee;

6. (iii) the tenancy agreement is lawful and legally binding on both the landlord and tenant but not liable to other third parties as the said tenancy agreement has not been registered; and

7. (iv) Level 1 of the property is mortgaged to Chongqing Commercial Bank Jian Xin Bei Road Subbranch.

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Property Description and tenure

1. Portion of The property comprises portion Levels 1 and of Levels 1 and 2 of the 2 and 11 commercial podium and 11 residential units residential units of a 16-storey in Block C3, composite building completed in Jiazhou Garden, about 1997. Longxi Town, Yubei District, The commercial and residential Chongqing, portions of the property have PRC gross floor areas of approximately 271.43 sq.m. (2,922 sq.ft.) and 1,383.68 sq.m. (14,894 sq.ft.) respectively.

Capital value in Particulars of existing state as at occupancy 31 August 2006 A residential unit of the RMB3,918,500 property is currently subject to a tenancy for a term expiring on 30 June 2008 at a monthly rental of about RMB800 whilst the remaining portion of the property is vacant.

The land use rights of the property were granted for a term of 70 years commencing from 30 June 1992 and expiring on 29 June 2062 for residential and commercial uses.

Notes:

1. According to the information provided, the residential portion of the property comprises the following units:

Units 4 & 5 on Level 4, Unit 5 on Level 5, Unit 7 on Level 9, Unit 3 on Level 11, Units 5 & 6 on Level 12, Unit 5 on Level 15, Units 4 & 8 on Level 16 and Unit 8 on Level 17/18.

1. According to the information provided by the Companies, Unit 8 on Level 17/18 with a gross floor area of approximately 213.68 sq.m. has been sold to an independent third party at a consideration of RMB538,473.60. The sales is to be completed on or before 30 June 2007. The said amount has been taken into account in our valuation.

2. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 042 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 14 April 1997, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for residential and commercial uses.

3. Pursuant to the three Building Ownership Certificates Nos. Fang Quan Zheng 201 Zi 0146887, Fang Quan Zheng 201 Zi 0146888 and Yu Bei Qu Zi 29897 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

1. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

2. (i) The property is held by Chongqing Zhongyu;

3. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

4. (iii) the tenancy agreement is lawful and legally binding on both the landlord and tenant but not liable to other third parties as the said tenancy agreement has not been registered;

5. (iv) the property is not subject to any mortgages; and

6. (v) Chongqing Zhongyu has entered into a sales contract with an independent third party to sell Unit 8 on Level 17/18. The sales contract is lawful and legally binding. The purchaser has not paid the consideration.

7. The breakdown of our valuation is as follows:

Commercial : RMB990,000 Residential : RMB2,928,500

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
22.	Units 1 and 4 on	The property comprises five	Three residential units of	RMB1,200,000
	Level 4, Unit 1 on	residential units of a 16-storey	the property is currently
	Level 5 ,Unit 4 on	composite building completed in	subject to a tenancy for a
	Level 6 and Unit 4	about 1997.	term expiring on 31
	on Level 7,		December 2006 at a
	Block C4,	The property has a total gross	monthly rental of about
	Jiazhou Garden,	floor area of approximately	RMB3,000 whilst the
	Longxi Town,	630.00 sq.m. (6,781 sq.ft.).	remaining unit of the
	Yubei District,		property is vacant.
	Chongqing,	The land use rights of the
	PRC	property were granted for a term
		of 70 years commencing on 30
		June 1992 and expiring on 29
		June 2062 for residential and
		commercial uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (1997) Zi 042 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 14 April 1997, the land use rights of a parcel of land with a site area of approximately 9,721.90 sq.m. were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term of 70 years commencing on 30 June 1992 and expiring on 29 June 2062 for residential and commercial uses.

2. According to the information provided by the Companies, Unit 4 on Level 7 with a gross floor area of approximately 126 sq.m. has been sold to an independent third party at a consideration of RMB151,200 and the sales is to be completed on or before 31 December 2006. The said amount has been taken into account in our valuation.

3. Pursuant to Building Ownership Certificate No. Yu Bei Qu Zi 29898 issued by Chongqing Stateowned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

4. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

5. (i) the property is held by Chongqing Zhongyu;

6. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

7. (iii) the tenancy agreement is lawful and legally binding on both the landlord and tenant but not liable to other third parties as the said tenancy agreement has not been registered;

8. (iv) the property is not subject to any mortgages; and

9. (v) Chongqing Zhongyu has entered into a sales contract with an independent third party to sell Unit 4 on Level 7. The purchase price has been fully paid. The transfer procedures is in process and there is no legal impediment for this process.

