THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Riche Multi-Media Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly 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.

The circular appears for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities.

RICHE MULTI-MEDIA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 764)

VERY SUBSTANTIAL ACQUISITION

IN RELATION TO THE ACQUISITION

OF 100% INTEREST IN

SHINHAN-GOLDEN FAITH INTERNATIONAL DEVELOPMENT LIMITED

AND THE SALE LOAN

AND AMENDMENT TO BYE-LAWS

A notice convening the special general meeting of Riche Multi-Media Holdings Limited to be held on 12th June 2006 at 12:00 p.m. at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Kowloon, Hong Kong is set out on pages 163 and 165 of this circular.

Whether or not you are able 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 Company's branch share registrars in Hong Kong, Standard Registrars Limited of 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 meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof if you so wish.

19th May 2006

CONTENTS

Page

Definitions 1

Letter from the Board

Introduction 5
The Acquisition 6
Changes in shareholding structure of the Company 12
Information on Shinhan-Golden 13
Information on the Group 16
Reasons for and effects of the Acquisition on the Group 17
Bye-laws 19
Special general meeting 19
Recommendation 20
General 21

Appendix I — Management discussion and analysis 22
Appendix II — Accountants' report on the Shinhan-Golden Group 36
Appendix III — Financial information on the Group 72
Appendix IV — Financial information on the Enlarged Group 132
Appendix V — Pro forma financial information on the Enlarged Group 134
Appendix VI — Valuation report 146
Appendix VII — General information 154
Notice of Special General Meeting 163

DEFINITIONS

In this circular, the following expressions have the meanings respectively set opposite them unless the context otherwise requires:

“Acquisition” the proposed acquisition of 100% interest in the issued share capital of Shinhan-Golden and the Sale Loan;

“Announcement” the announcement dated 23rd February 2006 made by the Company in relation to the Acquisition;

“associates” has the meaning ascribed to this term under the Listing Rules;

“Beijing Jianguo BVI” Beijing Jianguo Real Estate Development Co. Ltd., a company incorporated in the British Virgin Islands and is wholly-owned by Shinhan-Golden;

“Beijing Urban” Beijing Urban Development Group Co. Ltd. (北京城市開發集團有限責任公司);

“Board” the board of Directors;

“Business Day” any day other than Saturday on which commercial banks and financial institutions in Hong Kong are open for business;

“Bye-laws” the bye-laws of the Company;

“Company” Riche Multi-Media Holdings Limited, a company incorporated in Bermuda and the Shares of which are listed on the Stock Exchange;

“Completion” completion of the S&P Agreement;

“Consideration” HK$266,064,348.98;

“Consideration Shares” a total of 1,330,321,745 new Shares which will fall to be allotted and issued at the price of HK$0.20 each;

“Director(s)” the director(s) of the Company;

“Enlarged Group” the Group and the Shinhan-Golden Group following the Acquisition;

“Group” the Company and its subsidiaries;

— 1 —

DEFINITIONS

"HK$"
Hong Kong dollars, the lawful currency of Hong Kong;

"Hong Kong"
Hong Kong Special Administrative Region of the People's Republic of China;

"Independent Third Parties"
persons who themselves are, and (in the case of corporate entities) their ultimate beneficial owners are, to the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, third parties who are not connected persons of the Company and are independent of the Company and its subsidiaries, their directors, chief executives and substantial shareholders or their respective associates (as that term is defined in the Listing Rules);

"JV Co."
Beijing Jian Guo Real Estate Development Co. Ltd. (北京建國房地產開發有限公司), a company established in the PRC and held as to 96.7% by Shinhan-Golden and 3.3% by Beijing Urban, who together with its beneficial owner are Independent Third Parties;

"Latest Practicable Date"
16th May 2006, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein;

"Listing Rules"
the Rules Governing the Listing of Securities on the Stock Exchange;

"PRC"
the People's Republic of China, which for the purpose of this circular shall exclude Hong Kong, Macau Special Administrative Region and Taiwan;

"Property"
the property, excluding the 9 apartment units and 6 carparks sold between 1999 and 2001, and the 22 apartment units and 16 carparks which have been sold but title to which has yet to change, located at Inner Jiangguo Gate of Dongcheng District, Beijing, the PRC (currently known as No. 9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC) with land use right certificate number Shi Dong Zhong Wai Guo Yong (97) Zi Di no. 00347;

— 2 —

DEFINITIONS

"Purchaser"
Riche (BVI) Limited, a company incorporated in the British Virgin Islands with limited liability, which is a wholly-owned subsidiary of the Company;

"RMB"
Renminbi, the lawful currency of the PRC;

"S&P Agreement"
the conditional sale and purchase agreement dated 17th February 2006 (as supplemented by a supplemental agreement dated 10th May 2006) entered into among the Purchaser and the Vendor in relation to the Acquisition;

"Sale Loan"
all obligations, liabilities and debts owing or incurred by Shinhan-Golden to the Vendor on or at any time prior to Completion;

"SFO"
Securities and Futures Ordinance, (Cap 571, Laws of Hong Kong);

"SGM"
the special general meeting of the Company to be convened on 12th June 2006 to consider and, if thought fit, approve, among other things, the S&P Agreement and the transactions contemplated thereunder;

"Share(s)"
ordinary share(s) of HK$0.01 in the share capital of the Company;

"Shareholder(s)"
holder(s) of the Share(s);

"Shanghai Shengping"
上海昇平文化發展有限公司, a company organised and existing under the laws of the PRC and having its legal address at Room 302, No. 11 Lane 4618, Gonghexin Road, Shanghai, 200435. Shanghai Shengping is a company controlled by the Company and its results are fully consolidated into that of the Group and is therefore deemed a subsidiary of the Group. The registered owners of Shanghai Shengping are Ms. Chen Peng and Mr. Liao Miao-yuan, Independent Third Parties;

"Shinhan-Golden"
Shinhan-Golden Faith International Development Limited, a company incorporated in the British Virgin Islands and is beneficially owned by the Vendor;

"Shinhan-Golden Group"
Shinhan-Golden and its subsidiaries;

— 3 —

— 4 —

DEFINITIONS

"Stock Exchange"
The Stock Exchange of Hong Kong Limited;

"Vendor"
Northbay Investments Holdings Limited, an Independent Third Party;

"WEIL"
World East Investments Limited; and

"%"
per cent.

Unless otherwise specified in this circular, translations of RMB into HK$ are made in this circular, for illustration only, at the rate of HK$1.00 to RMB1.03. No representation is made that any amounts in HK$ or RMB could have been or could be converted at those rates or at any other rates.

LETTER FROM THE BOARD

RICHE MULTI-MEDIA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 764)

Executive Directors:
Mr. Heung Wah Keung
Ms. Chen Ming Yin, Tiffany

Independent Non-executive Directors:
Mr. Tang Chak Lam, Gilbert
Mr. Ho Wai Chi, Paul
Mr. Lien Wai Hung

Registered office:
Clarendon House
2 Church Street
Hamilton HM11
Bermuda

Head office and principal place of
business in Hong Kong:
Units 609-610, 6th Floor
Miramar Tower
132 Nathan Road
Tsimshatusi
Kowloon
Hong Kong

19th May 2006

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION
IN RELATION TO THE ACQUISITION
OF 100% INTEREST IN
SHINHAN-GOLDEN FAITH INTERNATIONAL DEVELOPMENT LIMITED
AND THE SALE LOAN
AND AMENDMENT TO BYE-LAWS

INTRODUCTION

On 23rd February 2006, the Company announced its proposed acquisition of a 100% interest in Shinhan-Golden and the Sale Loan.

LETTER FROM THE BOARD

As the Acquisition constitutes a very substantial acquisition for the Company under the Listing Rules, it will be subject to, inter alia, approval of the Shareholders at the SGM. The purpose of this circular is to provide, among other things, further information in relation to the Acquisition together with the notice of SGM to consider and, if thought fit, to approve, inter alia, the S&P Agreement and the transactions contemplated thereunder.

THE ACQUISITION

The S&P Agreement

Date: 17th February 2006

Parties: (i) Purchaser: Riche (BVI) Limited, a wholly-owned subsidiary of the Company;

(ii) Vendor: Northbay Investments Holdings Limited, an investment holding company whose sole investment is a 100% interest in Shinhan-Golden.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiry, the Vendor and its ultimate beneficial owner, Mr. Andrew Nan Sherrill, are not connected persons (as defined in the Listing Rules) of the Company and are Independent Third Parties.

The Acquisition

Pursuant to the S&P Agreement, the Purchaser has agreed to acquire and the Vendor has agreed to dispose of 100% interest in Shinhan-Golden and the Sale Loan. Shinhan-Golden has two subsidiaries one of which is JV Co. and the other is Beijing Jianguo BVI, a dormant company. As at 31st December 2005 and the Latest Practicable Date, the balance of the Sale Loan are approximately HK$38,888,000 and HK$38,743,000 respectively.

The Vendor has warranted to the Purchaser that (i) the total direct and indirect cost and expenses of the renovation to be incurred by JV Co. during the period between the signing of the S&P Agreement and completion of the renovation shall not exceed RMB58,000,000 (approximately HK$56,311,000) with Shinhan-Golden's contribution (being 100% of the amount of renovation costs required by JV Co.) to be financed indirectly by the Company from its internal resources; the Vendor shall obtain the prior written consent from the Purchaser for any increase of the total direct and indirect cost and expenses of the renovation as referred to in (i) above; and (ii) that the total indebtedness of the Shinhan-Golden Group (excluding the facilities mentioned below under the heading "Signing, Completion and Incidental Documents", the Sale Loan and the total direct and indirect costs and expenses of the renovation) as at the Completion shall not be more than RMB300,000,000 (approximately HK$291,262,000). The RMB300,000,000 (approximately HK$291,262,000) indebtedness mainly comprises a bank loan of approximately RMB250,000,000 (approximately HK$242,718,000), an amount due to

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LETTER FROM THE BOARD

Mr. Andrew Nan Sherrill, the beneficial owner of the Vendor and the legal representative of JV Co., of approximately RMB25,500,000 (approximately HK$24,757,000), an amount due to Mr. Nan Pin Ren, a director of JV Co., of approximately RMB10,000,000 (approximately HK$9,709,000) and an amount due to Gui Lin Gui Du Cement Co. Ltd. (桂林桂都混凝土有限公司) of approximately RMB4,100,000 (approximately HK$3,981,000). Gui Lin Gui Du Cement Co., Ltd. is related to the Shinhan-Golden Group as Mr. Andrew Nan Sherrill, the sole director of Shinhan-Golden, is the legal representative of Gui Lin Gui Du Cement Co., Ltd..

The Sale Loan amounted to approximately HK$38,888,000 and HK$38,743,000 as at the date of the S&P Agreement and the Latest Practicable Date respectively, represents the amount advanced to Shinhan-Golden by the Vendor for the purpose of financing the operations of Shinhan-Golden.

Consideration

The Consideration, being HK$266,064,348.98, was determined between the Purchaser and the Vendor on a "willing buyer — willing seller" basis having regards to (i) the amount paid by the Vendor in acquiring Shinhan-Golden of approximately HK$222,200,000 plus amounts advanced to Shinhan-Golden and other ancillary expenses of approximately HK$305,000 and (ii) a valuation conducted on the Property in mid 2003 by an independent property valuer valuing the Property at approximately RMB884,000,000 (approximately HK$858,252,000), taking into account a renovation cost of RMB88,000,000 (approximately HK$85,437,000). The valuation was based on the assumptions that the Property has been completed according to the renovation scheme prepared by the architects in 2003 and sale with immediate vacant possession. The 2003 valuation was used as a reference in determining the Consideration as that was the only valuation available at the time.

The Consideration will be settled by the allotment and issue by the Company of the Consideration Shares credited as fully paid. The authorised and paid up share capital of the Company is HK$200,000,000 and HK$51,540,180 respectively. The Consideration Shares representing approximately 25.81% of the issued share capital of the Company as at the Latest Practicable Date and approximately 20.52% of the enlarged issued share capital of the Company taking into account the Consideration Shares. The value of the Consideration Shares based on the closing price of the Shares on 16th February 2006 (being the date prior to the signing of the S&P Agreement) is HK$266,064,349 and HK$305,974,001 as at the Latest Practicable Date. The issue of the Consideration Shares is not expected to result in a change of control of the Company.

The price of HK$0.20 per Consideration Share represents (i) the same price per Share on 16th February 2006 being the last closing price prior to the S&P Agreement; (ii) the same average closing price per Share for the 5 days up to the date prior to the signing of the S&P Agreement; (iii) a premium of 2% to the 10 days average closing price per Share of HK$0.204 up to the date prior to the signing of the S&P Agreement; and (iv) a discount of 13% to the closing price per Share as at the Latest Practicable Date.

— 7 —

LETTER FROM THE BOARD

The Consideration represents a premium of HK$121,527,349 to the net assets value of the Shinhan-Golden Group as at 31st December 2005. The Directors, including all the independent non-executive Directors, consider that the premium is acceptable due to:

(i) the income potential of the Property as set out under the section headed "Reasons For And Effect Of The Acquisition On The Group"; and

(ii) the capital value on completion of the Property of HK$776,699,000 (approximately RMB800,000,000 as at 28th February 2006) well exceeds the net book value of the Property of HK$636,893,000 as at 31st December 2005 and the estimated renovation costs of HK$56,311,000 (approximately RMB58,000,000) by HK$83,495,000.

The basis of valuing of the Property at HK$776,699,000 (approximately RMB800,000,000) was on the assumptions that the Property had been completed according to the Vendor's proposed renovation plan in 2005 with the estimated costs of RMB58,000,000 (approximately HK$56,311,000) and sale with immediate vacant possession.

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Conditions

Completion is conditional upon, the following conditions being fulfilled and/or waived by the Purchaser as at the date of Completion:

(i) the Purchaser being satisfied in its absolute discretion with the results of the due diligence review to be conducted on the Shinhan-Golden Group relating to its assets, liabilities, operations and affairs;

(ii) the passing by the Shareholders at a general meeting of the Company to be convened and held of an ordinary resolution to approve the S&P Agreement and the transactions contemplated thereunder, including but not limited to the allotment and issue of the Consideration Shares to the Vendor credited as fully paid;

(iii) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Consideration Shares; and

(iv) if necessary, the Bermuda Monetary Authority granting consent to the allotment and issue of the Consideration Shares.

If the conditions of the S&P Agreement are not fulfilled, or waived in whole or in part by the Purchaser in writing, in its absolute discretion by no later than 4:00 p.m. on 30th September 2006, then the S&P Agreement shall cease and determined and all liabilities of the parties

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LETTER FROM THE BOARD

thereto will cease and no party will have any claim against the others (except in respect of any antecedent breaches and any matters or things arising out of or in connection with the S&P Agreement).

Completion shall take place on the third Business Day after the fulfilment and/or wavier of the last of the conditions precedent in the S&P Agreement or such later date as the Vendor and the Purchaser may agree.

As at the Latest Practicable Date, none of the above conditions have been fulfilled.

Signing, Completion and Incidental Documents

Upon the signing of the S&P Agreement, the Vendor shall:

(i) deliver to the Purchaser a certificate certifying the indebtedness of the Shinhan-Golden Group and provide an estimate of the maximum amount of the indebtedness of the Shinhan-Golden Group as at the date of Completion;

(ii) procure JV Co. to execute a facilities letter with Shanghai Shengping pursuant to which Shanghai Shengping shall grant a loan in a sum of RMB9,000,000 (approximately HK$8,738,000); and

(iii) procure JV Co. to execute a Deed of Assignment of Rental Income with Shanghai Shengping in respect of the assigning to Shanghai Shengping of rental income received by the JV Co. from time to time in respect of the leasing of the Ground Floor of the Property's main building as security for the facility granted in (ii) above. This arrangement is to secure the facility provided to JV Co. by Shanghai Shengping as mentioned in (ii) above and the amount assigned is uncapped.

Upon compliance by the Vendor of its obligations mentioned above under the heading "Signing, Completion and Incidental Documents" and upon Completion, the Purchaser shall:

(i) deliver to the Vendor a share certificate in respect of the Consideration Shares;

(ii) procure Shanghai Shengping to settle and repay to Mr. Andrew Nan Sherrill, the beneficial owner of the Vendor and the legal representative of JV Co., 20% of the indebtedness of JV Co. due to him as at the date of Completion;

(iii) procure Shanghai Shengping to settle and repay to Mr. Nan Pin Ren, a director of JV Co., 20% of the indebtedness of JV Co. due to him as at the date of Completion;

(iv) procure Shanghai Shengping to deliver a promissory note to Mr. Andrew Nan Sherrill for the settlement of the balance 80% indebtedness due from JV Co to him as at the date of Completion; and

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LETTER FROM THE BOARD

(v) procure Shanghai Shengping to deliver a promissory note to Mr. Nan Pin Ren for the settlement of the balance 80% indebtedness due from JV Co. to him as at the date of Completion.

Following the payments and delivery of the promissory notes in (ii), (iii), (iv) and (v) above, the relevant amounts shall be owing from JV Co. to Shanghai Shengping.