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VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
23.	A market	The property comprises a parcel	The property is currently	RMB3,950,000
	located at	of land with a site area of	subject to various
	Jiazhou Garden,	approximately 8,216.03 sq.m.	tenancies for respective
	Longxi Town,	(88,437 sq.ft.) on which a single-	terms at a total monthly
	Yubei District,	storey commercial building is	rental of about
	Chongqing,	constructed. The building was	RMB48,000.
	PRC	completed in 2004.
		The property has a gross floor
		area of approximately 2,794.38
		sq.m. (30,068 sq.ft.).
		The land use rights of the
		property were granted for a term
		expiring on 25 May 2063 for
		composite uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Wai Guo Yong (2004) Zi 009 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 7 June 2004, the land use rights of a parcel of land with a site area of approximately 8,216.03 sq.m. were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 25 May 2063 for composite uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 0135755 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property with a gross floor area of approximately 2,794.38 sq.m. is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

6. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered; and

7. (iv) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 August 2006 24. A two-level The property comprises a twoThe property is currently RMB17,670,000 basement level basement car park subject to various licence car park of completed in about 1997. agreements at a total Jiazhou Garden, monthly licence fee of Longxi Town, The property has a gross floor about RMB117,700. Yubei District, area of approximately 15,645.73 Chongqing, sq.m. (168,411 sq.ft.). PRC The land use rights of the property were granted for a term expiring on 25 May 2062 for composite uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Wai Guo Yong (2004) Zi 009 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 26 February 2001, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 25 May 2062 for composites uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 100 Zi 100002 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee; and

6. (iii) the property is mortgaged to Chongqing Commercial Bank Jian Xin Bei Road Sub-branch.

– 277 –

APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
25.	Education	The property comprises a parcel	The property is granted	RMB9,460,000
	Building,	of land with a site area of	to Chongqing Jiazhou
	Jiazhou Primary	approximately 1,644.32 sq.m.	Pilot Primary School (重
	School,	(17,699 sq.ft.) on which an 8-	慶加州實驗小學) to
	Jiazhou Garden,	storey (including a basement)	operate a primary school
	Longxi Town,	educational building is erected.	for a term expiring on 31
	Yubei District,	The building was completed in	August 2010 at no rental.
	Chongqing,	1997.
	PRC
		The building has a gross floor
		area of approximately 6,699.37
		sq.m. (72,112 sq.ft.).
		The land use rights of the
		property were granted for a term
		expiring on 29 June 2062 for
		education uses.

Notes:

1. Pursuant to a Certificate for State-owned Land No. Yu Wai Guo Yong (2003) Zi 021 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 7 March 2003, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 29 June 2062 for education uses.

2. Pursuant to a Building Ownership Certificate No. Fang Quan Zheng 201 Zi 078393 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property; and

6. (iii) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
26.	Composite	The property comprises a parcel	The property is granted	RMB6,460,000
	Building of	of land with a site area of	to Chongqing Jiazhou
	Jiazhou Primary	approximately 851.49 sq.m.	Pilot Primary School (重
	School,	(9,165 sq.ft.) on which a 7-storey	慶加州實驗小學) to
	Jiazhou Garden,	school is erected. The building	operate a primary school
	Longxi Town,	was completed in 1997.	for a term expiring on 31
	Yubei District,		August 2010 at no rental.
	Chongqing,	The building has a gross floor
	PRC	area of approximately 4,578.12
		sq.m. (49,279 sq.ft.).
		The land use rights of the
		property were granted for a term
		expiring on 29 June 2062 for
		education uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Wai Guo Yong (2003) Zi 022 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 7 March 2003, the land use rights of a parcel of land with a site area of approximately 851.49 sq.m. were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 29 June 2062 for education uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 078392 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property with a gross floor area of approximately 4,578.12 sq.m. is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property; and

6. (iii) the property is not subject to any mortgages.

– 279 –

APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

• Property Description and tenure

• 1. The car park The property comprises the basement of whole connective floor between connective level Blocks 4 and 5 completed in between about 2004. Blocks 4 and 5, Jiazhou City The property has a gross floor Garden, area of approximately 415.08 Longxi Town, sq.m. (4,468 sq.ft.). Yubei District, Chongqing, The land use rights of the PRC property were granted for a term expiring on 25 May 2062 for commercial uses.

Capital value in Particulars of existing state as at occupancy 31 August 2006 The property is currently RMB470,000 subject to various licence agreements at a total monthly rental of about RMB5,250.

Notes:

1. Pursuant to Real Estate Title Certificate No. 201 Fang Di Zheng 2005 Zi 22311 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 29 August 2005, the land use rights and the building ownership of the property are held by Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company).