The amounts to be settled by Shanghai Shengping will be financed by the Company. The total amount due to Mr. Andrew Nan Sherrill as at the Latest Practicable Date is RMB31,000,000 (approximately HK$30,097,000) and the amount due to Mr. Nan Pin Ren as at the Latest Practicable Date is nil.

As at the Latest Practicable Date, the Purchaser has obtained a certificate certifying the indebtedness of the Shinhan-Golden Group as at 29th April 2006 was approximately RMB292,357,028 (approximately HK$283,841,774) and estimating the maximum amount of indebtedness of the Shinhan-Golden Group as at Completion to be approximately RMB298,921,278 (approximately HK$290,214,833).

On 17th February 2006, JV Co. executed a facilities letter with Shanghai Shengping pursuant to which Shanghai Shengping granted a loan to JV Co. of RMB9,000,000 (approximately HK$8,738,000). The facility is repayable on the earlier of 6 months from drawdown and termination, cessation or lapse of the S&P Agreement and carries interest at the rate of 5.5% per annum. The loan is financed by the Company from its internal resources.

The loan of RMB9,000,000 (approximately HK$8,738,000) granted by Shanghai Shengping as referred to above is for the purpose of financing the operations of JV Co and the renovation project during the period from the date of signing of the S&P Agreement and Completion. In the event the S&P Agreement is not completed, JV Co has to immediately repay the loan to Shanghai Shengping otherwise interest at the rate of 12% per annum will accrue thereon.

On 17th February 2006, a Deed of Assignment of Rental Income was executed between JV Co. and Shanghai Shengping whereby the rental income to be received by JV Co. from time to time from the leasing of Ground Floor of the Property's main building (the "Leased Property") was assigned to Shanghai Shengping until full repayment of the loan of RMB9,000,000 (approximately HK$8,738,000) mentioned above.

The current use of the Leased Property is as a restaurant. However, the land use right certificate does not provide for the use of the Property as a restaurant. Accordingly, the Vendor has entered into a supplemental agreement undertaking to indemnify and hold harmless the Purchaser for claims, damages, losses etc arising from or in connection with the leasing of the Leased Property for land use purpose other than for the purpose allowed under the Certificate for the Use of State-owned land No. (2001)10136. On Completion, the Purchaser shall arrange for the land use purpose of the Property to include a restaurant. In the event that approval cannot be obtained for such change, the Purchaser will request that the use of the Leased Property as a restaurant be discontinued.

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LETTER FROM THE BOARD

Details of the rental agreement in relation to the Leased Property are:

lease period is 24th January 2002 to 23rd June 2007;
rent free period is 24th January 2002 to 23rd June 2002;
monthly rental for the period from 24th June 2002 to 23rd June 2003 is RMB293,000;
monthly rental for the period from 24th June 2003 to 23rd June 2004 is RMB350,000;
monthly rental for the period from 24th June 2004 to 23rd June 2005 is RMB405,000;
monthly rental for the period from 24th June 2005 to 23rd June 2006 is RMB434,000; and
monthly rental for the period from 24th June 2006 to 23rd June 2007 is RMB468,000.

The terms at the outset of negotiations between the Vendor and the Purchaser contained provisions as to the financing of JV Co and the Consideration was therefore arrived at, inter alia, on that basis. If this arrangement had not been agreed to, then a higher premium for the Acquisition would have been payable. In light of the lower premium payable for the Acquisition given such arrangement, the Directors believe that the financing arrangement for JV Co to be fair and reasonable and in the interest of Shareholders.

Relationship of the Group with Shanghai Shengping

On 3rd July 2003, the Group acquired WEIL for HK$15,000,000. In July 2003, WEIL entered into a business consultancy agency agreement for a period of 10 years with Shanghai Shengping, pursuant to which Shanghai Shengping agreed to provide sales and business consulting services in respect of WEIL's sale of 35-mm films to distributors in the PRC. Shanghai Shengping is owned as to 51% by Ms. Chen Peng and 49% by Mr. Liao Miao-yuan both Independent Third Parties. Both of them have given the undertakings to transfer their entire interest in the registered capital of Shanghai Shengping to the Group or its designated legal entity, when the laws and regulations in the PRC permit.

As the Group has full power to govern the financial and operation policies of Shanghai Shengping, i.e. pricing decisions and distribution strategy, so as to obtain benefits from Shanghai Shengping's activities, the Group has regarded itself to have control over Shanghai Shengping and Shanghai Shengping's results are fully consolidated into that of the Group.

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LETTER FROM THE BOARD

Vendor's Undertaking

The Vendor has undertaken to and covenanted with the Purchaser that it will not, within the period commencing on the date of Completion and ending on the date falling twelve (12) months thereafter, transfer or otherwise dispose of or create any encumbrance or other rights in respect of any of the Consideration Shares.

The Vendor has undertaken with the Purchaser to deposit, on Completion, share certificates for 15,845,196 Consideration Shares with an escrow agent, such share certificates to be released upon settlement to the Purchaser's reasonable satisfaction of certain legal proceedings or potential legal proceedings of JV Co., inter alia, as follows:

(i) PRC court proceeding between Beijing Jun Ying Real Estate Management Limited (北京均赢物業管理有限公司) and JV Co. (as defendant) for a claim of approximately RMB243,000 (approximately HK$236,000). Beijing Jun Ying Real Estate Management Limited is the service provider of security and fire safety for the Property;

(ii) PRC court proceeding between CL3 Architects Limited and JV Co. (as defendant) for a claim of approximately HK$2,500,000. CL3 Architects Limited is the service provider of interior design for the Property;

(iii) the failure of the JV Co. to pay the balance of contract sum of approximately RMB354,000 (approximately HK$344,000) under the agreement with Di Yi Ao Yuan Real Estate Management (Shanghai) Limited (第一澳元物業管理(上海)有限公司) dated 27th May 2005. Di Yi Ao Yuan Real Estate Management (Shanghai) Limited is the service provider of property management and hotel management service of the Property; and

(iv) the failure of the JV Co. to pay the balance of contract sum of approximately RMB100,000 (approximately HK$97,000) under the oral agreement with De Ren Advertising Limited (德人廣告公司). De Ren Advertising Limited is the service provider of advertisement advisory service during the launch of the Property.

The cost of settlement of the above legal proceedings will be borne by JV Co..

CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, there were no outstanding options, warrants or securities convertible or exchangeable into Shares other than the following:

(i) 190,000,000 share options carrying rights to subscription for 190,000,000 Shares at an exercise price of HK$0.26 per Share which are granted under the share option scheme of the Company; and

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LETTER FROM THE BOARD

(ii) 275,700,000 share options carrying rights to subscription for 275,700,000 Shares at an exercise price of HK$0.194 per Share which are granted under the share option scheme of the Company.

The respective shareholdings of the substantial Shareholders before and following Completion will be as follows:

Shareholders	Prior to Completion		After Completion
	No. of Shares	%	No. of Shares	%
Classical Statue Limited	2,116,590,000	41.06	2,116,590,000	32.64
Top Vision Management Limited	792,000,000	15.37	792,000,000	12.21
Lucky Star Consultants Limited	354,000,000	6.87	354,000,000	5.46
The Vendor	—	—	1,330,321,745	20.52
Public Shareholders	1,891,428,000	36.70	1,891,428,000	29.17
Total	5,154,018,000	100.00	6,484,339,745	100.00

INFORMATION ON SHINHAN-GOLDEN

Shinhan-Golden is an investment holding vehicle which holds a 96.7% equity interest in JV Co. and a 100% equity interest in Beijing Jianguo BVI which has been dormant since incorporation.

JV Co. is the registered owner of the Property (including the 22 apartment units and 16 carparks which have been sold but title to which has yet to change) and beneficial owner of the Property. The Property is located at Inner Jiangguo Gate of Dongcheng District, Beijing, the PRC (currently known as No. 9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC) with land use right certificate number Shi Dong Zhong Wai Guo Yong (97) Zi Di no. 00347. The Property (including the 22 apartment units and 16 carparks which have been sold but title to which has yet to change) has a total gross floor area of approximately 45,494.77 square meters of which 3,841.99 square meters are related to the 22 apartment units and 16 carparks sold between 1999 and between 2001 but the legal titles to them have not been officially transferred to the respective Purchaser yet. The Property had been used as apartment buildings. The Property is currently under renovation and being transformed from an apartment complex into serviced apartments with renovation expected to be completed by October 2006. The Property was in 2003 previously held for sale to the public. The Ground Floor of the Property's main building is currently leased out to an Independent Third Party for rental purposes.

Shinhan-Golden had entered into an undated agreement in 1997 with Beijing Urban pursuant to which Shinhan-Golden paid a sum of RMB 18,720,000 (approximately HK$18,175,000) to Beijing Urban in consideration of and exchange for Beijing Urban foregoing its beneficial entitlement to all of the future profits of JV Co. after November 1997 in favour of Shinhan-

LETTER FROM THE BOARD

Golden. Shinhan-Golden is the only person beneficially entitled to the profits of JV Co. after November 1997. The Company has obtained a legal opinion from PRC lawyers indicating that the agreement is legal despite it being undated.

Beijing Jianguo BVI has never commenced business since its incorporation and had no assets and liabilities as at the Latest Practicable Date.

Based on the Shinhan-Golden Group’s audited consolidated financial statements for the years ended 31st December 2003 and 2004 which were prepared in accordance with Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations, the audited consolidated net assets value of the Shinhan-Golden Group as at 31st December 2003 and 2004 were approximately HK$95,739,000 and HK$112,012,000 respectively. The audited profit attributable to the equity holders of Shinhan-Golden before and after taxation for the year ended 31st December 2003 were approximately HK$165,877,000 and HK$145,630,000 respectively. The audited profit attributable to the equity holders of Shinhan-Golden before and after taxation for the year ended 31st December 2004 were approximately HK$32,309,000 and HK$16,272,000 respectively.

Based on the Shinhan-Golden Group’s audited consolidated financial statements for the year ended 31st December 2005 which were prepared in accordance with Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations, the audited consolidated net assets value of the Shinhan-Golden Group as at 31st December 2005 was approximately HK$140,641,000. The audited profit attributable to the equity holders of Shinhan-Golden before and after taxation for the year ended 31st December 2005 were approximately HK$46,034,000 and HK$29,240,000 respectively. The net book value of the Property as at 31st December 2005 was approximately HK$636,893,000.

For the three years ended 31st December 2005, rental income is the source of revenue of the Shinhan-Golden Group.

During the year ended 31st December 2003, the Ground Floor of the main building of the Property was leased out to an Independent Third Party for a term of 5 years and certain apartment units of the Property were leased out to Independent Third Parties on short-term basis. The other parts of the Property were vacant. In mid 2003, management of the Shinhan-Golden Group intended to renovate the Property into a luxurious residential site for rental purposes. As the Shinhan-Golden Group was not able to obtain financing, the renovation plan was subsequently withdrawn.

For the year ended 31st December 2004, the rental income remained the source of revenue of the Shinhan-Golden Group. In October 2004, the Vendor acquired the entire issued share capital of Shinhan-Golden. Following the acquisition, the Vendor set a business strategy to sell part of the Property to the public and retain part of the Property for investment purposes. An architecture house was appointed to refurbish the Property. As the advertising and promotion programs for selling apartment units of the Property to the public were launched in 2005, no apartment units and/or carparks were sold during the year ended 31st December 2004.

— 14 —

LETTER FROM THE BOARD

During the year ended 31st December 2005, the new management of the Shinhan-Golden Group launched various advertising and promotion programs for selling apartment units of the Property to the public. In mid 2005, the plan of selling apartment units was dropped due to the implementation of a series of administrative measures by the PRC Government to dampen property speculation in general. No apartment units and/or carparks were sold during the year ended 31st December 2005. In view of the growing demand for high-end serviced apartments resulting from Beijing’s successful bid for the 2008 Olympic Games and the PRC accession to the World Trade Organisation, the new management has redefined the business strategy for the Shinhan-Golden Group by upgrading the Property into high-end serviced apartments. A reputable architecture house is appointed to renovate and refurbish the Property with the estimated cost of approximately HK$56,311,000 (or approximately RMB58,000,000). The renovation project is underwent and expected to be completed by the end of October 2006.

Having discussed with the Vendor and reviewed the financial statements of the Shinhan-Golden Group, the Directors noted that the operating loss-making position (excluding fair value gain in respect of the Property and gain arising from loan assignment from the then parent company of Shinhan-Golden) of the Shinhan-Golden Group for each of the years 2003, 2004 and 2005 were due to:

(i) In 2003 and 2004, the then management of the Shinhan-Golden Group was unable to obtain financing to renovate the Property into a luxurious residential site for rental purposes and therefore the Property was substantially left vacant.

(ii) In 2005, the Vendor dropped its business strategy to sell the apartment units of the Property and therefore the income derived from the Property was only limited to those few units which had been leased out at the time.

The Directors are of the view that the underlying reason for the operating loss-making position (excluding fair value gain in respect of the Property and gain arising from loan assignment from the then parent company of Shinhan-Golden) of the Shinhan-Golden Group is strategical and managerial issues, rather than the asset itself as the reason described in (i) and (ii) above.

For further details on the management discussions on the Shinhan-Golden Group, please see Appendix I.

— 15 —

LETTER FROM THE BOARD

PROSPECTS OF THE ENLARGED GROUP

Sale negotiations with the PRC distributors show that the drop in license fees for Hong Kong films has been stabilized. The Directors anticipate that it will take some time for the market to recover as film piracy remains rampant. As piracy and copyright infringements affect the film industries in both Hong Kong and the PRC, the PRC distributors are working together with the film industry practitioners to put pressure on the PRC Central Government to combat piracy and copyright infringements. Recent meetings with the PRC distributors reveal that the PRC Central Government plans to step up the enforcement of intellectual property laws in 2006. In addition, a PRC video distributor has conducted an extensive research on Internet users in the PRC. The research shows that the youth of the PRC have spent quite a lot of time on the Internet for entertainment and distributing movies through the Internet may be an effective means to capture this segment. In response to the research findings, the PRC distributor is planning to set up an Internet movies station.

Despite the above encouraging messages, the Group will continue to cautiously monitor the business environment and strengthen its business foundations by implementing prudent cost control and adopting a more cautious approach in acquiring film rights.

The Property is currently under renovation and being transformed from an apartment complex into high-end serviced apartments. The renovation project is expected to be completed by the end of October 2006. Leasing of the Property will commence two months after the completion of the renovation. As high-end serviced apartments with high-standard management are always the first choice of multinational senior executives and local senior managers who are employed in Beijing, an international property management company will be appointed to manage the Property. The Group currently intends to hold the Property as a long-term investment for rental purposes.

Following Completion, Shinhan-Golden and its subsidiaries will become subsidiaries of the Group. Upon completion of the Acquisition, whilst the Group will continue to carry out its existing businesses, the Group will also carry out the property investment business in Beijing via Shinhan-Golden. The Directors believe that the Acquisition will provide a stable income source to the Group and strengthen the business of the Group.

INFORMATION ON THE GROUP

The principal activity of the Company is investment holding. The principal subsidiaries of the Company are principally engaged in the distribution of films and sub-licensing of film rights or otherwise related to the entertainment industry.

— 16 —

LETTER FROM THE BOARD

REASONS FOR AND EFFECT OF THE ACQUISITION ON THE GROUP

(a) Reasons

As disclosed in the announcement of the Company dated 15th April 2005, the Board has been proactively identifying suitable investment opportunities to develop the Group’s business. Beijing is the political and economical center for the PRC. With effect of the PRC’s accession into the World Trade Organisation in place and 2008 Beijing Olympic Games, the Directors consider that Beijing is expected to see an increasing number of expatriates from multinational companies and foreign government institutions, which will lead to continual increase in demand for high-end serviced apartments. Therefore, renovating the Property for serviced apartment use is expected to supply these demand.

The Property is situated at No. 9 Gongyuan Xijie, Dongcheng District, Beijing. 100 meters away to the south of the Property is Changan Avenue and 300 meters away to the east is East Second Ring Road. Grade A properties namely China Resources Building, Bright China Chang An Building, Beijing International Hotel, COFCO Plaza and Henderson Centre and No. 6 Gongyuan Xijie are in the vicinity. The Property is currently under a renovation into a high-end serviced apartment project which is expected to be completed in October 2006.

The Directors believe that the Acquisition would enable the Group to diversify its businesses and broaden its revenue base which would have a positive impact on the Group’s profitability given the Director’s positive outlook of the PRC property market in the near future. It is currently intended by the Company that it will hold the Property as a long-term investment for rental purposes.

(b) Financial effects of the Acquisition

Net assets

The audited consolidated net assets value of the Group as at 31st December 2005 as extracted from the annual report of the Company for the year ended 31st December 2005 was HK$167,610,000. The audited consolidated net assets value of the Shinhan-Golden Group as at 31st December 2005 was HK$144,537,000.

As set out in Appendix V to this circular, assuming completion of the Acquisition had taken place on 31st December 2005, the pro forma net assets of the Enlarged Group would have been HK$437,690,000.

— 17 —

LETTER FROM THE BOARD

Earnings

The Directors expect that upon completion of the renovation of the Property, the Group will be able to obtain rental income from the lease of the serviced apartments and as such rental income generated from the Property will be one of the major sources of revenue of the Enlarged Group. In view of the growing demand for high-end serviced apartments in Beijing, the PRC, the Directors believe that the Acquisition will provide the Enlarged Group with a stable source of income and diversify its earning base.

Gearing ratio

As at 31st December 2005, the total borrowings of the Group was HK$34,832,000 and the Group's gearing ratio calculated as a percentage of total borrowings over total equity was 21%.

The total borrowings of the Enlarged Group would increase to HK$431,893,000 assuming the Acquisition had been completed as at 31st December 2005. The gearing ratio would be 99%. In view of the benefits of the Acquisition as explained above, the income potential of the Property upon the completion of the renovation and the capital value on completion in respect of the Property of HK$776,699,000 (approximately RMB800,000,000) as at 28th February 2006 as shown in Appendix VI to this circular, which well exceeds the net book value of the Property of HK$636,893,000 as at 31st December 2005 and the estimated renovation costs of HK$56,311,000 (approximately RMB58,000,000) by HK$83,495,000, the Directors consider the pro forma gearing ratio of the Enlarged Group to be acceptable.

As at 30th April 2006, the Group had cash and bank balances of HK$135,928,000 and financial assets at fair value through profit and loss of HK$41,732,000. Taking into account the present internal resources, the available secured long term loan facility (which as at the Latest Practicable Date has been unutilised), and the rental income to be generated from the Property upon the completion of the renovation, the Directors are of the opinion that the Enlarged Group has sufficient cashflow for at least the next 12 months following the date of this circular. As the renovation is expected to be completed in October 2006, the Enlarged Group is currently shortlisting the property management company to provide management services to the Property and plans to launch an advertising program to promote the Property. It is expected that the Property will start to generate rental income in December 2006.

The Company proposes to fund the outstanding payable and borrowings of the Shinhan-Golden Group from its internal resources.

— 18 —

LETTER FROM THE BOARD

BYE-LAWS

On 1st January 2005, the Listing Rules were amended by the Stock Exchange, among others, by replacing the Code of Best Practice in Appendix 14 by a new Code on Corporate Governance Practices ("CG Code"). In addition, on 1st March 2006, there were certain amendments to the Listing Rules, inter alia, including that, otherwise provided by law, the Directors may be removed by an ordinary resolution instead of a special resolution in general meeting ("New Amendment"). To bring the constitution of the Company in alignment with certain code provisions of the CG Code and the New Amendment, the Directors propose to the Shareholders amending the Company's Bye-laws so that (i) any newly appointed Directors by the Board shall only hold office until the next general meeting and (ii) the Company may by ordinary resolution instead of special resolution at a general meeting remove any Director before his period of office has expired.

SPECIAL GENERAL MEETING

The Acquisition contemplated under the S&P Agreement constitutes a very substantial acquisition for the Company under the Listing Rule 14.06(5). Therefore, the Acquisition together with the financing of the Shinhan-Golden Group by the Company as mentioned in the sections headed "Signing, Completion and Incidental Documents" and "The Acquisition" will be subject to, inter alia, approval of the Shareholders at the SGM. To the best of the Directors' knowledge, information and belief, having made all reasonable enquiries, no Shareholder has a material interest in the Acquisition and none of the Vendor and its beneficial owner, Mr. Andrew Nan Sherrill, Mr. Nan Pin Ren, and shareholders of Shanghai Shengping (other than the Company) and their respective associates hold any Shares. Accordingly, no Shareholder is required to abstain from voting on the resolution to approve the S&P Agreement at the SGM and the transactions contemplated thereunder.

A notice convening the SGM to be held on 12th June 2006 at 12:00 p.m. at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Kowloon, Hong Kong is set out on pages 163 of this circular for the purpose of considering and, if though fit, passing, with or without amendments, the ordinary resolution in respect of the Acquisition and the special resolution for the changes to the Bye-laws. A form of proxy for use by the Shareholders at the SGM is enclosed. Whether or not you are able to attend the SGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company's branch share registrars in Hong Kong, Standard Registrars Limited of 26th Floor, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong as soon as possible and in any event, not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not precluded you from attending and voting in person at the SGM or any adjournment thereof should you so wish.

— 19 —

LETTER FROM THE BOARD

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

RECOMMENDATION

The Directors, including all the independent non-executive Directors, consider that, despite the continuous operating loss (excluding fair value gain in respect of the Property and gain arising from loan assigning from the then parent company of Shinhan-Golden) of the Shinhan-Golden Group for 2003, 2004 and 2005 and the net current liability position of the Shinhan-Golden Group and the financing requirements of the Shinhan-Golden Group for the completion of the renovation of the Property, the terms of the S&P Agreement are fair and reasonable and are in the interests of the Company and the Shareholders as a whole on the basis of the following:

(a) The Directors consider that the premium paid by the Group for Shinhan-Golden is justified due to:

(i) the income potential of the Property as detailed in the section “Reasons For And Effect Of The Acquisition On The Group”; and
(ii) the capital value on completion of the Property of HK$776,699,000 (approximately RMB800,000,000 as at 28th February 2006 well exceeds the net book value of the Property of HK$636,893,000 as at 31st December 2005 and the estimated renovation costs of HK$56,311,000 (approximately RMB58,000,000) by HK$83,495,000;

— 20 —

LETTER FROM THE BOARD

(b) the Directors are of the view that the potential risk resulting from the litigations of the Shinhan-Golden Group in the aggregate amount of approximately HK$3,180,000 as disclosed in Appendix VII is minimized as 15,845,196 Consideration Shares will be escrowed upon Completion as security for these litigations;

(c) the Directors believe that the Acquisition will enable the Group to diversify its businesses and provide it with a stable revenue stream, which would have a positive impact on the Group’s profitability; and

(d) sufficient internal resources and banking facilities of the Group to finance the renovation of the Property and the Shinhan-Golden Group.

The Directors, including all the independent non-executive Directors, recommend the Shareholders to vote in favour of the resolution to be proposed at the SGM to approve the S&P Agreement and the transactions contemplated thereunder (including the issue of the Consideration Shares and financing arrangement provided by the Company to the Shinhan-Golden Group) and the amendments to the Bye-laws.

GENERAL

Your attention is drawn to the additional information set out in the appendices to this circular and the notice of SGM.

Yours faithfully,

For and on behalf of the Board of

Riche Multi-Media Holdings Limited

Heung Wah Keung

Chairman

— 21 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Track record of the Group

The table below sets out the consolidated income statements of the Group for each of three years ended 31st December 2005.

	Year ended 31st December
	2005
HK$’000	2004
HK$’000
(restated)	2003
HK$’000
(restated)
Turnover	38,339	58,382	206,996
Cost of sales	(36,466)	(48,674)	(61,180)
Gross profit	1,873	9,708	145,816
Other revenue	2,066	390	1,849
Other income	7,110	—	—
Administrative expenses	(19,332)	(36,266)	(29,910)
Selling expenses	(29)	(234)	(166)
Impairment loss recognised in respect
of film rights	(8,956)	(16,213)	(1,462)
Impairment loss recognised in respect
of other asset	—	(46,512)	—
Impairment loss recognised in respect
of goodwill	(12,056)	(28,072)	—
Impairment loss recognised in respect
of available-for-sale financial assets	—	(12,000)	—
Allowance for advances to an associate	—	(138,531)	—
(Loss) profit from operations	(29,324)	(267,730)	116,127
Finance costs	(340)	(340)	(340)
(Loss) profit before taxation	(29,664)	(268,070)	115,787
Taxation (charge) credit	—	(277)	1,040
Net (loss) profit for the year
attributable to the equity holders
of the Company	(29,664)	(268,347)	116,827
(Loss) earnings per share
Basic	HK(0.61) cents	HK(5.65) cents	HK2.46 cents
Diluted	HK(0.61) cents	HK(5.65) cents	HK2.40 cents

— 22 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Overview

The Group is principally engaged in the distribution of films, sub-licensing of film rights and investments in securities.

The table below sets out the breakdown of the Group's turnover by major business activities for the three years ended 31st December 2005.

	Year ended 31st December
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Distribution of films	9,382	27,285	163,722
Sub-licensing of film rights	10,534	16,319	38,006
Sales of financial assets at fair value through profit and loss	18,423	14,778	—
Sale of advertising rights	—	—	5,268
	38,339	58,382	206,996

Distribution of films

The Group distributes its films in video format for home entertainment in the PRC.

In 2004, the film distribution business was adversely affected by the rampant piracy and a decline in popularity of Hong Kong films. These difficult market conditions placed price pressures on the Group's films. As a result, the Group became more cost cautions in acquiring film rights and reduced the number of new films released.

In response to the weak market conditions in the PRC, the Group adopted a cautious approach in acquiring film rights and further reduced the number of new films distributed in 2005.

Sub-licensing of film rights

The Group sub-licenses the whole or part of its distribution rights to films to cinema operators, other distributors or operators of pay or free-to-air television, cable television and hotel in-house video for a limited period of usually five to seven years.

The lifting of foreign film quota restrictions by the PRC Government in 2004 intensified the competition between Hollywood and Hong Kong. As the PRC first-tier cinemas have strong preference for exhibiting Hollywood films and the local television stations illegally broadcast the Group's films, the film sub-licensing business was adversely affected in 2004 and 2005.

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Investments in securities

With a view to generating an adequate return on its assets, the Group commenced its business in investments in securities in 2004. The Group mainly invests in listed securities in Hong Kong.

Sales of advertising rights

The Group received fixed fees for advertising materials placed on the packaging of its video products and for advertising trailers programmed into its video.

As the availability of pirated video products is widespread, the Group saw a sharp drop in demand and price for advertising placements in its video products. Having performed a cost and benefit analysis on its advertising business, the Group decided to suspend this business in 2004.

Analysis on the results of operation of the Group during the three years ended 31st December 2005

Turnover

Turnover of the Group for the year ended 31st December 2003 amounted to HK$206,996,000, representing an increase of 131% as compared with the year ended 31st December 2002. The increase was mainly attributed to an increase in the number of new films released and an increase in the average distribution income per film resulting from the strong demand on Hong Kong films in the PRC.

The Group's turnover for the year ended 31st December 2004 amounted to HK$58,382,000, representing a decrease of 72% as compared with the year ended 31st December 2003. The decrease was mainly attributed to a decrease in the number of films distributed and sub-licensed, and a decrease in average income per new film resulting from the rampant piracy and the decline in popularity of Hong Kong films in the PRC.

For the year ended 31st December 2005, the Group's turnover amounted to HK$38,339,000, a 34% decrease from HK$58,382,000 for the previous year. The decrease was mainly attributable to a decrease in the number of films distributed and sub-licensed resulting from the adopting of a cautious approach in acquiring film rights by the Group.

— 24 —

APPENDIX I
MANAGEMENT DISCUSSION AND ANALYSIS

Cost of sales and gross profit margin

Cost of sales for the year ended 31st December 2003 amounted to HK$61,180,000, representing an increase of 54% as compared with the year ended 31st December 2002. The increase was mainly attributable to an increase in amortisation of film rights resulting from the growth in the Group's distribution and sub-licensing businesses. Gross profit margin improved from 56% in the year ended 31st December 2002 to 70% in the year ended 31st December 2003. This was attributed to the better margin obtained from the distribution business through the sale of 200 old film rights as the cost of which had already been fully amortised in previous years.

The Group's cost of sales for the year ended 31st December 2004 amounted to HK$48,674,000, out of which HK$16,238,000 was related to the investments in securities business. During the year, the Group's investments in securities recorded a loss of HK$1,460,000. Cost of sales for film distribution and sub-licensing of film rights decreased from HK$61,180,000 in the year ended 31st December 2003 to HK$32,436,000 in the year ended 31st December 2004. The decrease was mainly attributable to a decrease in amortisation of film rights, which was the result of distributing and sub-licensing a less number of films in the year ended 31st December 2004. Gross profit margin for the distribution and sub-licensing businesses dropped from 70% in the year ended 31st December 2003 to 26% in the year ended 31st December 2004. This was attributed to the decrease in average income per new film resulted from the rampant privacy and the decline in popularity of Hong Kong films, and the sale of 200 fully amortised film rights in the year ended 31st December 2003 as explained above.

Cost of sales for the year ended 31st December 2005 amounted to HK$36,466,000, out of which HK$20,374,000 was related to the investments in securities. During the year ended 31st December 2005, the Group's investments in securities recorded a loss of HK$1,951,000. Taking into account the dividend income of HK$627,000 recorded in other revenues, the performance of the Group's investments in securities was a loss of HK$1,324,000. Cost of sales for film distribution and sub-licensing of film rights decreased from HK$32,436,000 in the year ended 31st December 2004 to HK$16,092,000 in the year ended 31st December 2005. The decrease was attributable to a decrease in amortisation of film rights resulting from the decrease in the number of films distributed and sub-licensed. Gross profit margin for film distribution and sub-licensing of film rights dropped from 26% in the year ended 31st December 2004 to 19% in the year ended 31st December 2005. The drop in gross profit margin was attributed to the better margins the Group obtained from the delivery of 108 old films in 2004, the cost of which had been almost fully amortised.

(Loss) profit from operations

For the year ended 31st December 2003, the Group recorded a profit from operations of HK$116,127,000. The turnaround in profit from operations was mainly attributed to the significant growth in turnover of HK$117,553,000 as well as improved gross profit margin from 56% to 70%. The turnaround in profit from operations was also because the Group did not record any impairment losses for other asset and goodwill.

— 25 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

The Group recorded a loss from operations of HK$267,730,000 for the year ended 31st December 2004. The loss was mainly attributable to the decrease in turnover resulted from a decline in popularity of Hong Kong films and rampant privacy, an allowance made for advances to an associate of HK$138,531,000 and the impairment losses of HK$102,797,000 recognised in respect of film rights, other asset, goodwill and available-for-sale financial assets.

Loss from operations improved from HK$267,730,000 in the year ended 31st December 2004 to HK$29,324,000 in the year ended 31st December 2005. The improvement was mainly attributable to the fact that the Group did not record any allowance for advances to an associate and impairment losses for other assets and available-for-sale financial assets in 2005, while the Group recorded such allowance of HK$138,531,000 and impairment losses of HK$58,512,000 in 2004. In addition, the impairment losses recognised for film rights and goodwill decreased from HK$44,285,000 in the year ended 31st December 2004 to HK$21,012,000 in the year ended 31st December 2005.

Taxation

No provision for tax was made for the year ended 31st December 2003 as the Group either had no estimated assessable profits or its estimated assessable profits were wholly absorbed by estimated tax losses brought forward. The tax credit of HK$1,040,000 for the year ended 31st December 2003 represented the reversal of deferred taxation.

The Group recorded a taxable profit for the year ended 31st December 2004 and a provision of HK$277,000 was made.

No provision for tax was made for the year ended 31st December 2005 as the Group either had no estimated assessable profits or its estimated assessable profits were wholly absorbed by estimated tax losses brought forward.

Net (loss) profit for the year attributable to the equity holders of the Company

The Group recorded a profit of HK$116,827,000 for the year ended 31st December 2003 and a loss of 268,347,000 for the year ended 31st December 2004. The turnaround was mainly due to the decrease in turnover resulted from the decline in popularity of Hong Kong films in the PRC, an allowance made against advances to an associate and the recognition of impairment losses for other asset, goodwill and available-for-sale financial assets.

Loss improved from HK$268,347,000 for the year ended 31st December 2004 to HK$29,664,000 for the year ended 31st December 2005. The substantial improvement was mainly attributed to an allowance of HK$138,531,000 made against advances to an associate and the impairment losses of HK$58,512,000 recognised for other assets and available-for-sale financial assets in 2004. In addition, the Group recorded a decrease in impairment losses for film rights and goodwill as explained above.

— 26 —

APPENDIX I
MANAGEMENT DISCUSSION AND ANALYSIS

Analysis on the financial position of the Group during the three years ended 31st December 2005

Liquidity and financial resources

During the three years ended 31st December 2005, the Group funded its operations mainly from cash generated from operations, the convertible notes payable issued by the Company to First-Up Investments Limited (“First-Up”), a wholly-owned subsidiary of China Star Entertainment Limited (“China Star”), the issuance of new Shares and a one-year term loan granted by China Star. In the years ended 31st December 2003 and 2005, the Group’s net cash from operating activities amounted to HK$92,266,000 and HK$14,393,000 respectively. In the year ended 31 December 2004, the net cash used in operating activities was HK$36,414,000.

As at 31st December 2003, the cash and bank balances of the Group amounted to HK$80,722,000 and the total borrowings of the Group amounted to HK$33,831,000, comprising the convertible notes payable of HK$33,800,000 issued by the Company to First-Up, which was unsecured, interest bearing at 1% per annum and maturing 19th April 2005 (the “First-Up Convertible Notes”); and the obligations under a finance lease of HK$31,000 which was secured, interest bearing and maturing on 5th April 2005. The Group’s gearing ratio calculated as a percentage of total borrowings over total equity was 10%.