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) the property is held by Chongqing Zhongyu;

4. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property; and

5. (iii) the property is not subject to any mortgages.

– 280 –

APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
28.	Block 7,	The property comprises a	Portion of the property	RMB40,920,000
	Jiazhou City	5-storey office building	with a gross floor area of
	Garden,	completed in about 2004.	approximately 1,737.45
	Longxi Town,		sq.m. is currently subject
	Yubei District,	The property has a gross floor	to various tenancies with
	Chongqing,	area of approximately 9,127.73	the latest one expiring in
	PRC	sq.m. (98,251 sq.ft.).	March 2016 at a total
			monthly rental of about
		The land use rights of the	RMB84,500 whilst the
		property were granted for a term	remaining portion of the
		expiring on 25 May 2062 for	property is vacant.
		office uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (2004) Zi 1551 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 29 December 2004, the land use rights of a parcel of land with a site area of approximately 3,113.60 sq.m. were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 25 May 2062 for office uses.

2. Pursuant to Building Ownership Certificate No. Fang Quan Zheng 201 Zi 0169231 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property with a gross floor area of approximately 9,127.73 sq.m. is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee;

6. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered; and

7. (iv) the property is mortgaged to Hua Xia Bank Chongqing Branch Shang Qing Si Sub-branch.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

• Capital value in

• Particulars of existing state as at

• Property Description and tenure occupancy 31 August 2006

• 1. Portion of The property comprises portion Portion of the property RMB22,570,000 Levels 1 to 3, of Levels 1 to 3 of the with a gross floor area of Blocks 8 and 9, commercial podium of a approximately 3,493.81 Jiazhou City 27-storey composite building sq.m. is currently subject Garden, completed in about 2004. to various tenancies at a Longxi Town, total monthly rental of Yubei District, The property has a total gross about RMB74,500 whilst Chongqing, floor area of approximately the remaining portion of PRC 9,066.39 sq.m. (97,591 sq.ft.). the property is vacant. The land use rights of the property were granted for a term expiring on 25 May 2062 for commercial uses.

Notes:

1. Pursuant to Real Estate Title Certificate No. 201 Fang Di Zheng 2005 Zi 10931 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 31 May 2005, the land use rights and the building ownership of the property are held by Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company).

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) the property is held by Chongqing Zhongyu;

4. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property;

5. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered; and

6. (iv) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 August 2006 30. The basement The property comprises the The property is currently RMB600,000 carpark of the basement of the connective floor subject to various licence connective floor between Blocks 9 and 10 agreements at a total between completed in about 2004. monthly licence fee of Blocks 9 and 10, about RMB5,950. Jiazhou City The property has a gross floor Garden, area of approximately 527.84 Longxi Town, sq.m. (5,682 sq.ft.). Yubei District, Chongqing, The land use rights of the PRC property were granted for a term expiring on 25 May 2062 for commercial uses.

Notes:

1. Pursuant to Real Estate Title Certificate No. 201 Fang Di Zheng 2005 Zi 22310 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 1 September 2005, the land use rights and the building ownership of the property are held by Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company).

2. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

3. (i) the property is held by Chongqing Zhongyu;

4. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property; and

5. (iii) the property is not subject to any mortgages.

– 283 –

APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
31.	The car park in	The property comprises the car	Portion of the property	RMB14,400,000
	basement, Levels	park in the basement, Levels 1 to	with a gross floor area of
	1 to 3, Units 5	3 of the commercial podium and	approximately 1,920.74
	on Levels 15, 16,	four residential units of a	sq.m. is subject to
	17 and 24 of	23-storey composite building	various tenancies at a
	Block 13, Jiazhou	completed in 2004.	total monthly rental of
	City Garden,		about RMB34,468 whilst
	Longxi Town,	The property has a total gross	the remaining portion of
	Yubei District,	floor area of approximately	the property is partly
	Chongqing,	6,002.55 sq.m. (64,611 sq.ft.).	occupied as an office
	PRC		and partly vacant.
		The land use rights of the
		property were granted for a term
		expiring on 25 May 2062 for
		commercial uses.

Notes:

1. Pursuant to Certificate for Use of State-owned Land No. Yu Bei Guo Yong (2004) Zi 16638 issued by Chongqing State-owned Land Resources and Housing Administration Bureau on 14 July 2004, the land use rights of the property is held by Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 25 May 2062 for commercial uses.

2. Pursuant to two Real Estate Title Certificates Nos. Fang Di Zheng 201 Zi 0143472 and Fang Di Zheng 201 Zi 0134172 both issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property (except for a portion of 246 sq.m.) is held by Chongqing Zhongyu.