As at 31st December 2004, the cash and bank balances of the Group amounted to HK$15,460,000 and the total borrowings of the Group amounted to HK$33,808,000, comprising the First-Up Convertible Notes of HK$33,800,000 and; the obligations under a finance lease of HK$8,000 which was secured, interest bearing and maturing on 5th April 2005. The Group’s gearing ratio calculated as a percentage of total borrowings over total equity was 49%.

In September 2005, the Company issued 400,000,000 new Shares at a price of HK$0.34 each by way of a vendor placing and top-up subscription raising HK$131,179,000 (net of expenses). On 19th April 2005, the First-Up Convertible Notes matured. First-Up did not exercise the right to convert the outstanding principal amount of the First-Up Convertible Notes into Shares and the Group repaid HK$33,800,000 to First-Up. On the same date, China Star granted a one-year term loan of HK$33,800,000 to the Company. As at 31st December 2005, the cash and bank balances of the Group amounted to HK$137,973,000 and total borrowings amounted to HK$34,832,000 comprising the one-year term loan of HK$33,800,000 granted by China Star, which was unsecured, interest bearing at 1% per annum and maturing on 19th April 2006; and an amount due to a related company of HK$1,032,000, which was unsecured, non-interest bearing and had no fixed terms of repayment. The gearing ratio calculated as a percentage of total borrowings over total equity was 21%.

Charges on group assets

As at 31st December 2003, 2004 and 2005, the Group did not have any mortgage or charge.

— 27 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Net current assets

The net current assets of the Group amounted to HK$83,147,000, HK$45,208,000 and HK$164,020,000 as at 31st December 2003, 2004 and 2005 respectively.

The current ratios of the Group as at 31st December 2003, 2004 and 2005 were 2.1, 1.7 and 3.43 respectively.

Material acquisitions and disposals of subsidiaries and associated companies

In January 2003, the Group acquired the entire issued share capital of Legend Rich Limited from Top Standard International Limited, an Independent Third Party, for a cash consideration of HK$26,000,000. In January 2003, Legend Rich Limited entered into a sales and distribution agreement with 天津市星匯音像制品銷售有限公司 (“Tianjin Xinghui”), pursuant to which Tianjin Xinghui agreed to be responsible for the sale and distribution of the Group’s video products in the PRC. The owners of Tianjin Xinghui have each given an undertaking to transfer their entire interests in the registered capital of Tianjin Xinghui to Legend Rich Limited when the laws and regulations in the PRC allow.

In July 2003, the Group acquired the entire issued share capital of WEIL from Mr. Liao Miaoyuan, an Independent Third Party, for a cash consideration of HK$15,000,000. In July 2003, WEIL entered into an agency agreement with Shanghai Shengping, pursuant to which Shanghai Shengping agreed to provide sales and business consulting services in respect of WEIL’s sale of 35-mm films to distributors in the PRC. The owners of the Shanghai Shengping have each given an undertaking to transfer their entire interests in the registered capital of Shanghai Shengping to WEIL when the laws and regulations in the PRC allow.

In March 2004, the Group acquired 40% of the issued share capital of Rainbow Choice Enterprises Limited (“Rainbow Choice”) by investing HK$30,000,000. Rainbow Choice engaged in the business of producing and distributing of entertainment news programmes in the PRC. The acquisition facilitated the Group’s expansion into the PRC television advertising business. As the performance of Rainbow Choice was not satisfactory, the Group entered into an agreement with the other shareholder of Rainbow Choice in April 2005. Under the agreement, the Group would own the intellectual property rights of the contents produced by Rainbow Choice and the other shareholder of Rainbow Choice would repay the production and distribution fees of HK$18,000,000 to the Group.

In April 2005, the Group exercised its right to convert the outstanding principal amount of the convertible notes of HK$160,000,000 issued by Gainful Fortune Limited into shares of Gainful Fortune Limited. Gainful Fortune Limited and its wholly-owned subsidiary, Ocean Shores Licensing Limited, became subsidiaries of the Company.

— 28 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Save as disclosed above, the Group made no material acquisitions or disposals of subsidiaries and associated companies during the three years ended 31st December 2005.

Contingent liabilities

As at 31st December 2003, 2004 and 2005, the Group did not have any material contingent liabilities.

Capital structure

Save for the allotment and issue of 400,000,000 new Shares in September 2005, which raised net proceeds of HK$131,179,000, there was no change in the equity capital structure of the Company for the three years ended 31st December 2005.

Exchange risk and hedging

As the majority of the Group’s transactions, assets and liabilities are denominated in Hong Kong dollars and Reminbi, the exchange rate risk of the Group is considered to be minimal. Accordingly, no financial instruments for hedging purposes were used by the Group for the three years ended 31st December 2005.

Staff, remuneration policies and share option scheme

As at 31st December 2003, 2004 and 2005, the Group employed 98, 41 and 28 staff respectively. Employees are remunerated according to their performance and work experience. In addition to basic salaries and retirement scheme, staff benefits include medical scheme and share options.

— 29 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SHINHAN-GOLDEN GROUP

Track record of the Shinhan-Golden Group

The table below sets out the consolidated income statements of the Shinhan-Golden Group for each of three years ended 31st December 2005.

	Year ended 31st December
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Turnover, net	5,111	5,745	6,954
Other revenue	496	11	5
Other income	70,943	51,760	182,508
Operating expenses	(3,478)	(265)	(225)
Administrative expenses	(5,079)	(6,076)	(5,469)
Profit from operations	67,993	51,175	183,773
Finance costs	(21,959)	(18,866)	(17,896)
Profit before taxation	46,034	32,309	165,877
Taxation	(16,794)	(16,037)	(20,247)
Net profit for the year attributable to the equity holders of Shinhan-Golden	29,240	16,272	145,630

Overview

The Shinhan-Golden Group is principally engaged in property investment in the PRC.

During the year ended 31st December 2003, the retail area on the Ground Floor of the Property's main building was leased out to an Independent Third Party for a term of 5 years and certain apartment units of the Property were leased out to Independent Third Parties on short-term basis. The other parts of the Property were vacant. In mid of 2003, management of the Shinhan-Golden Group intended to renovate the Property into a luxurious residential site for rental purposes. As the Shinhan-Golden Group was not able to obtain financing, the renovation plan was subsequently withdrawn.

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

During the year ended 31st December 2005, the new management of the Shinhan-Golden Group launched various advertising and promotion programs for selling apartment units of the Property to the public. In mid 2005, the plan of selling apartment units was dropped due to the implementation of a series of administrative measures by the PRC Government to dampen property speculation in general. No apartment units and/or carparks were sold during the year ended 31st December 2005. In view of the growing demand for high-end serviced apartments resulting from Beijing’s successful bid for the 2008 Olympic Games and the PRC accession to the WTO, the new management has redefined the business strategy for the Shinhan-Golden Group by upgrading the Property into high-end serviced apartments. A reputable architecture house is appointed to renovate and refurbish the Property with the estimated cost of approximately HK$56,311,000 (or approximately RMB58,000,000). The renovation project is underwent and expected to be completed by the end of October 2006.

Analysis on the results of operation of the Shinhan-Golden Group during the three years ended 31st December 2005

Turnover

For the years ended 31st December 2003, 2004 and 2005, the turnover of the Shinhan-Golden Group amounted to HK$6,954,000, HK$5,745,000 and HK$5,111,000 respectively. The decreases in turnover were due to the expiry of tenancy of apartment units of the Property in 2004 and 2005.

Other revenue

Other revenue increased from HK$5,000 in the year ended 31st December 2003 to HK$11,000 in the year ended 31st December 2004. The increase was attributed to an increase in bank interest income resulted from an increase in the Shinhan-Golden Group’s bank deposits balance.

For the years ended 31st December 2004 and 2005, other revenue amounted to HK$11,000 and HK$496,000 respectively. The increase was attributed to an increase in bank interest income of HK$140,000 resulted from an increase in the Shinhan-Golden Group’s bank deposits balance, and a gain on sale of scrap from demolition of HK$345,000.

Other income

For the year ended 31st December 2004, other income amounted to HK$51,760,000, a 72% decrease from HK$182,508,000 for the year ended 31st December 2003. The significant decrease was mainly due to the inclusion of a gain arising from a loan assignment of USD14,721,000 (approximately HK$114,821,000) from the then holding company, M.O. Properties (Beijing) Limited, pursuant to a Deed of Assignment of Loan executed between Shinhan-Golden and M.O. Properties (Beijing) Limited in 2003 and a decrease in the fair value gain in respect of the Property from HK$61,354,000 in the year ended 31st December 2003 to HK$48,598,000 in the year ended 31st December 2004.

— 31 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Other income increased from HK$51,760,000 in the year ended 31st December 2004 to HK$70,943,000 in the year ended 31st December 2005. The 37% increase was mainly attributed to the recognition of a gain of HK$14,270,000 arising from the waiver of an amount due to the holding company and an exchange gain of HK$2,561,000.

Operating expenses

Operating expenses for the years ended 31st December 2003 and 2004 amounted to HK$225,000 and HK$265,000 respectively, which mainly represented agency commission paid in relation to the leasing of apartment units.

In early 2005, the Shinhan-Golden Group intended to sell the apartment units of the Property to the public and launched various advertising and promotion programs. As a result, operating expenses increased substantially from HK$265,000 in the year ended 31st December 2004 to HK$3,478,000 in the year ended 31st December 2005.

Administrative expenses

For the year ended 31st December 2004, administrative expenses amounted to HK$6,076,000, an 11% increase compared to HK$5,469,000 for the year ended 31st December 2003. It was mainly due to the increased overseas travelling incurred by the then senior management staff for corporate development activities.

Administrative expenses for the year ended 31st December 2005 amounted to HK$5,079,000, representing a decrease of 16% as compared with the year ended 31st December 2004. The decrease was mainly attributable to the implementation of a cost saving program in the year ended 31st December 2005 and the reduction of local and oversea travelling expenses incurred by the then senior management staff.

Finance costs

For the three years ended 31st December 2003, 2004 and 2005, the Group recorded finance costs amounted to HK$17,896,000, HK$18,866,000 and HK$21,959,000 respectively. The increases were mainly attributable to the calculation of compound interest. Since the principal of the RMB bank loans and its accrued interests were not regularly repaid by the Shinhan-Golden Group, the interest expenses would increase gradually during the period from 2003 to 2005.

Taxation

Tax for the three years ended 31st December 2005 represented deferred tax arising from the unrealised fair value gain in respect of the Property.

No provision for PRC Income Tax was made as the Shinhan-Golden Group had no estimated taxable profit for the three years ended 31st December 2005.

— 32 —

APPENDIX I

MANAGEMENT DISCUSSION AND ANALYSIS

Net profit for the year attributable to the equity holders of Shinhan-Golden

For the two years ended 31st December 2003 and 2004, the net profit for the year attributable to the equity holders of Shinhan-Golden were HK$145,630,000 and HK$16,272,000 respectively. The significant decrease was mainly attributed to the decrease in other income as explained above.

Net profit for the year attributable to the equity holders of Shinhan-Golden increase from HK$16,272,000 in the year ended 31st December 2004 to HK$29,240,000 in the year ended 31st December 2005. The increase was mainly attributed to the increase in other income as explained above.

Analysis on the financial position of the Shinhan-Golden Group during the three years ended 31st December 2005

Liquidity and financial resources

For the years ended 31st December 2003 and 2004, the Shinhan-Golden Group funded its operations mainly from cash generated from operations, the secured RMB bank loans and an advance made from an immediate holding company. In the year ended 31st December 2003, the net cash used in operations activities was HK$107,000. In the year ended 31st December 2004, the net cash generated from operations activities was HK$319,000. For the year ended 31st December 2005, the Shinhan-Golden Group funded its operation, in addition to the cash generated from operations and the secured RMB bank loans, by an advance of HK$25,230,000 made from the director of Shinhan-Golden, an advance of HK$6,838,000 made from a director of JV Co., an advance of HK$3,980,000 made from a related company and an advance of HK$38,888,000 made from its immediate holding company.

As at 31st December 2003, the cash and bank balances of the Shinhan-Golden Group amounted to HK$872,000 and the total borrowings of the Shinhan-Golden Group amounted to HK$348,295,000 representing the RMB bank loans in an aggregate principal amount of HK$278,318,000 together with the interests payable of HK$69,977,000 which was secured by the Property, interest bearing at 5.31% to 7.23% per annum and maturing on 28th April 2001. The Shinhan-Golden Group's gearing ratio calculated as a percentage of total borrowings over total equity was 364%.

As at 31st December 2004, the cash and bank balances of the Shinhan-Golden Group amounted to HK$1,183,000 and the total borrowings of the Shinhan-Golden Group amounted to HK$381,432,000, comprising the RMB bank loans in an aggregate principal amount of HK$278,318,000 together with the interests payable of HK$88,844,000 which was secured by the Property, interest bearing at 5.31% to 7.23% per annum and maturing on 28th April 2001; and an advance of HK$14,270,000 made from an immediate holding company which was unsecured interest-free and had no fixed terms of repayment. The Shinhan-Golden Group's gearing ratio calculated as a percentage of total borrowings over total equity was 341%.

— 33 —

APPENDIX I
MANAGEMENT DISCUSSION AND ANALYSIS

As at 31st December 2005, the cash and bank balances of the Shinhan-Golden Group amounted to HK$26,110,000 and the total borrowings of the Shinhan-Golden Group amounted to HK$442,352,000, comprising the RMB bank loans in an aggregate principal amount of HK$266,311,000 together with the interests payable of HK$101,105,000 which was secured by the Property, interest bearing at prevailing bank interest rate and maturing on 1st August 2006; an advance of HK$25,230,000 made from the director of Shinhan-Golden which was unsecured, interest bearing at 5.5% to 5.58% per annum and repayable within one year; an advance of HK$6,838,000 made from a director of JV Co. which was unsecured, interest bearing at 5.5% and repayable within one year; an advance of HK$3,980,000 made from a related company which was unsecured, interest-free and had no fixed terms of repayment; and an advance of HK$38,888,000 made from an immediate holding company which was unsecured, interest-free and had no fixed terms of repayment. The Shinhan-Golden Group’s gearing ratio calculated as a percentage of total borrowings over total equity was 306%.

Charges on group assets

As at 31st December 2003, 2004 and 2005, the Shinhan-Golden Group pledged the Property to a PRC bank as security against the RMB bank loans.

Net current liabilities

As at 31st December 2003, 2004 and 2005, the net current liabilities of the Shinhan-Golden Group’s amounted to HK$390,370,000, HK$406,462,000 and HK$438,432,000 respectively.

The current ratios of the Shinhan-Golden Group as at 31st December 2003, 2004 and 2005 were 0.1, 0.1 and 0.14 respectively.

Material acquisitions and disposals of subsidiaries and associated companies

In September 2005, Shinhan-Golden acquired the entire issued share capital of Beijing Jianguo BVI at a consideration of USD1.

Save as disclosed above, the Shinhan-Golden Group made no material acquisitions or disposals of subsidiaries and associated companies during the three years ended 31st December 2005.

Contingent liabilities

As at 31st December 2005, the Shinhan-Golden Group has the following litigations and claims:

Case 1

Di Yi Ao Yuan Real Estate Management (Shanghai) Limited (第一澳元物業管理(上海)有限公司) (“Di Yi”) filed a statement of claim alleging JV Co. owed Di Yi approximately RMB354,000 (approximately HK$344,000) with actual cost and thereof, in respect of consulting service rendered to JV Co. based on the signed contract.

— 34 —

APPENDIX I
MANAGEMENT DISCUSSION AND ANALYSIS

Case 2

De Ren Advertising Limited (德人廣告公司) had a claim against JV Co. for approximately RMB100,000 (approximately HK$97,000) in respect of a marketing campaign contracted with JV Co..

Case 3

A writ of summons and statement of claim was made by Beijing Jun Ying Real Estate Management Limited (北京均贏物業管理有限公司) for a claim of approximately RMB243,000 (approximately HK$236,000) in respect of contracted security service to JV Co.. Subsequent to 31st December 2005, the court of the PRC made a verdict that JV Co. was liable to pay Beijing Jun Ying Real Estate Management Limited approximately HK$207,000 (approximately RMB213,000) and the directors of Shinhan-Golden made a provision for this liability.

Case 4

A writ of summons and statement of claim was made by CL3 Architects Limited ("CL3") for a claim of HK$2,500,000 over design contracts for the Property with JV Co..

Save as disclosed above, the Shinhan-Golden Group had no material contingent liabilities as at 31st December 2003, 2004 and 2005.

Capital structure

There was no change in the equity capital structure of Shinhan-Golden for the three years ended 31st December 2005.

Exchange risk and hedging

As the majority of the Shinhan-Golden Group's assets and liabilities are denominated in Renminbi, the exchange risk of the Shinhan-Golden Group is considered to be minimal. Accordingly, no financial instruments for hedging purposes were used by the Shinhan-Golden Group for the three years ended 31st December 2005.

Staff, remuneration policies and retirement benefits

As at 31st December 2003, 2004 and 2005, the Shinhan-Golden Group had 10, 9 and 44 staff respectively. The Shinhan-Golden Group recognised the importance of maintaining good working relationships with its staff and accordingly, strives to maintain remunerations at competitive levels and in line with industry practice. According to the relevant PRC regulations, the staff of the Shinhan-Golden Group is required to participate in employee retirement and insurance schemes for its eligible staff.

— 35 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

The following is the text of a letter, prepared for the sole purpose of inclusion in this circular, received from HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants.

國衛會計師事務所

Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

31st Floor

Gloucester Tower

The Landmark

11 Pedder Street

Central

Hong Kong

19th May 2006

The Directors

Riche Multi-Media Holdings Limited

Units 609-610 Miramar Tower

132 Nathan Road

Tsimshatsui

Kowloon

Hong Kong

Dear Sirs,

We set out below our report on the financial information regarding Shinhan-Golden Faith International Development Limited ("Shinhan-Golden") and its subsidiaries (hereinafter collectively referred to as "Shinhan-Golden Group"), including the consolidated balance sheets of Shinhan-Golden Group and the balance sheets of Shinhan-Golden as at 31st December 2003, 2004 and 2005, the consolidated income statements, consolidated cash flow statements and consolidated statements of changes in equity of Shinhan-Golden Group for each of the year ended 31st December 2003, 2004 and 2005 (the "Relevant Period"), and the notes thereto (the "Financial Information"), for inclusion in the circular of Riche Multi-Media Holdings Limited (the "Company") dated 19th May 2006 (the "Circular") in connection with the conditional sales and purchase agreement dated 17th February 2006 ("S&P Agreement") entered into between Riche (BVI) Limited ("Riche (BVI)"), a wholly owned subsidiary of the Company and Northbay Investment Holdings Limited ("Northbay") pursuant to which Riche (BVI) would acquire (i) $100\%$ interest in Shinhan-Golden from Northbay and (ii) all obligations, liabilities and debts owing or incurred by Shinhan-Golden to Northbay on or at any time prior to the completion of S&P Agreement (the "Sale Loan"), at an aggregate consideration of approximately HK$266,064,000 (the "Consideration"). The Consideration shall be satisfied by the allotment and issue of 1,330,321,745 shares of the Company at HK$0.20 each.

— 36 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

CORPORATE INFORMATION OF SHINHAN-GOLDEN GROUP

Shinhan-Golden is a company incorporated in the British Virgin Islands with limited liability on 26th April 1996. The principal activity of Shinhan-Golden is investment holding. Particulars of its subsidiaries are as follows:

Name	Place of incorporation and business	Date of incorporation	Issued and fully paid share capital	Percentage of equity attributable to Shinhan-Golden	Principal activities
北京建國房地產開發有限公司
(Beijing Jian Guo Real Estate Development Co., Ltd)
(“Beijing Jian Guo”)	The People’s Republic of China (the “PRC”)	5th November 1996	Registered capital of US$15,000,000	96.67% (direct)	Property investment in the PRC
Beijing Jian Guo Real Estate Development Co., Ltd
(“Beijing Jian Guo (BVI)”)	The British Virgin Islands	18th September 2002	Ordinary share of US$1	100% (direct)	Dormant

All companies comprising Shinhan-Golden Group have adopted 31st December as their financial year end date.

The audited financial statements of Shinhan-Golden for the year ended 31st December 2003 were prepared in accordance with generally accepted accounting principle in Hong Kong and were audited by Santo CPA Ltd, CPA, Hong Kong. No audited financial statements have been prepared for Shinhan-Golden for the years ended 31st December 2004 and 31st December 2005 as there is no statutory requirement to do so. No audited financial statements of Beijing Jian Guo (BVI) were prepared for the Relevant Period as there is no statutory requirement to do so. The financial statements of Beijing Jian Guo were prepared in accordance with the relevant PRC accounting standards and rules and were audited by Reanda Certified Public Accountants, the PRC for the year ended 31st December 2003 and the financial statements for the years ended 31st December 2004 and 2005 were audited by Beijing Jingdu Certified Public Accountants Co., Ltd, the PRC.

— 37 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

ACCOUNTANTS' REPORT ON THE FINANCIAL INFORMATION FOR THE RELEVANT PERIOD

Respective responsibilities of Shinhan-Golden Director and reporting accountants

For the purpose of this report, the director of Shinhan-Golden have prepared the unaudited management accounts of Shinhan-Golden Group for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong for which the director of Shinhan-Golden is solely responsible. The Financial Information set out in this report are prepared on the basis set out in Note 2 below.

The director of Shinhan-Golden is responsible for the preparation of the Financial Information which gives a true and fair view. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. The director of the Company is responsible for the contents of the Circular in which this report is included. It is our responsibility to form an independent opinion, based on our examination, on the Financial Information and to report our opinion solely to you.

Basis of opinion

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have audited the Financial Information for the Relevant Period in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and have carried out such additional procedures as we considered necessary in accordance with the Auditing Guideline 3.340 "Prospectuses and the reporting accountant" issued by the HKICPA. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Information. It also includes an assessment of the significant estimates and judgements made by the director of Shinhan-Golden in the preparation of the Financial Information, and of whether the accounting policies are appropriate to the circumstances of Shinhan-Golden Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the Financial Information is free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of the Financial Information. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, for the purpose of this report, the Financial Information gives true and fair views of the state of affairs of Shinhan-Golden Group and of Shinhan Golden as at 31st December 2003, 2004 and 2005 and of the results and cash flows of Shinhan-Golden Group for the Relevant Period.

— 38 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

1. THE FINANCIAL INFORMATION

A. Consolidated Balance Sheets of Shinhan-Golden Group

	Note	As at 31st December
		2005
HK$'000	2004
HK$'000	2003
HK$'000
ASSETS
Non-current assets
Property, plant and equipment	4	564	553	749
Investment properties	5	636,893	554,205	505,607
Goodwill	6	—	—	—
		637,457	554,758	506,356
Current assets
Property held for sale	8	43,839	42,200	42,200
Trade receivables	9	11	11	—
Prepayments, deposit and other receivables	10	570	80	438
Cash and bank balances		26,110	1,183	872
		70,530	43,474	43,510
Total assets		707,987	598,232	549,866
EQUITY
Capital and reserves attributable to the equity holders of Shinhan-Golden
Share capital	18	74,100	74,100	74,100
Reserves	19	66,541	34,012	17,739
		140,641	108,112	91,839
Minority interest		3,896	3,900	3,900
Total equity		144,537	112,012	95,739
LIABILITIES
Current liabilities
Trade payables	11	641	2,750	20,140
Other payables and accruals	12	65,941	65,754	65,445
Amount due to a director	13	25,230	—	—
Amounts due to related parties	14	10,846	—	—
Amount due to an immediate holding company	15	38,888	14,270	—
Bank loan, secured	16	367,416	367,162	348,295
		508,962	449,936	433,880
Non-current liabilities
Deferred taxation	17	54,488	36,284	20,247
Total liabilities		563,450	486,220	454,127
Total equity and liabilities		707,987	598,232	549,866
Net current liabilities		(438,432)	(406,462)	(390,370)

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

B. Balance Sheets of Shinhan-Golden

	Note	As at 31st December
		2005
HK$’000	2004
HK$’000	2003
HK$’000
ASSETS
NON-CURRENT ASSETS
Investment in subsidiaries	7	38,824	—	—
CURRENT ASSETS
Cash and bank balances		184	14	14
Total assets		39,008	14	14
EQUITY
Capital and reserves
attributable to the equity
holders of Shinhan-Golden
Share capital	18	74,100	74,100	74,100
Reserves	19	(73,980)	(88,356)	(74,086)
		120	(14,256)	14
CURRENT LIABILITIES
Amount due to an immediate
holding company	15	38,888	14,270	—
Total equity and liabilities		39,008	14	14
Net (current liabilities)/
current assets		(38,704)	(14,256)	14

— 40 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

C. Consolidated Income Statements

	Year ended 31st December
	Note	2005	2004	2003
		HK$'000	HK$'000	HK$'000
Turnover, net	20	5,111	5,745	6,954
Other revenue	20	496	11	5
Other income	22	70,943	51,760	182,508
Operating expenses		(3,478)	(265)	(225)
Administrative expenses		(5,079)	(6,076)	(5,469)
Profit from operations	22	67,993	51,175	183,773
Finance costs	23	(21,959)	(18,866)	(17,896)
Profit before taxation		46,034	32,309	165,877
Taxation	27	(16,794)	(16,037)	(20,247)
Net profit for the year		29,240	16,272	145,630
Attributable to:
Equity holders of Shinkan-Golden		29,240	16,272	145,630

— 41 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

D. Consolidated Statements of Changes in Equity

	Attributable to equity holders of Shinhan-Golden
	Share capital HK$’000	Foreign (Accumulated currency translation reserve HK$’000	loss)/ retained earnings HK$’000	Sub-total HK$’000	Minority interest HK$’000	Total HK$’000
At 1st January 2003	74,100	(478)	(126,533)	(52,911)	3,900	(49,011)
Currency translation difference	—	(880)	—	(880)	—	(880)
Net profit for the year	—	—	145,630	145,630	—	145,630
At 31st December 2003 & 1st January 2004	74,100	(1,358)	19,097	91,839	3,900	95,739
Currency translation difference	—	1	—	1	—	1
Net profit for the year	—	—	16,272	16,272	—	16,272
At 31st December 2004 & 1st January 2005	74,100	(1,357)	35,369	108,112	3,900	112,012
Currency translation difference	—	3,289	—	3,289	—	3,289
Effect of increase in registered capital of Beijing Jian Guo	—	—	—	—	(4)	(4)
Net profit for the year	—	—	29,240	29,240	—	29,240
At 31st December 2005	74,100	1,932	64,609	140,641	3,896	144,537

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

E. Consolidated Cash Flow Statements

	31st December
	2005
HK$'000	2004
HK$'000	2003
HK$'000
Cashflow from operating activities
Profit from operations	67,993	51,175	183,773
Adjustments for:
Depreciation	199	204	222
Impairment loss recognised in respect of goodwill	26	—	—
Other payable written back	(2,753)	—	—
Trade payable written back	(1,428)	(3,150)	—
Fair value gains from investment properties	(49,922)	(48,598)	(61,354)
Gain on loan assignment with accrued interest	—	—	(114,821)
Waiver of amount due to holding company	(14,270)	—	(6,294)
Waiver of amount due to a related company	—	—	(22)
Gain on disposal of property, plant and equipment	(9)	—	—
Interest income	(151)	(11)	(5)
Operating cash flows before movements in working capital	(315)	(380)	1,499
Increase in trade receivables	—	(11)	—
(Increase)/decrease in other current assets	(490)	358	108
Decrease in trade payables	(681)	(14,238)	(3,684)
(Decrease)/increase in other payables and accruals	(2,868)	309	2,872
Increase in amount due to a director	24,698	—	—
Increase in amount due to related parties	10,846	—	—
Increase/(decrease) in amount due to an immediate holding company	38,888	14,270	(907)
Cash generated from/(used in) operations	70,078	308	(112)
Interest received	151	11	5
Net cash generated from/(used in) operations activities	70,229	319	(107)

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

	31st December
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Cashflow from investing activities
Purchase of property, plant and equipment	(207)	(8)	(83)
Payments for renovation of investment properties	(10,126)	—	—
Proceeds from disposal of property, plant and equipment	24	—	—
Net cash used in investing activities	(10,309)	(8)	(83)
Cashflow from financing activities
Repayment of bank loan	(34,993)	—	—
Net cash used in financing activities	(34,993)	—	—
Increase/(decrease) in cash and cash equivalents	24,927	311	(190)
Cash and cash equivalents at 1st January	1,183	872	1,062
Cash and cash equivalents at 31st December	26,110	1,183	872
Analysis of the balances of cash and cash equivalents
Cash and bank balances	26,110	1,183	872

RMB deposited with bank in the PRC is not a freely convertible currency.

The accompanying notes form an integral part of these financial statements.

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

2. GENERAL INFORMATION AND BASIS OF PREPARATION OF FINANCIAL INFORMATION

The registered office of Shinhan-Golden is located at Akara Bldg., 24 De Castro, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. The ultimate holding company of Shinhan-Golden is Asia Vest Partners Limited, a company incorporated in the British Virgin Islands.

The Financial Information includes the consolidated income statements, consolidated cash flow statements and consolidated statements of changes in equity of Shinhan-Golden Group for the Relevant Period, and the consolidated balance sheets of Shinhan-Golden Group and the balance sheets of Shinhan-Golden as at 31st December 2003, 2004 and 2005. All significant intra-group transactions and balances have been eliminated on consolidation.

The Financial Information is presented in Hong Kong dollars that is different from the functional currency of Shinhan-Golden Group which is Renminbi as the director of Shinhan-Golden controls and monitors the performance and financial position of Shinhan-Golden Group in Hong Kong dollars.

As at 31st December 2005, Shinhan-Golden Group and Shinhan-Golden had consolidated net current liabilities of HK$438,432,000 (2004: HK$406,462,000 and 2003: HK$390,370,000) and net current liabilities of HK$38,704,000 (2004: net current liabilities of HK$14,256,000 and 2003: net current asset of HK$14,000) respectively.

The Financial Information is prepared on a going concern basis because the immediate holding company of Shinhan-Golden has agreed to provide adequate funds to enable Shinhan-Golden Group and Shinhan-Golden to meet in full their financial obligations as they fall due for the foreseeable future.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA, and accounting principles generally accepted in Hong Kong (collectively refer to as "HKFRSs"). The financial statements have been prepared under the historical cost basis modified by revaluation of investment properties as explained in the accounting policy as set out below.

The presentation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

— 45 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The Group has not early applied the following new/revised standards and interpretations that have been issued but are not yet effective.

HKAS 1 (Amendment) Capital Disclosures
HKAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures
HKAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast Intragroup Transactions
HKAS 39 (Amendment) The Fair Value Option
HKAS 39 and HKFRS 4 (Amendments) Financial Guarantee Contracts
HKFRS 7 Financial Instruments: Disclosures
HKFRS-Int 4 Determining whether an Arrangement contains a Lease

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Basis of consolidation

The consolidated financial statements include the financial statements of Shinhan-Golden and its subsidiaries made up to the end of financial year.

All significant intercompany transactions and balances within Shinhan-Golden Group are eliminated on consolidation.

Subsidiaries are consolidated from the date on which control is transferred to Shinhan-Golden Group and cease to be consolidated from the date on which Shinhan-Golden ceases to have control of the subsidiaries. Acquisitions of subsidiaries are accounted for using the purchase method of accounting.

(b) Investments in subsidiaries

Subsidiaries are all entities over which Shinhan-Golden has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that currently exercisable or convertible are considered when assessing whether Shinhan-Golden controls another entity.

Investments in subsidiaries are stated in the financial statements of Shinhan-Golden at cost less provision for impairment loss.

— 46 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

Goodwill represents the excess of the cost of an acquisition over the fair value of Shinhan-Golden’s share of the net identifiable assets of the acquired subsidiary/associate/jointly controlled entity at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gain and losses on the disposal of an entity include the carrying of goodwill relating the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing.

(d) Impairment of assets

Assets that have an indefinite life are not subject to amortisation, which are at least tested for impairment and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.

(e) Property, plant and equipment

The cost of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the property, plant and equipment to working condition for its intended use. Expenditure for additions, improvements and renewals are capitalised and expenditure for maintenance and repairs are charged to the profit and loss account. When property, plant and equipment are sold or retired, their cost and accumulated depreciation are removed from the financial statements and any gain or loss resulting from their disposal is included in the profit and loss account.

Depreciation is calculated on the straight line method and commenced after the month of acquisition to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, at the following rates per annum:

Office equipment : 20%
Motor vehicles : 20%

— 47 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

The asset’s residual values and useful lives are reviewed, and adjusted if appropriate at each balance sheet date. Fully depreciated property, plant and equipment are retained in the financial statements until they are no longer in use and no further charge for depreciation is made of these property, plant and equipment.

(f) Investment properties

Property that is held for long-term rental yields or for capital appreciation or both is classified as investment property.

Investment properties comprise land held under operating leases and buildings held under finance leases.

Land held under operating lease is classified and accounted for as investment property when the rest of the definition of investment property is met. The operating lease is accounted for as if it were a finance lease.

Investment property is measured initially at its cost, including related transaction costs.

After initial recognition, investment property is carried at fair value with the changes in fair value reported directly in the profit and loss account. Deferred taxation is provided on the revaluation surplus of investment properties in accordance with Hong Kong Accounting Standard (“HKAS”) Interpretation 21 on HKAS 12. Fair value is based on active market prices, adjusted, if necessary, for any difference in nature, location or condition of the specific asset. If this information is not available, Shinhan-Golden Group uses alternative valuation methods such as discounted cash flow projections.

Subsequent expenditure is charged to the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Shinhan-Golden Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expenses in the profit and loss account during the financial year in which they are incurred.

Changes in fair values are recognised in the income statement.

If an investment property becomes owners-occupied, it is reclassified as property, plant and equipment, and its fair value at the date of reclassification becomes its cost for accounting purposes. Property that is being constructed or developed for future use as investment property is classified as property, plant and equipment and stated at cost until construction or development is complete, at which time it is reclassified and subsequently accounted for as investment property.