3. Chongqing Zhongyu has entered into a sales contract with an independent third party to sell Unit 5 on Level 16 at a consideration of RMB273,546 and the sales is to be completed on or before 31 December 2006. The said amount has been taken into account in our valuation.

4. Chongqing Zhongyu has entered into a sales contract with an independent third party to sell Unit 5 on Level 24 at a consideration of RMB367,210.20 and the sales is to be completed on or before 31 December 2006. The said amount has been taken into account in our valuation.

5. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

6. (i) the property is held by Chongqing Zhongyu;

7. (ii) except for a portion of 246 sq.m., Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee;

8. (iii) the tenancy agreements are lawful and legally binding on both the landlord and tenants but not liable to other third parties as the said tenancy agreements have not been registered;

9. (iv) the property is mortgaged to Sales Department of Bank of Huaxia-Chongqing Sub-branch; and

10. (v) the purchaser of Unit 5 on Level 16 has paid the consideration in full and the transfer of ownership is in process. The purchaser of Unit 5 on Level 24 has paid part of the consideration and the transfer of ownership is also in process.

11. As Chongqing Zhongyu has not obtained the Real Estate Title Certificate for the said portion with a floor area of 246 sq.m., we have assigned no commercial value to this portion.

– 284 –

APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

				Capital value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	31 August 2006
32.	Jiazhou City	The property comprises a parcel	The property is granted	RMB3,620,000
	Garden	of land with a site area of	to Chongqing Jiazhou
	Kindergarten,	approximately 1,617.50 sq.m.	Pilot Primary School
	Jiazhou City	(17,411 sq.ft.) on which a	(Kindergarten) (重慶加
	Garden,	2-storey kindergarten is erected.	州實驗小學(幼兒園)) to
	Longxi Town,	The property was completed in	operate a kindergarten
	Yubei District,	2005.	for a term expiring on 31
	Chongqing,		August 2010 at no rental.
	PRC	The property has a gross floor
		area of approximately 2,564.74
		sq.m. (27,607 sq.ft.).
		The land use rights of the
		property were granted for a term
		expiring on 25 May 2062 for
		commercial uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Guo Yong (2004) Zi 1550 issued by Chongqing State-owned Land Resources and Housing Administration Bureau dated on 29 November 2004, the land use rights of a parcel of land with a site area of approximately 1,617.50 sq.m. were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 25 May 2062 for commercial uses.

2. Pursuant to a Building Ownership Certificate No. Fang Quan Zheng 201 Zi 0168822 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property; and

6. (iii) the property is not subject to any mortgages.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

• Property Description and tenure

• 1. Car Ports A and B The property comprises two located at parcels of land with a total site Jiazhou City area of approximately 7,729.50 Garden, sq.m. (83,200 sq.ft.) on which Longxi Town, two single-storey car ports are Yubei District, erected. The property was Chongqing, completed in 2004. PRC The property has a total gross floor area of approximately 7,972.11 sq.m. (85,812 sq.ft.).

Capital value in Particulars of existing state as at occupancy 31 August 2006

The property is currently RMB9,000,000 subject to various licence agreements at a total monthly licence fee of about RMB93,500.

The land use rights of the property were granted for respective terms expiring on 25 May 2062 for car parking uses.

Notes:

1. Pursuant to two Certificates for State-owned Land Nos. Yu Wai Guo Yong (2003) Zi 057 and Yu Wai Guo Yong (2003) Zi 058 issued by Chongqing State-owned Land Resources and Housing Administration Bureau both dated 29 September 2003, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 25 May 2062 for car parking uses.

2. Pursuant to two Building Ownership Certificates Nos. Fang Quan Zheng 201 Zi 0121104 and Fang Quan Zheng 201 Zi 0121105 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee; and

6. (iii) the property is mortgaged to Bank of Agriculture Long Xi Sub-branch.

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APPENDIX VII

VALUATION ON THE PROPERTY INTERESTS OF THE SUBJECT GROUP

Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 August 2006 34. Basement The property comprises the The property is currently RMB4,240,000 Levels 1 to 2, 2-level car park basement of a subject to various licence Kechuang 13-storey residential building agreements at a total Building, completed in 2004. monthly licence fee of Longxi Town, about RMB31,100. Yubei District, The property has a total gross Chongqing, floor area of approximately PRC 3,691.15 sq.m. (39,732 sq.ft.). The land use rights of the property were granted for a term of expiring on 29 May 2062 for residential uses.

Notes:

1. Pursuant to Certificate for State-owned Land No. Yu Wai Guo Yong (2003) Zi 068 issued by Chongqing State-owned Land Resources and Housing Administration Bureau dated on 11 November 2003, the land use rights of the property were granted to Chongqing Zhongyu (an indirect wholly-owned subsidiary of the Subject Company) for a term expiring on 29 May 2062 for residential uses.