— 48 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

(g) Properties held for sale

Properties held for sale are stated at lower of cost and net realisable value. In the case of completed properties developed by the Shinhan-Golden Group, cost is determined by apportionment of the total development costs for that development project, attributable to the unsold properties. Net realisable value represents the estimated selling price less costs to be incurred in selling the property.

The cost of completed properties held for sale comprises all purchase costs, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

(h) Borrowing costs

Bank borrowings are initially recognised at cost, being the fair value of the consideration received and including acquisition charges associated with the borrowings.

After initial recognition, all interest-bearing borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. Borrowing costs are generally expensed as incurred.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready their sale.

(i) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that Shinhan-Golden Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of provision is recognised in the income statement.

(j) Trade and other payables

Liabilities for trade and other payables which are normally settled on 30-90 day terms, are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to Shinhan-Golden Group.

— 49 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

(k) Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown with borrowings in current liabilities on the balance sheets.

(l) Retirement benefits costs

Payments to the Shinhan-Golden Group’s retirement benefits scheme are charged as an expense as they fall due.

(m) 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 base:

(i) Rental income from operating leases

Operating lease rental income is recognised on a straight-line basis over the periods covered by the lease term.

(ii) Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

(iii) Sundry income

Sundry income is recognised when received.

(n) Income taxes

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.

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.

— 50 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets 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 carry forward of unused tax assets and unused tax losses can 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 substantially enacted at the balance sheet date.

(o) Provision

Provision are recognised when Shinhan-Golden Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(p) Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of Shinhan-Golden Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

(q) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease periods. Shinhan-Golden Group's interests in leasehold land except those qualified to be classified as properties under development and investment properties are also accounted for as operating lease.

— 51 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

(r) Translation of foreign currencies

(a) Functional and presentation currency

Items included in the accounts of each of the Shinhan-Golden Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Hong Kong dollars (“HK$”) and Shinhan-Golden Group’s functional currency is Reminbi (“RMB”).

(b) Transactions and balances

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling at that date. Exchange difference is dealt with in the consolidated income statement.

(s) Related party transactions

A party is considered to be related to Shinhan-Golden Group if:

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

(b) the party is an associate;

(d) the party is a member of the key management personnel of Shinhan-Golden 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

— 52 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

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

A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(t) Segment Reporting

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

Unallocated costs represent certain corporate expenses. Segment assets primary consist of investment properties, properties held for sale and operating cash, and mainly exclude property, plant and equipment. Segment liabilities comprise operating liabilities, deposits received and interest-bearing borrowings, and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to property, plant and equipment.

— 53 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

4. PROPERTY, PLANT AND EQUIPMENT

Shinhan-Golden Group

| | Office equipment
HK$'000 | Motor vehicle
HK$'000 | Total
HK$'000 |
| --- | --- | --- | --- |
| Cost: | | | |
| At 1st January 2003 | 1,286 | 418 | 1,704 |
| Additions | 83 | — | 83 |
| At 31st December 2003
and 1st January 2004 | 1,369 | 418 | 1,787 |
| Additions | 8 | — | 8 |
| At 31st December 2004
and 1st January 2005 | 1,377 | 418 | 1,795 |
| Additions | 207 | — | 207 |
| Disposals | — | (149) | (149) |
| Exchange realignment | 58 | 10 | 68 |
| At 31st December 2005 | 1,642 | 279 | 1,921 |
| Accumulated depreciation: | | | |
| At 1st January 2003 | 441 | 375 | 816 |
| Charge for the year | 221 | 1 | 222 |
| At 31st December 2003 and
at 1st January 2004 | 662 | 376 | 1,038 |
| Charge for the year | 204 | — | 204 |
| At 31st December 2004
and 1st January 2005 | 866 | 376 | 1,242 |
| Charge for the year | 199 | — | 199 |
| Written back on disposals | — | (134) | (134) |
| Exchange realignment | 41 | 9 | 50 |
| At 31st December 2005 | 1,106 | 251 | 1,357 |
| Net book value: | | | |
| At 31st December 2003 | 707 | 42 | 749 |
| At 31st December 2004 | 511 | 42 | 553 |
| At 31st December 2005 | 536 | 28 | 564 |

— 54 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

5. INVESTMENT PROPERTIES

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| At 1st January | 554,205 | 505,607 | 444,253 |
| Addition during the year | 10,126 | — | — |
| Exchange differences | 22,640 | — | — |
| Fair value gains | 49,922 | 48,598 | 61,354 |
| At 31st December | 636,893 | 554,205 | 505,607 |

Notes:

(i) Investment properties of Shinhan-Golden Group were revalued at 31st December 2003, 2004 and 2005 by an independent professional qualified valuer, DTZ Debenham Tie Leung Limited. Valuations were based on open market value basis for all properties. DTZ Debenham Tie Leung Limited is member of Hong Kong Institute of Surveyors.
(ii) Investment properties of carrying value HK$636,893,000, 554,205,000 and 505,607,000 as at 31st December 2005, 2004 and 2003 respectively were pledged to secure bank loans.
(iii) Shinhan-Golden Group's interests in investment properties at their net book values are analysed as follows:

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| In PRC, held on:
Leases of over 50 years | 636,893 | 554,205 | 505,607 |

(iv) Shinhan-Golden Group's total future minimum lease receivables under non-cancellable operating leases are as follows:

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| Within 1 year | 5,204 | 4,705 | 4,233 |
| Within 2 to 5 years | 2,700 | 7,683 | 12,387 |
| | 7,904 | 12,388 | 16,620 |

As at 31st December 2005, Shinhan-Golden Group leases out ground floor and 6 residential units (2004: ground floor and 27 residential units and 2003: ground floor and 40 residential units) of the main building of its investment properties under operating lease arrangements. None of the leases includes contingent rentals.

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

6. GOODWILL

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Cost:
At 1st January	—	—	—
Goodwill arising from acquisition of a subsidiary (Note 29)	26	—	—
	26	—	—
Less: Impairment loss	(26)	—	—
At 31st December	—	—	—

Goodwill is allocated to Shinhan-Golden Group's cash generating units ("CGU") identified according to the operation of the subsidiary acquired i.e. Beijing Jian Guo (BVI). The recoverable amount of the CGU is determined based on value in use calculation. Since Beijing Jian Guo (BVI) has been dormant, the recoverable amount of the goodwill is lower than the carrying amount based on the value-in-use calculation. Accordingly, the director of Shinhan-Golden considered full provision of impairment loss should be made on goodwill during the year ended 31st December 2005.

7. INVESTMENTS IN SUBSIDIARIES

	Shinhan-Golden
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Unlisted equity investments, at cost	112,924	74,100	74,100
Impairment loss	(74,100)	(74,100)	(74,100)
	38,824	—	—
	Shinhan-Golden
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Amount due by a subsidiary	99,868	117,152	114,821
Impairment loss	(99,868)	(117,152)	(114,821)
	—	—	—

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

The amount due by a subsidiary is unsecured, interest-free and has no fixed terms of repayment.

The director of the Shinhan-Golden Group had reviewed the net assets values of Shinhan-Golden's subsidiaries for each of the year ended 31st December 2003, 2004 and 2005 and considered adequate provision for impairment in values be made in respect of the investment cost and amount due by a subsidiary to their net recoverable values.

8. PROPERTY HELD FOR SALE

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| At 1st January | 42,200 | 42,200 | 42,200 |
| Exchange difference | 1,639 | — | — |
| At 31st December | 43,839 | 42,200 | 42,200 |

Property held for sale represented certain apartments held by Shinhan-Golden Group for sales prior to year 2003, of which sales and purchase agreements have been entered into and considerations have been received by Shinhan-Golden Group. However, the transfer of legal title of those property held for sale had not been completed during the Relevant Period and up to the date of this report. Considerations for the sale of property held for sale were classified as deposits received (Note 12).

9. TRADE RECEIVABLES

Aging analysis of trade receivables as at the end of each year are as follows:

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| 0 — 30 days | — | — | — |
| 31 — 60 days | — | 11 | — |
| 61 — 90 days | — | — | — |
| Over 90 days | 11 | — | — |
| | 11 | 11 | — |

Trade receivables generated from turnover with general credit terms of 30 days.

The carrying amounts of trade receivables approximate their fair values.

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

10. PREPAYMENTS, DEPOSIT AND OTHER RECEIVABLES

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Prepayments	457	—	33
Other receivables	32	3	328
Deposit	81	77	77
	570	80	438

11. TRADE PAYABLES

Aging analysis of trade payables as at the end of each year are as follows:

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
0 — 60 days	12	—	72
61 — 120 days	—	—	—
121 — 180 days	—	—	—
Over 180 days	629	2,750	20,068
	641	2,750	20,140

The carrying amounts of trade payables approximate their fair value.

12. OTHER PAYABLES AND ACCRUALS

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Deposit received (Note i)	59,565	56,481	56,403
Other payables	536	3,435	3,196
Tax payables (Note ii)	5,840	5,838	5,846
	65,941	65,754	65,445

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

Note:

(i) Deposits received represented full amounts of considerations received from sales of property held for sale of Shinhan-Golden Group prior to the Relevant Period. Since the transfer of the legal titles on the ownership of the property held for sale had not been completed as at 31st December 2003, 2004 and 2005, no sales income was recognised. The carrying values of the property held for sale as at 31st December 2005 were HK$43,839,000 (2004: HK$42,200,000 and 2003: HK$42,200,000) (Note 8).

(ii) The tax payables represent provision for land appreciation tax on certain apartments held by Shinhan-Golden Group for sales prior to year 2003 (note 8). According to the PRC tax law and regulation, 30% of land appreciation tax was accrued in the financial statements of Shinhan-Golden Group with respect to the apartments sold prior to year 2003. Shinhan-Golden Group was not required to pay land appreciation tax unless 85% of the total units of the apartments were sold according to the relevant PRC tax authority. Since Shinhan-Golden Group has changed its intention and commenced to lease out the properties during the year ended 31st December 2003, Shinhan-Golden Group might be required to pay the aforementioned land appreciation tax on those apartments which had been sold prior to year 2003 if demanded by the relevant PRC tax authority. Therefore, a tax provision has been made in the financial statements to reflect the situation.

AMOUNT DUE TO A DIRECTOR

The amounts due to a director, Mr. Andrew Nan Sherill is unsecured, interest charged ranging from 5.5% — 5.58% per annum and repayable within one year.

AMOUNTS DUE TO RELATED PARTIES

	2005	2004	2003
	HK$’000	HK$’000	HK$’000
Mr. Nan Pin Ren	6,866	—	—
Gui Lin Gui Du Cement Co. Ltd.	3,980	—	—
	10,846	—	—

The amount due to Mr. Nan Pin Ren, a director of Beijing Jian Guo, is unsecured, interest charged at 5.5% per annum and repayable within one year.

The amount due to a related company, Gui Lin Gui Du Cement Co. Ltd., is unsecured, interest free and has no fixed terms of repayment. Mr. Andrew Nan Sherrill is a common director of both the Shinhan-Golden Group and Gui Lin Gui Du Cement Co. Ltd..

AMOUNT DUE TO AN IMMEDIATE HOLDING COMPANY

The amount due to an immediate holding company, Northbay is unsecured, interest-free and has no fixed terms of repayment.

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

16. BANK LOAN, SECURED

At 31st December 2005, the Shinhan-Golden Group’s bank loan was repayable as follows:

| | 2005
HK$’000 | 2004
HK$’000 | 2003
HK$’000 |
| --- | --- | --- | --- |
| Amount payable within one year | 367,416 | 367,162 | 348,295 |

As at 31st December 2005, the bank loans comprise a loan principal of approximately HK$266,311,000 (2004: HK$278,318,000 & 2003: HK$278,318,000). The bank loan carries an interest rate ranging from 5.31% to 7.23% per annum and was secured by pledge of all investment properties with the carrying amount of HK$505,607,000, HK$554,205,000 and HK$636,893,000 as at 31st December 2003, 2004 and 2005 respectively.

17. DEFERRED TAXATION

The movement in deferred tax liabilities during the Relevant Period are as follows:

| | 2005
HK$’000 | 2004
HK$’000 | 2003
HK$’000 |
| --- | --- | --- | --- |
| At 1st January | 36,284 | 20,247 | — |
| Exchange differences | 1,410 | — | — |
| Deferred tax arising
from fair value gain | 16,794 | 16,037 | 20,247 |
| At 31st December | 54,488 | 36,284 | 20,247 |

18. SHARE CAPITAL

	2005	2004	2003
Authorised:
10,000,000 ordinary shares of
US$1 each	US$10,000,000	US$10,000,000	US$10,000,000
Issued and fully paid:
9,500,000 ordinary shares of
US$1 each	US$9,500,000	US$9,500,000	US$9,500,000

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

19. RESERVES

Shinhan-Golden Group

	Foreign currency translation reserve HK$’000	(Accumulated loss)/ retained earnings HK$’000	Total HK$’000
At 1st January 2003	(478)	(126,533)	(127,011)
Currency translation difference	(880)	—	(880)
Net profit for the year	—	145,630	145,630
At 31st December 2003 & 1st January 2004	(1,358)	19,097	17,739
Currency translation difference	1	—	1
Net profit for the year	—	16,272	16,272
At 31st December 2004 & 1st January 2005	(1,357)	35,369	34,012
Currency translation difference	3,289	—	3,289
Net profit for the year	—	29,240	29,240
At 31st December 2005	1,932	64,609	66,541

During the year ended 31st December 2003, 2004 and 2005, Shinhan-Golden Group did not transfer any amount to reserves. According to PRC accounting standards, Beijing Jian Guo did not have any distributable profit for statutory surplus reserve and statutory public welfare fund for the years ended 31st December 2003, 2004 and 2005.

Shinhan-Golden

	(Accumulated loss)/ retained earnings HK$’000
At 1st January 2003	1,860
Loss for the year	(75,946)
At 31st December 2003 and at 1st January 2004	(74,086)
Loss for the year	(14,270)
At 31st December 2004 and 1st January 2005	(88,356)
Profit for the year	14,376
31st December 2005	(73,980)

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

20. TURNOVER AND REVENUE

Shinhan-Golden Group is principally engaged in property investment. Revenue recognised during the years are as follows:

Year ended 31st December
2005	2004	2003
HK$'000	HK$'000	HK$'000

Turnover:

Rental income, net of business tax 5,111 5,745 6,954

Other revenue:

Interest income 151 11 5

Sundry income 345 — —

496 11 5

21. SEGMENT INFORMATION

No business or geographical analysis of the Shinhan-Golden Group’s performance for the years ended 31st December 2003, 2004 and 2005 as Shinhan-Golden Group only generated rental income from customers located in the PRC.

— 62 —

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

22. PROFIT FROM OPERATIONS

Profit from operations is stated at after charging the following:

	Year ended 31st December
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Auditors’ remuneration	29	40	35
Depreciation	199	204	222
Impairment loss recognised in respect of goodwill	26	—	—
Staff costs (including directors’ emoluments)	1,307	696	586
and after crediting
Gain on disposals of property, plant and equipment	9	—	—
Net exchange gains	2,561	12	17
Fair value gains of investment properties	49,922	48,598	61,354
Other payables written back	2,753	—	—
Trade payables written back	1,428	3,150	—
Waiver of amount due to holding company	14,270	—	6,294
Waiver of amount due to a related company	—	—	22
Gain arising from loan assignment from holding company*	—	—	114,821
	70,943	51,760	182,508

The immediate holding company, M.O. Properties (Beijing) Limited (M.O.), had assigned a loan of US$13,700,000 together with interest thereon accruing from time to time to Shinhan-Golden for a consideration of HK$10 on 26th May 2003 under a deed of assignment of loan. As a result, Shinhan-Golden Group made a gain from receiving the loan assignment.

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

23. FINANCE COSTS

	Year ended 31st December
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Interest on bank loan wholly repayable within five years	21,455	18,866	17,896
Interest on director’s loan	436	—	—
Interest on loan from a related party	68	—	—
	21,959	18,866	17,896

24. EARNINGS PER SHARE

Earnings per share has not been presented as such information is not considered meaningful having regard to the purpose of this report.

25. DIVIDEND

The director of Shinhan-Golden did not recommend the payment of any dividend in respect of the year ended 31st December 2005 (2004: Nil and 2003: Nil).

26. DIRECTORS' AND SENIOR MANAGEMENT EMOLUMENTS

(a) Directors' emoluments

	Year ended 31st December
	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Salaries, allowances and benefits-in-kind	14	—	—
Contribution to pension scheme	—	—	—
	14	—	—

— 64 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

Individual emoluments

Directors:

Year ended 31st December

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| Andrew Nan Sherrill | 14 | — | — |
| Michael Tse Nam | — | — | — |
| Loi San Kwok | — | — | — |
| Yu Shu Kuen | — | — | — |
| Fu Kay Frankie Li | — | — | — |
| Ko Po Ming | — | — | — |
| Zhang Wanan | — | — | — |
| Total | 14 | — | — |

As at the date of this report, Mr Nan Sherrill, Andrew is the sole director of Shinhan-Golden. During the years ended 31st December 2003, 2004 and 2005, no director's emoluments were waived. In addition, during the years ended 31st December 2003, 2004 and 2005, no emoluments were paid by Shinhan-Golden Group to its directors as inducement to join or upon joining Shinhan-Golden Group, or as compensation for loss of office.