2. Pursuant to a Building Ownership Certificate No. Fang Quan Zheng 201 Zi 0149617 issued by Chongqing State-owned Land Resources and Housing Administration Bureau, the building ownership of the property is held by Chongqing Zhongyu.

3. We have been provided with a legal opinion on the title to the property issued by the Companies’ PRC legal adviser, which contains, inter alia, the following information:

4. (i) the property is held by Chongqing Zhongyu;

5. (ii) Chongqing Zhongyu is entitled to transfer, lease, mortgage or dispose of the property except for the mortgaged portion which require the consent from the mortgagee; and

6. (iii) portion of the property is mortgaged to Commercial Bank of Chongqing City, Jianxin Bei Road Sub-branch.

– 287 –

APPENDIX VIII

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

• (a) Directors’ and chief executive’s interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to the provisions of 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 were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

• (i) Long positions in the Shares:

Director Type of interests Mr. Cheung Corporate_(Note 1)_ Personal Total Zhang Qing Xin Personal Lam Hiu Lo Personal Liang Kang Personal	Number of Shares held 3,755,434,684 53,320,000 3,808,754,684 13,600,000 41,800,000 30,000,000	Approximate percentage 41.66% 0.59%
		42.25% 0.15% 0.46% 0.33%

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APPENDIX VIII

GENERAL INFORMATION

(ii) Long positions in the Company’s convertible note:

			Number of
		Nature of	underlying	Approximate
	Director	interest	Shares	percentage
	Mr. Cheung	Corporate	290,955,056	3.23%
		(Note 2)
Associated corporations
(i)	Long positions in Qualipak Shares:
		Nature of	Number of	Approximate
	Director	interests	Shares held	percentage
	Mr. Cheung	Corporate	4,142,396,360	105.15%
		(Note 3)
	Mr. Lee Ka Sze,	Family	1,000,000	0.025%
	Carmelo
	Mr. Ng Kwok Fu	Personal	120,000	0.003%
(ii)	Long positions in Qualipak’s Convertible Note:
			Number of
		Nature of	underlying	Approximate
	Director	interest	Shares	percentage
	Mr. Cheung	Corporate	9,114,285,714	231.35%
		(Note 4)
(iii)	Long positions in Y.T.	Realty Group Limited:
		Nature of	Number of	Approximate
	Director	interests	Shares held	percentage
	Mr. Cheung	Corporate	273,000,000	34.14%
		(Note 5)
	Mr. Ng Kwok Fu	Personal and	90,000	0.01%
		family

– 289 –

APPENDIX VIII

GENERAL INFORMATION

Notes:

• (1) The voting rights of these Shares are held by Chongqing Industrial Limited (“Chongqing”) as to 3,194,434,684 Shares and Timmex Investment Limited (“Timmex”) as to 561,000,000 Shares. Mr. Cheung, Peking Palace Limited, Miraculous Services Limited and Prize Winner Limited have 35%, 30%, 5% and 30% equity interests in Chongqing respectively. Peking Palace Limited and Miraculous Services Limited are beneficially owned by Palin Discretionary Trust, a family discretionary trust, the beneficiaries include Mr. Cheung and his family. Prize Winner Limited is beneficially owned by Mr. Cheung and his associates. Timmex is 100% beneficially owned by Mr. Cheung.

• (2) The convertible note in the principal amount of HK$70,000,000 was issued by the Company to Timmex (the “Yugang Convertible Note”). The Yugang Convertible Note has a maturity date on 31 July 2007, and can be converted into the Shares at a conversion price of HK$0.075 per Share during the period from 31 July 2004 to 31 July 2005, HK$0.082 per Share for the period from 1 August 2005 to 31 July 2006 and HK$0.089 per Share for the period from 1 August 2006 to 31 July 2007, subject to adjustment. As at the Latest Practicable Date, Timmex has exercised the conversion right attached to the Yugang Convertible Note in respect of the amount of HK$44,105,000 and a total number of 561,000,000 Shares was issued to Timmex. Such Shares are part of the Shares interested by Mr. Cheung as disclosed under paragraph (i) “Long positions in the Shares” above.

• (3) The 2,542,396,360 Shares are held by Regulator Holdings Limited (“Regulator”) which is indirectly controlled by Palin Holdings Limited as trustee for the Palin Discretionary Trust, a family discretionary trust, the beneficiaries include Mr. Cheung and his family. Pursuant to the Acquisition Agreement, 1,600,000,000 Qualipak Consideration Shares which formed part of the consideration will be issued by Qualipak to Thrivetrade Limited (“Thrivetrade”) at the price of HK$0.28 each. As Mr. Cheung had 100% beneficial interest in Thrivetrade, he was deemed to be interested in the same number of shares in which Thrivetrade was interested.

• (4) Pursuant to the Acquisition Agreement, subject to certain conditions, Qualipak agreed to issue and Thrivetrade agreed to subscribe for the Convertible Note in the sum of HK$2,552,000,000, the principal terms of which are set out in the letter from the Board in this circular. Assuming that the Convertible Note was converted at the initial conversion price of HK$0.28 per Share, a total of 9,114,285,714 Shares would be issued. As Mr. Cheung had 100% beneficial interest in Thrivetrade, he was deemed to be interested in the same number of shares in which Thrivetrade was interested.

• (5) The 273,000,000 shares are held by Funrise Limited (“Funrise”) which is indirectly controlled by Palin Holdings Limited as trustee for the Palin Discretionary Trust, a family discretionary trust, the beneficiaries include Mr. Cheung and his family.

In addition to the above, some Directors have non-beneficial personal interests in certain subsidiaries held for the benefit of the Company solely for the purpose of complying with the minimum company membership requirements.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company held any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporation(s) (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to the provisions of Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or were required, pursuant to section 352 of the SFO, to be entered in the register

– 290 –

APPENDIX VIII

GENERAL INFORMATION

referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange.

(b) Persons who have interests or short positions which are discloseable under Divisions 2 and 3 of Part XV of the SFO

As at the Latest Practicable Date, according to the register of interests kept by the Company under section 336 of the SFO and so far as was known to the Directors and chief executive of the Company, the following parties (other than the Directors or chief executive of the Company) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

		Capacity and	Number of Shares
Name of		nature of	or underlying	Approximate
shareholders	Notes	interests	Shares held	percentage
Timmex	1, 4	Corporate	561,000,000	6.22%
	1	Corporate	290,955,056	3.23%
Chongqing	2, 4	Corporate	3,194,434,684	35.44%
Palin Holdings	3, 4	Trustee of a	3,194,434,684	35.44%
Limited (“Palin”)		family trust
PMA Capital		Corporate	718,402,000	7.97%
Management Limited
Deutsche Bank		Corporate	626,250,000	6.95%
Aktiengesellschaft

Notes:

• (1) The 561,000,000 Shares held by Timmex are the Shares issued upon the exercise of the conversion right attaching to the Yugang Convertible Note, and such Shares are part of the Shares interested by Mr. Cheung as disclosed in the paragraph headed “Long positions in the Shares” above. As at the Latest Practicable Date, the outstanding principal amount of the Yugang Convertible Note was HK$25,895,000 and the 290,955,056 underlying Shares are the outstanding Shares issuable upon exercise of the conversion right attaching to the Yugang Convertible Note.

• (2) The voting rights of these Shares are exercisable by Chongqing which is controlled by Mr. Cheung.

• (3) Palin is the trustee for Palin Discretionary Trust, a family discretionary trust, the beneficiaries of which include Mr. Cheung and his family.

• (4) Mr. Cheung is a director of Timmex, Chongqing and Palin. Mr. Zhang Qing Xin is a director of Chongqing.

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APPENDIX VIII

GENERAL INFORMATION

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following parties (other than the Directors or chief executive of the Company) were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including any options in respect of such capital) carrying rights to vote in all circumstances at general meetings of any other member of the Group:

	Name of the	Approximate
Name of the member of the Group	shareholder	percentage
Hoi Tin Universal Limited	Mr. Chau Tin Ping	12.80%
Hoi Tin Universal Limited	Mr. Wong Kong	10.00%

Save as disclosed above, as at the Latest Practicable Date, according to the register of interests kept by the Company under section 336 of the SFO and so far as was known to the Directors and chief executive of the Company, no other person (other than the Directors or chief executive of the Company) had any interests or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital (including any options in respect of such capital) carrying rights to vote in all circumstances at general meetings of any other member of the Group.

(c) Other interests

Save for the interest of Mr. Cheung in the Transaction, none of the Directors was materially interested in any contracts or arrangements entered into by any member of the Group subsisting at the Latest Practicable Date which was significant in relation to the business of the Group as a whole. However, Mr. Lee Ka Sze, Carmelo, a non-executive Director, is a partner of Woo, Kwan, Lee & Lo, a solicitors firm which provides professional services to the Group (including those in relation to the Transaction) and charged usual professional fees in respect thereof.

Save for the interest of Mr. Cheung in the Transaction, none of the Directors had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Company were made up.