(b) Five highest paid individuals

1 director (2004: Nil & 2003: Nil) of Shinhan-Golden was included in the five highest paid individuals in Shinhan-Golden Group for the year ended 31st December 2005. The emoluments payable to the remaining 4 individuals (2004: 5 individuals & 2003: 5 individuals) (the "Employees") for the year ended 31st December 2005 are as follow:

Year ended 31st December

| | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- |
| Salaries, allowances and benefits-in-kind | 92 | 539 | 408 |
| Contribution to pension scheme | — | 2 | 2 |
| | 92 | 541 | 410 |

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

For the three years ended 2003, 2004 and 2005, no emolument was paid by Shinhan-Golden Group to any of the Employees as inducement to join or upon joining Shinhan-Golden Group. The number of Employees whose emoluments fell within the following bands is as follow:

Year ended 31st December

	2005	2004	2003
Nil to HK$1,000,000	4	5	5

27. TAXATION

The amount of taxation charged to consolidated income statements represent:

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Deferred taxation
Provision for the year arising from revaluation gain on investment properties	16,794	16,037	20,247

No profits tax has been provided as Shinhan-Golden has no estimated assessable profit for the year (2004: Nil and 2003: Nil).

The taxation on Shinhan-Golden Group's profit for the year differs from the theoretical amount that would arise using the taxation rate of $33\%$ (2004: $33\%$ , 2003: $33\%$ ) as follows:

Year ended 31st December

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Profit before taxation	46,034	32,309	165,877
Tax rate of 33% in PRC (2004 & 2003: 33%)	15,191	10,662	54,739
Income not subject to tax	(4,746)	—	(39,980)
Expenses not deductible for tax purposes	38	80	845
Tax losses not recognised	6,311	5,295	4,643
Tax for the year	16,794	16,037	20,247

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

As at 31st December 2005, Shinhan-Golden had unused estimated tax losses of approximately HK$77,492,000 (as at 31st December 2004: HK$69,978,000, as at 31st December 2003: HK$69,878,000) available for setting off against future taxable profits subject to the regulations and agreements by the relevant tax authorities. No deferred tax asset has been recognised in respect of such losses due to the unpredictability of future profit streams.

28. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF SHINHAN-GOLDEN

The profit attributable to equity holders is dealt with in the accounts of Shinhan-Golden to the extent of HK$14,376,000 (2004: loss of HK$14,270,000, 2003: loss of HK$75,946,000).

29. ACQUISITION OF A SUBSIDIARY

During the year ended 31st December 2005, Shinhan-Golden acquired the 100% interest in Beijing Jian Guo (BVI) for a consideration of US$1.00. The fair value of assets acquired and liabilities assumed as follows:

	2005	2004
	HK$'000	HK$'000
Net assets acquired
Cash and bank balances	2	—
Amount due to the director of Shinhan-Golden	(28)	—
	(26)	—
Goodwill	26	—
	—	—
Satisfied by
Cash	—	—

Analysis of the net inflow in respect of the purchase of subsidiary:

	2005	2004
	HK$'000	HK$'000
Cash consideration	—	—
Bank balances and cash in hand acquired	2	—
Net cash inflow in respect of the purchase of subsidiary	2	—

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

Beijing Jian Guo (BVI) acquired during the year ended 31st December 2005 contributed HK$Nil to the Shinhan-Golden Group’s turnover and contributed to the Group a loss of approximately HK$8,000 for the year. Beijing Jian Guo (BVI) acquired does not contribute significant impact to the Shinhan-Golden Group’s net operating cash flows, cash flows for financing and investing activities and no impact on payment of tax of the Shinhan-Golden Group’s cash flows for financing and payment of tax.

30. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

a. Interest rate risk

Shinhan-Golden Group obtains substantial financing through bank borrowings, advances from major shareholders and directors. Shinhan-Golden Group’s policy is to obtain the most favourable interest rates available in the market.

Shinhan-Golden Group’s exposure to interest rate risk relates principally to changes in interest rates on bank borrowings. Information relating to Shinhan-Golden Group’s interest rate exposure is also disclosed in the notes on bank borrowings (note 16).

b. Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities.

c. Foreign exchange risk

Shinhan-Golden Group has no significant foreign exchange risk due to limited foreign currency transactions.

d. Fair value

The fair values of cash and cash equivalents, trade and other receivables, trade and other payables, are not materially different from their carrying amounts.

The short term bank loans are estimated to approximate their values based on the nature or short-term maturity of these instruments.

— 68 —

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

31. COMMITMENTS

As at 31st December 2005, the amounts of capital commitments in respect of investment properties of Shinhan-Golden Group are as follows:

	2005	2004	2003
	HK$'000	HK$'000	HK$'000
Contracted but not provided for in respect of renovations of the investment properties	56,821	—	—

32. CONTINGENT LIABILITIES

As at 31st December 2005, Shinhan-Golden Group has the following litigations and claims:

Case 1

Di Yi Ao Yuan Real Estate Management (Shanghai) Limited (“Di Yi”) filed a statement of claim alleging Beijing Jian Guo owed Di Yi approximately RMB354,000 (approximately HK$344,000) with actual cost and thereof in respect of consulting service rendered to Beijing Jian Guo base on the signed contract. As at 31st December 2005, this case is yet to be proceeded in the court. In the opinion of the director of Shinhan-Golden, the outcome of this case is yet to be certain and considered that no provision should be made.

Case 2

De Ren Advertising Limited (“De Ren”) had a claim against Beijing Jian Guo for approximately RMB100,000 (approximately HK$97,000) in respect of marketing campaign contracted with Beijing Jian Guo. At 31st December 2005, this case is yet to be proceeded in the court. In the opinion of the director of Shinhan-Golden, the outcome of this case is yet to be certain and considered no provision should be made.

Case 3

A writ of summons and statement of claim was made by Beijing Jun Ying Real Estate Management Limited (“Jun Ying”) for a claim of approximately RMB243,000 (approximately HK$236,000) against Beijing Jian Guo. As at 31st December 2005, this case is under court proceeding. Subsequent to 31st December 2005, the court of PRC made a verdict that Beijing Jian Guo was liable to pay Jun Ying approximately HK$207,000 (RMB 213,000) and the director of Shinhan-Golden made a provision for this liability.

APPENDIX II

ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

Case 4

A writ of summons and statement of claim was made by CL3 Architects Limited (“CL3”) against Beijing Jian Guo for a claim of approximately HK$2,500,000 over design contracts for the investment property with Beijing Jian Guo. The PRC court is processing the case and no verdict has been reached as at reporting date. In the opinion of the director of Shinhan-Golden, the outcome of this case is yet to be certain and considered no provision should he made.

MATERIAL RELATED PARTY TRANSACTIONS

Saved as disclosed in note 13, 14 and 15, Shinhan-Golden Group has entered into the following related party transactions:

| Name of party | Relationship | Nature of transaction | 2005
HK$'000 | 2004
HK$'000 | 2003
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Andrew Nan
Sherrill | Director of
Shinhan-Golden | Loan interest expense | 436 | — | — |
| | | Loan to Beijing Jian Guo | 24,757 | — | — |
| Nan Pin Ren | Director of
Beijing Jian Guo | Loan interest expense | 68 | — | — |
| | | Loan to Beijing Jian Guo | 6,796 | — | — |
| M.O. | Immediate holding
company | Loan assignment
with accrued interest | — | — | 114,821 |
| M.O. | Immediate holding
company | Waiver of amount
due to holding
company | — | — | 6,294 |
| Northbay | Immediate holding
company* | Waiver of amount
due to holding
company | 14,270 | — | — |

For the year ended 31st December 2005, Shinhan-Golden Group had total compensation for key management personnel comprising director of Shinhan-Golden Group at approximately HK$92,000 (2004: HK$539,000 and 2003: HK$408,000). (Please refer to Note 26)

On 25th October 2004, M.O. and Northbay entered into a sale and purchase agreement to sell the entire issued share capital of Shinhan-Golden to Northbay. Thereafter, Northbay became the immediate holding company of Shinhan-Golden.

APPENDIX II ACCOUNTANTS' REPORT ON SHINHAN-GOLDEN GROUP

34. SUBSEQUENT EVENT

No significant subsequent event took place subsequent to 31st December 2005.

35. SUBSEQUENT CONSOLIDATED FINANCIAL STATEMENTS

No audited financial statements have been prepared for Shinhan-Golden and Shinhan-Golden Group in respect of any period subsequent to 31st December 2005.

Yours faithfully,

HLB Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

Hong Kong

— 71 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

1. SUMMARY OF AUDITED FINANCIAL STATEMENTS OF THE GROUP

(A) The following is a summary of the financial information of the Group as extracted from the relevant audited reports and annual reports of the Company.

Three Years Financial Summary

Results

	Year ended 31st December
	2005
HK$’000
(Audited)	2004
HK$’000
(Audited)
(restated)	2003
HK$’000
(Audited)
(restated)
Turnover	38,339	58,382	206,996
Cost of sales	(36,466)	(48,674)	(61,180)
Gross profit	1,873	9,708	145,816
Other revenue	2,066	390	1,849
Other income	7,110	—	—
Administrative expenses	(19,332)	(36,266)	(29,910)
Selling expenses	(29)	(234)	(166)
Impairment loss recognised
in respect of film rights	(8,956)	(16,213)	(1,462)
Impairment loss recognised
in respect of other asset	—	(46,512)	—
Impairment loss recognised
in respect of goodwill	(12,056)	(28,072)	—
Impairment loss recognised
in respect of investments
in securities	—	(12,000)	—
Allowance for advances
to an associate	—	(138,531)	—
(Loss) profit from operations	(29,324)	(267,730)	116,127
Finance costs	(340)	(340)	(340)
(Loss) profit before taxation	(29,664)	(268,070)	115,787
Taxation (charge) credit	—	(277)	1,040
Net (loss) profit for the year
attributable to shareholders	(29,664)	(268,347)	116,827
(Loss) earnings per share
Basic	HK(0.61) cents	HK(5.65) cents	HK2.46 cents
Diluted	HK(0.61) cents	HK(5.65) cents	HK2.40 cents

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated balance sheet

	At at 31st December
	2005
HK$'000	2004
HK$'000
(restated)	2003
HK$'000
(restated)
Non-current assets
Property, plant and equipment	3,418	7,975	8,345
Interests in leasehold land	—	1,580	1,600
Film rights	—	9,236	22,134
Other asset	—	—	53,156
Goodwill	—	4,400	36,425
Interests in associates	—	—	160,000
Club memberships	172	172	172
Deposit with a related company	—	—	5,000
	3,590	23,363	286,832
Current assets
Inventories	6	15	1,469
Film rights	—	1,105	3,986
Film rights deposits	14	14	3,970
Trade receivables	4,729	23,308	56,502
Deposits, prepayments and other receivables	54,202	4,584	9,633
Deposit with a related company	—	5,000	—
Financial assets at fair value through profit and loss	30,567	41,732	—
Available-for-sale financial assets	—	18,000	—
Amount due from an associate	—	300	1,801
Taxation recoverable	—	—	702
Tax prepayment	4,146	—	—
Cash and bank balances	137,973	15,460	80,722
	231,637	109,518	158,785
Current liabilities
Trade payables	1,714	1,983	15,961
Other payables and accruals	7,619	3,797	2,469
Deferred income	—	—	22,887
Receipt in advance	483	1,204	11,613
Amounts due to related companies	34,832	549	—
Obligations under a finance lease — amount due within one year	—	8	23
Convertible notes payable	—	33,800	—
Taxation payable	22,969	22,969	22,685
	67,617	64,310	75,638
Net current assets	164,020	45,208	83,147
	167,610	68,571	369,979

— 73 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

	At at 31st December
	2005
HK$’000	2004
HK$’000
(restated)	2003
HK$’000
(restated)
Capital and reserves
Share capital	51,540	47,520	47,520
Reserves	116,070	21,051	288,651
	167,610	68,571	336,171
Non-current liabilities
Obligations under a finance lease
— amount due after one year	—	—	8
Convertible notes payable	—	—	33,800
	—	—	33,808
	167,610	68,571	369,979

— 74 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(B) The following is the audited financial statements of the Group for the year ended 31st December 2005 (the date to which the latest audited accounts were made up), together with the comparative figures for the year ended 31st December 2004 and the accompanying notes to the audited accounts of the Group for the year ended 31st December 2005 as extracted from the annual report of the Company for the year ended 31st December 2005.

Consolidated Balance Sheet

At 31 December 2005

| | Notes | 2005
HK$'000 | 2004
HK$'000
(restated) |
| --- | --- | --- | --- |
| ASSETS | | | |
| Non-current assets | | | |
| Property, plant and equipment | 6 | 3,418 | 7,975 |
| Interests in leasehold land | 7 | — | 1,580 |
| Film rights | 8 | — | 9,236 |
| Goodwill | 10 | — | 4,400 |
| Interests in associates | 11 | — | — |
| Club memberships | | 172 | 172 |
| | | 3,590 | 23,363 |
| Current assets | | | |
| Inventories | 12 | 6 | 15 |
| Film rights | 8 | — | 1,105 |
| Film rights deposits | | 14 | 14 |
| Trade receivables | 13 | 4,729 | 23,308 |
| Deposits, prepayments and other receivables | 14 | 54,202 | 4,584 |
| Deposit with a related company | | — | 5,000 |
| Financial assets at fair value through profit and loss | 15 | 30,567 | 41,732 |
| Available-for-sale financial assets | 16 | — | 18,000 |
| Amount due from an associate | 17 | — | 300 |
| Tax prepayment | 18 | 4,146 | — |
| Cash and bank balances | | 137,973 | 15,460 |
| | | 231,637 | 109,518 |
| Total assets | | 235,227 | 132,881 |
| EQUITY | | | |
| Capital and reserve attributable to the Company's equity holders | | | |
| Share capital | 19 | 51,540 | 47,520 |
| Reserves | 20 | 116,070 | 21,051 |
| | | 167,610 | 68,571 |

APPENDIX III
FINANCIAL INFORMATION ON THE GROUP

| | Notes | 2005
HK$'000 | 2004
HK$'000
(restated) |
| --- | --- | --- | --- |
| LIABILITIES | | | |
| Current liabilities | | | |
| Trade payables | 22 | 1,714 | 1,983 |
| Other payables and accruals | 23 | 7,619 | 3,797 |
| Receipt in advance | | 483 | 1,204 |
| Amounts due to related companies | 24 | 34,832 | 549 |
| Obligations under a finance lease | | | |
| — amount due within one year | 25 | — | 8 |
| Convertible notes payable | 26 | — | 33,800 |
| Taxation payable | | 22,969 | 22,969 |
| | | 67,617 | 64,310 |
| Total equity and liabilities | | 235,227 | 132,881 |
| Net current assets | | 164,020 | 45,208 |
| Total assets less current liabilities | | 167,610 | 68,571 |

— 76 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

At 31 December 2005

Balance Sheet

	Notes	2005	2004
		HK$'000	HK$'000
Non-current assets
Interests in subsidiaries	9	—	96,025
Current assets
Cash and bank balances		136,670	117
Total assets		136,670	96,142
Equity
Share capital	19	51,540	47,520
Reserves	20	47,479	12,853
		99,019	60,373
Current liabilities
Trade payables		—	85
Other payables and accruals		1,118	1,113
Amounts due to subsidiaries		2,733	771
Amount due to a related company	24	33,800	—
Convertible notes payable	26	—	33,800
		37,651	35,769
Total equity and liabilities		136,670	96,142
Net current assets/(liabilities)		99,019	(35,652)
Total assets less current liabilities		99,019	60,373

— 77 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

For the year ended 31st December 2005

Consolidated income statement

	Notes	2005	2004
		HK$'000	HK$'000 (restated)
Turnover	27	38,339	58,382
Cost of sales		(36,466)	(48,674)
Gross profit		1,873	9,708
Other revenue	28	2,066	390
Other income	28	7,110	—
Administrative expenses		(19,332)	(36,266)
Selling expenses		(29)	(234)
Impairment loss recognised in respect of film rights		(8,956)	(16,213)
Impairment loss recognised in respect of other asset		—	(46,512)
Impairment loss recognised in respect of goodwill		(12,056)	(28,072)
Impairment loss recognised in respect of available-for-sale financial assets		—	(12,000)
Allowance for advances to an associate		—	(138,531)
Loss from operations	29	(29,324)	(267,730)
Finance costs	30	(340)	(340)
Loss before taxation		(29,664)	(268,070)
Taxation	33	—	(277)
Loss for the year		(29,664)	(268,347)
Attributable to: Equity holders of the Company		(29,664)	(268,347)
Loss per share attributable to the equity holders of the Company
Basic	34	HK(0.61) cents	HK(5.65) cents
Diluted	34	HK(0.61) cents	HK(5.65) cents