– 292 –

APPENDIX VIII

GENERAL INFORMATION

3. LITIGATION

Neither the Company nor any of its subsidiaries was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against the Company or any of its subsidiaries as at the Latest Practicable Date.

4. COMPETING INTERESTS

As at the Latest Practicable Date, to the best knowledge of the Directors, none of the Directors and their respective associates were considered to have any interests in businesses which competed or were likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or the Group.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service agreement with any member of the Group nor were there any other service agreements proposed which would not expire or be determinable by the Group within one year without payment of compensation (other than statutory compensation).

6. PROCEDURES FOR DEMANDING A POLL

According to the bye-laws of the Company, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (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. A poll may be demanded by:

• (a) the chairman of such meeting, or

• (b) at least three members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting, or

• (c) a member or members present in person (or in the case of a member 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 members having the right to vote at the meeting, or

• (d) a member or members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

– 293 –

APPENDIX VIII

GENERAL INFORMATION

• (e) if required by the rules of the Designated Stock Exchange, by any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing five per cent (5%) or more of the total voting rights at such meeting.

If a poll is duly demanded the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. On a poll votes may be given either personally or by proxy. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting shall be entitled to a second or casting vote in addition to any other vote he may have.

7. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by members of the Group, within the two years preceding the date of this circular and is or may be material:

• (a) the agreement dated 23 March 2005 entered into by Messrs. Chau Tin Ping, Tse On Kuen, Wong Kam Hoi and Wong Kong as vendors and Ensure Success Holdings Limited (a wholly-owned subsidiary of Qualipak) as purchaser in respect of the acquisition of 60% of the issued share capital of Hoi Tin Universal Limited at a consideration of HK$36,000,000;

• (b) the sale and purchase agreement dated 12 May 2005 entered into between Great Gains International Limited as vendor and Empire New Assets Limited (a wholly-owned subsidiary of Qualipak) as purchaser in relation to the sale and purchase of the whole of the 7th Floor, China United Centre, 28 Marble Road, North Point, Hong Kong at a consideration of HK$35,000,000;

• (c) the sale and purchase agreement dated 12 May 2005 entered into between Pacific Kingdom Investments Limited as vendor and Wiseteam Assets Limited (a wholly-owned subsidiary of Qualipak) as purchaser in relation to the sale and purchase of the whole of the 30th Floor, China United Centre, 28 Marble Road, North Point, Hong Kong at a consideration of HK$43,000,000;

• (d) the agreement dated 3 June 2005 entered into by Technical Group Holdings Limited (which is owned as to 90% by Mr. Brian Sun and 10% by Ms. Chan Pui Ling Stella) as vendor, Mr. Brian Sun and Ms. Chan Pui Ling Stella as guarantors and One Step Enterprises Limited (a wholly-owned subsidiary of Qualipak) as purchaser in respect of the acquisition of 30% of the issued share capital of Technical International Holdings Limited at a consideration of HK$33,000,000;

– 294 –

APPENDIX VIII

GENERAL INFORMATION

• (e) the sale and purchase agreement dated 30 March 2006 entered into between Qualipak Development Limited (a wholly-owned subsidiary of Qualipak) as vendor and Glamorous Investments Limited as purchaser in relation to the sale and purchase of the entire issued share capital of and the interest free shareholder’s loans to Wiseteam Assets Limited (a wholly-owned subsidiary of Qualipak) at a consideration of HK$49,000,000;

• (f) the sale and purchase agreement dated 15 August 2006 entered into between Get Rich Enterprises Limited as vendor and King Place Investments Limited (a wholly-owned subsidiary of Qualipak) as purchaser in relation to the sale and purchase of the whole of the 15th Floor, China United Centre, 28 Marble Road, North Point, Hong Kong at a consideration of HK$33,985,300;

• (g) the Acquisition Agreement; and

• (h) the Placing Agreement.

8. EXPERTS

The followings are the qualifications of the professional advisers who have given opinions or advices which are contained in this circular:

Names Qualifications

CIMB-GK Securities (HK) Limited

Licensed by the Securities and Futures Commission of Hong Kong for carrying out Types 1 (dealing in securities), 4 (advising on securities) and 6 (advising on corporate finance) regulated activities under the SFO

Ernst & Young

Certified Public Accountants

Savills Valuation and Professional Professional property valuers Services Limited

Each of CIMB-GK, Ernst & Young and Savills has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report and/or letter, and references to its name in the form and context in which it appears.

– 295 –

APPENDIX VIII

GENERAL INFORMATION

As at the Latest Practicable Date, each of CIMB-GK, Ernst & Young and Savills:

• (a) was not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to the Company since 31 December 2005, being the date to which the latest published audited accounts of the Company were made up; and

• (b) did not have any shareholding interest in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

9. MISCELLANEOUS

• (a) The company secretary of the Company is Mr. Albert T. da Rosa, Jr., being a practicing solicitor in Hong Kong. The qualified accountant of the Company is Mr. Leung Wai Fai, who holds a degree of Bachelor of Business Administration from University of Wisconsin — Madison, USA and is fellow of both the Hong Kong Institute of Certified Public Accountants and The Association of Chartered Certified Accountants.

• (b) The registered office of the Company is at Clarendon House, Church Street, Hamilton HM 11, Bermuda and the principal place of business of the Company in Hong Kong is at Rooms 3301-3307, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong.

• (c) The branch share registrar and transfer office of the Company in Hong Kong is Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (d) The English texts of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Woo, Kwan, Lee & Lo at 27th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours on any business day from the date of this circular up to and including the date of the SGM and at the SGM:

• (a) the memorandum of association and bye-laws of the Company;

• (b) the annual report of the Company for each of the two years ended 31 December 2005;

• (c) the interim report of the Company for the six months ended 30 June 2006;

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APPENDIX VIII

GENERAL INFORMATION

• (d) the circular dated 17 March 2006 issued by the Company;

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

• (f) the letters of consent referred to in paragraph headed “Experts” in this Appendix;

• (g) the letter from CIMB-GK to the Independent Board Committee and the Independent Shareholders dated 20 October 2006, the text of which is set out on pages 28 to 57 of this circular;

• (h) the letter from the Independent Board Committee to the Independent Shareholders dated 20 October 2006, the text of which is set out on page 27 of this circular;

• (i) the accountants’ report from Ernst & Young on the Group dated 20 October 2006, the text of which is set out in Appendix I to this circular;

• (j) the accountants’ report from Ernst & Young on the Subject Company dated 20 October 2006, the text of which is set out in Appendix III to this circular;

• (k) the letter from Ernst & Young on the unaudited pro forma financial information on the Remaining Group dated 20 October 2006, the text of which is set out in Appendix V to this circular;

• (l) the letter, summary of values and valuation certificates from Savills on the property interests of the Group, the texts of which are set out in Appendix VI to this circular; and

• (m) the letter, summary of values and valuation certificates from Savills on the property interests of the Subject Group, the texts of which are set out in Appendix VII to this circular.

– 297 –

NOTICE OF THE SGM

YUGANG INTERNATIONAL LIMITED （渝港國際有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 613)

NOTICE IS HEREBY GIVEN that a special general meeting of the members of Yugang International Limited (the “Company”) will be held at Grand Rooms I and II, Lobby, Grand Hyatt Hong Kong, 1 Harbour Road, Wanchai, Hong Kong on Monday, 6 November 2006 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution as an ordinary resolution of the Company:–

ORDINARY RESOLUTION

“ THAT conditional upon the approval by the shareholders of Qualipak International Holdings Limited, a subsidiary of the Company, of the Acquisition Agreement (as defined in the circular dated 20 October 2006 despatched to the shareholders of the Company (the “ Circular ”, a copy of which has been produced to the meeting and marked “A”, and initialled by the chairman of the meeting for the purpose of identification) and a copy of which has been produced to the meeting and marked “B”, and initialled by the chairman of the meeting for the purpose of identification):

• (a) the Acquisition Agreement and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

• (b) the taking of all steps and doing of all things by the Company and its subsidiaries as the directors of the Company may deem necessary, desirable or expedient to implement, give effect to and/or complete the Acquisition Agreement and the transactions contemplated thereunder, including without limitation approving the amendment of the terms of the Acquisition Agreement as required by, or for the purposes of obtaining the approval of, relevant authorities or to comply with all applicable laws, rules and regulations, be and are hereby authorised, approved, confirmed and ratified.”

By Order of the Board Yugang International Limited Yuen Wing Shing Managing Director

Hong Kong, 20 October 2006

* For identification purposes only

– 298 –

NOTICE OF THE SGM

Registered office: Principal place of business in Hong Kong: Clarendon House Rooms 3301-3307 Church Street China Resources Building Hamilton HM 11 26 Harbour Road Bermuda Wanchai Hong Kong

Notes:

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

2. Any member entitled to attend and vote at the meeting of the Company shall be entitled to appoint one or more proxies to attend and vote instead of him.

3. The instrument appointing a proxy shall be in writing under the hand of the appointer or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.

4. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the branch share registrar of the Company in Hong Kong, Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote.

5. A proxy need not be a member. A member may appoint a proxy in respect of part of his holding of shares in the Company.

6. In the case of joint holders of a share in the Company if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.

– 299 –