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

At 31 December 2005

| | Share capital
HK$'000 | Share premium
HK$'000 | Capital reserve
HK$'000 | Contributed surplus
HK$'000 | Properties revaluation reserve
HK$'000 (restated) | (Accumulated losses)/retained profits
HK$'000 (restated) | Total
HK$'000 (restated) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| At 1 January 2004
as previously reported | 47,520 | — | 19,834 | 80,103 | 5,073 | 185,125 | 337,655 |
| Effect on adoption of HKAS 17 | — | — | — | — | (2,638) | 1,154 | (1,484) |
| As restated at 1 January 2004 | 47,520 | — | 19,834 | 80,103 | 2,435 | 186,279 | 336,171 |
| Revaluation surplus on leasehold land and buildings not recognised in the consolidated income statement | — | — | — | — | 1,559 | — | 1,559 |
| Effect on adoption of HKAS 17 | — | — | — | — | (812) | — | (812) |
| Net loss for the year | — | — | — | — | — | (268,347) | (268,347) |
| As restated at 31 December 2004
and 1 January 2005 | 47,520 | — | 19,834 | 80,103 | 3,182 | (82,068) | 68,571 |
| Reserve realised on disposal of leasehold land and buildings | — | — | — | — | (3,182) | — | (3,182) |
| Issuance of new shares | 4,020 | 132,706 | — | — | — | — | 136,726 |
| Share issue expenses | — | (4,841) | — | — | — | — | (4,841) |
| Net loss for the year | — | — | — | — | — | (29,664) | (29,664) |
| At 31 December 2005 | 51,540 | 127,865 | 19,834 | 80,103 | — | (111,732) | 167,610 |

— 79 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

At 31 December 2005

Consolidated Cash Flow Statement

| | 2005
HK$'000 | 2004
HK$'000
(restated) |
| --- | --- | --- |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Loss from operations | (29,324) | (267,730) |
| Adjustments for: | | |
| Interest income | (1,339) | (14) |
| Allowance for advances to an associate | — | 138,531 |
| Allowance for film rights deposits | — | 1,000 |
| Allowance for inventory obsolescence | — | 917 |
| Amortisation of film rights | 10,332 | 17,894 |
| Amortisation of prepaid operating lease payments | 10 | 20 |
| Amortisation of goodwill | — | 3,953 |
| Amortisation of other asset | — | 6,644 |
| Depreciation of property, plant and equipment | 1,108 | 1,216 |
| Impairment loss on provision of bad and doubtful debts | 2,474 | 1,648 |
| Impairment loss recognised in respect of film rights | 8,956 | 16,213 |
| Impairment loss recognised in respect of other asset | — | 46,512 |
| Impairment loss recognised in respect of goodwill | 12,056 | 28,072 |
| Impairment loss recognised in respect of prepayments | 1,188 | — |
| Impairment loss recognised in respect of available-for-sale financial assets | — | 12,000 |
| Gain on disposal of leasehold land and buildings | (7,110) | — |
| Unrealised gain on sales to associates eliminated | — | 1,337 |
| Operating cash flows before movements in working capital | (1,649) | 8,213 |
| Decrease in inventories | 9 | 537 |
| Additions in film rights | (8,947) | (18,328) |
| Decrease in films rights deposits | — | 2,956 |
| Decrease in trade receivables | 16,105 | 31,546 |
| (Increase)/decrease in other receivables, prepayments and deposits | (50,037) | 5,049 |
| Decrease/(increase) in financial assets at fair value through profit and loss | 11,165 | (41,732) |
| Decrease in available-for-sale financial assets | 18,000 | — |
| Decrease in deposit with a related company | 5,000 | — |
| Decrease/(increase) in amount due from an associate | 300 | (2,854) |
| Decrease in trade payables | (269) | (13,978) |
| Increase in other payables and accruals | 132 | 1,328 |
| Decrease in receipt in advance | (9,699) | (10,409) |
| Increase in amounts due to related companies | 34,283 | 549 |
| Cash generated from/(used in) operations | 14,393 | (37,123) |
| Hong Kong Profits Tax refunded | — | 709 |
| Net cash generated from/(used in) operating activities | 14,393 | (36,414) |

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

| | 2005
HK$'000 | 2004
HK$'000
(restated) |
| --- | --- | --- |
| INVESTING ACTIVITIES | | |
| Interest received | 1,339 | 1,614 |
| Acquisition of an associate | — | (30,000) |
| Proceed from sales of leasehold
land and buildings | 9,000 | — |
| Effect from acquisition of a subsidiary | 95 | — |
| Purchase of property, plant and equipment | (53) | (99) |
| Net cash generated from/(used in) investing
activities | 10,381 | (28,485) |
| FINANCING ACTIVITIES | | |
| Interest paid | (340) | (340) |
| Issuance of new shares | 131,179 | — |
| Issuance of new shares upon exercise
of share options | 706 | — |
| Payment of convertible notes payable | (33,800) | — |
| Payment of capital element of a finance lease | (6) | (23) |
| Net cash generated from/(used in) financing
activities | 97,739 | (363) |
| Net increase/(decrease) in cash and
cash equivalents | 122,513 | (65,262) |
| Cash and cash equivalents at
beginning of the year | 15,460 | 80,722 |
| Cash and cash equivalents at
the end of the year | 137,973 | 15,460 |
| Analysis of the balances of cash
and cash equivalents | | |
| Cash and bank balances | 137,973 | 15,460 |

— 81 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Notes to the Financial Statements

31 December 2005

1. GENERAL

The Company is incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited.

The address of the register office of the Company is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

The principal activities of the Group are distribution of films, sub-licensing films rights, and investments in securities.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of preparation

The consolidated financial statements of the Company have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ("HKFRSs"), which is a collective term that includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ("HKASs"), and Interpretations (Ints) issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA"), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. In addition, the financial statements comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The measurement basis used in the preparation of the financial statement is historical cost as modified for the revaluation of certain financial assets and buildings.

The Group's books and records are maintained in Hong Kong Dollar ("HK$"), the currency in which the majority of the Group's transactions is denominated.

The preparation of the financial statements requires management to exercise its judgement in the process of applying the Company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements.

The adoption of new/revised HKFRSs

In 2005, the Group adopted the new/revised standards and Interpretations of HKFRSs below, which are relevant to its operations. The 2004 comparative figures have been restated as required, in accordance with the relevant requirements.

HKAS 1 Presentation of Financial Statements
HKAS 2 Inventories
HKAS 7 Cash Flow Statements
HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

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FINANCIAL INFORMATION ON THE GROUP

HKAS 10 Events after the Balance Sheet Date
HKAS 16 Property, Plant and Equipment
HKAS 17 Leases
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 32 Financial Instruments: Disclosures and Presentation
HKAS 33 Earnings per Share
HKAS 36 Impairment of Assets
HKAS 38 Intangible Assets
HKAS 39 Financial Instruments: Recognition and Measurement
HKAS-Int 21 Income Taxes-Recovery of Revalued Non Depreciable Assets
HKFRS 2 Share-based payment
HKFRS 3 Business Combinations

The adoption of new/revised HKASs 1, 2, 7, 8, 10, 16, 21, 23, 24, 27 and 33 did not result in substantial changes to the Group's accounting policies. In summary:

HKAS 1 has affected the presentation of minority interest, share of net after-tax results of associates and other disclosures.
HKASs 2, 7, 8, 10, 16, 23, 27 and 33 had no material effect on the Group's policies.
HKAS 21 had no material effect on the Group's policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard.
HKAS 24 has affected the identification of related parties and some other related-party disclosures.

The adoption of revised HKAS 17 has resulted in a change in the accounting policy relating to the reclassification of land use rights from property, plant and equipment to operating leases. The up-front prepayments made for the land use rights are expensed in the income statement on a straight-line basis over the period of the lease or when there is impairment, the impairment is expensed in the income statement. In prior years, the leasehold land was accounted for at fair value or cost less accumulated depreciation and accumulated impairment.

The adoption of HKASs 32 and 39 has resulted in a change in the accounting policy relating to the classification of financial assets at fair value through profit or loss and available-for-sale financial assets. It has also resulted in the recognition of derivative financial instruments at fair value and the change in the recognition and measurement of hedging activities.

The adoption of revised HKAS-Int 21 has resulted in a change in the accounting policy relating to the measurement of deferred tax liabilities arising from the revaluation of an asset. Such deferred tax liabilities are measured on the basis of tax consequences that would follow from recovery of the carrying amount of that asset through use. In prior year, the carrying amount of that asset was expected to be recovered through sale.

The adoption of HKFRS 2 has resulted in a change in the accounting policy for share-based payments. With effect from 1 January 2005, the Group recognises the fair value of share options granted as an expense in the income statement over the vesting period with a corresponding increase being recognised in an option reserve. The related option reserve is transferred to share capital and share premium, together with the exercise price, when the option holder exercises its rights.

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FINANCIAL INFORMATION ON THE GROUP

As transitional provision set out in HKFRS 2, the cost of share options granted after 7 November 2002 and had not yet vested on 1 January 2005 shall expense retrospectively in the income statement of the respective periods. The Group has taken the advantages of the transitional provisions under which all of the Company’s outstanding share options granted after 7 November 2002 were all vested at the date of granting the share options. As a result, the adoption of HKFRS 2 does not have material impact on the Group’s financial position for the year ended 31 December 2005.

The adoption of HKFRS 3, HKAS 36 and HKAS 38 results in a change in the accounting policy for goodwill. Until 31 December 2004, goodwill was:

Amortised on a straight line basis over a period ranging from 5 to 20 years; and
Assessed for an indication of impairment at each balance sheet date.

In accordance with the provisions of HKFRS 3:

The Group ceased amortisation of goodwill from 1 January 2005;
Accumulated amortisation as at 31 December 2004 has been eliminated with a corresponding decrease in the cost of goodwill; and
From the year ended 31 December 2005 onwards, goodwill is tested annually for impairment, as well as when there is indication of impairment.

The Group has reassessed the useful lives of its film rights in accordance with the provisions of HKAS 38. No adjustment resulted from this reassessment.

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

HKAS 16 — the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction is accounted at fair value prospectively only to future transactions;
HKAS 21 — prospective accounting for goodwill and fair value adjustments as part of foreign operations;
HKAS 39 — does not permit to recognise, derecognise and measure financial assets and liabilities in accordance with this standard on a retrospective basis. The Group applied the previous SSAP 24 “Accounting for investments in securities” to investments in securities and also to hedge relationships for the 2004 comparative information. The adjustments required for the accounting differences between SSAP 24 and HKAS 39 are determined and recognised at 1 January 2005; and
HKFRS 3 — prospectively after 1 January 2005.

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APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Effect on the consolidated balance sheet at 1 January 2005:

At 1 January 2005	Effect of adopting			Total
	HKAS 17	HKAS 39	HKFRS 3
Effect of new policies	Interests in leasehold land	Financial instruments	Business combination	HK$'000
	HK$'000	HK$'000	HK$'000
Assets
Decrease in investments in securities	—	(59,732)	—	(59,732)
Increase in financial assets at fair value through profit and loss	—	41,732	—	41,732
Increase in available-for-sale financial assets	—	18,000	—	18,000
	—	—	—	—

Effect on the consolidated balance sheet at 1 January 2004:

At 1 January 2004	Effect of adopting			Total
	HKAS 17	HKAS 39	HKFRS 3
Effect of new policies	Interests in leasehold land	Financial instruments	Business combination	HK$'000
	HK$'000	HK$'000	HK$'000
Assets
Decrease in property, plant and equipment	(3,084)	—	—	(3,084)
Increase in interests in leasehold land	1,932	—	—	1,932
	(1,152)	—	—	(1,152)

Effect on the balances of equity at 1 January 2004 and 2005

Effect of new policies	Effect of adopting			Total
	HKAS 17	HKAS 39	HKFRS 3
	Interests in leasehold land	Financial instruments	Business combination	HK$'000
	HK$'000	HK$'000	HK$'000
1 January 2004
Decrease in properties revaluation reserve	(2,638)	—	—	(2,638)
Increase in retained profits	1,154	—	—	1,154
	(1,484)	—	—	(1,484)
1 January 2005
Decrease in properties revaluation reserve	(812)	—	—	(812)

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Effect on the consolidated income statement for the years ended 31 December 2004 and 2005

Effect of new policies	Effect of adopting			Total
	HKAS 17
Interests in
leasehold land
HK$'000	HKAS 39
Financial
instruments
HK$'000	HKFRS 3
Business
combination
HK$'000
Year ended 31 December 2004
Decrease in administrative
expenses	(43)	—	—	(43)
Total decrease
in loss for the year	(43)	—	—	(43)
Increase in basic loss
per share (HK cents)	—	—	—	—
Increase in diluted loss per
share (HK cents)	—	—	—	—
Year ended 31 December 2005
Increase in prepaid operating
lease payments	10	—	—	10
Total increase in loss for the year	10	—	—	10
Increase in basic
loss per share (HK cents)	—	—	—	—
Increase in diluted
loss per share (HK cents)	—	—	—	—

There was no material impact on basic and diluted earnings per share from the adoption of HKAS 39 and HKFRS 3.

There was no material impact on opening retained profits at 1 January 2004 from the adoption of HKFRS 2 and HKFRS 3.

No early adoption of the following new Standards or Interpretations that have been issued but are not yet effective. Unless otherwise stated, these HKFRSs are effective for annual periods beginning on or after 1 January 2006:

HKAS 1 (Amendment)
Capital Disclosures

HKAS 39 (Amendment)
Cash Flow Hedge
Accounting of Forecast
Intragroup Transaction

HKAS 39 (Amendment)
The Fair Value Option

— 86 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

HKFRS 39 & HKFRS 4
(Amendment)
HKFRS 7
HK(IFRIC)-Int 4

Financial Guarantee
Contracts
Financial Instruments:
Disclosure
Determining whether an
Arrangement contain
a Lease

The HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosure about qualitative information about the Group's objective, policies and processes for managing capital; quantitative data about what company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 will replace HKAS 32 and has modified the disclosure requirements of HKAS 32 relating to financial instruments. This HKFRS shall be applied for annual period beginning on or after 1 January 2007.

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

A summary of significant accounting policies followed by the Group and the Company in the preparation of the financial statements is set out below:

(a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

(b) Revenue recognition

Revenue from the distribution of films is recognised when the video products or master materials of films are delivered to customers and the title has passed.

Revenue from sub-licensing of film rights is recognised upon delivery of the master materials of films to customers.

Revenue from sale of advertising rights is recognised when the right to receive payment is established.

Proceeds from sales of financial assets are recognised when sale and purchase contracts became unconditional.

Dividend income from investments is recognised when the shareholders' right to receive payment has been established.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

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FINANCIAL INFORMATION ON THE GROUP

(c) Impairment of assets

Internal and external sources of information are reviewed at each balance sheet date to determine whether there is any indication of impairment of assets, or whether there is any indication that an impairment loss previously recognised no longer exists or may have decreased. If any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the year in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant policy for that revalued asset.

i. Calculation of recoverable amount

The recoverable amount of an asset is the higher of its net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction while value in use is the present value of estimated future cash flows expected to arise from the continuing use of any asset and from its disposal at the end of its useful life. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of asset that generates cash inflows independently (i.e. a cash-generating unit).

ii. Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been change in the estimates used to determine the recoverable amount. An impairment loss of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates the reversal effect of that specific event.

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the income statement in the year in which the reversals are recognised.

(d) Impairment of financial assets

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

Assets carried at amortised cost

If there is objective evidence that an impairment loss on 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 and loss.

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APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individual significant, and individually or collectively for financial assets that are not individual significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial assets, 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 impairment was recognised, the previous recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date.

Assets carried at cost

If there is objective 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.

(e) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit is the profit for the year, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary difference can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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 profits will be available to allow all or part of the asset to be recovered.

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APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(f) Property, plant and equipment

Buildings are shown at fair value, based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the income statement during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of buildings are credited to properties revaluation reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are expensed in the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset expensed in the income statement and depreciation based on the asset’s original cost is transferred from fair value reserve to retained earnings.

Fixed assets are stated at cost less accumulated depreciation and impairment losses.

Depreciation is provided to write off the cost or valuation of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, at the following rates per annum:

Buildings	2% on straight-line basis
Leasehold improvements	33.3% on reducing balance basis
Office equipment	20% on reducing balance basis
Motor vehicles	20% on reducing balance basis
Furniture and fixtures	15% on reducing balance basis

The gain or loss arising from disposal of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

(g) Interest in leasehold land

Interest in leasehold land represents prepaid lease payment made for leasehold land. Interest in leasehold land is stated at cost less subsequent accumulated amortisation and any accumulated impairment losses. The cost of interest in leasehold land are amortised on a straight-line basis over the shorter of the relevant interest in leasehold land or the operation period of the relevant company.

— 90 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(h) Film rights

Film rights represent films and television drama series produced by the Group or acquired by the Group and are stated at cost less accumulated amortisation and any identified impairment losses.

The cost of film rights is amortised in the proportion that actual income earned during the year bears to the total estimated income from the reproduction and distribution of films and sub-licensing of film rights. The amortisation period will not exceed twenty years.

The portion of film rights expected to be amortised within twelve months from the balance sheet date is reported as a current asset. The portion of film rights expected not to be amortised within twelve months from the balance sheet date is reported as a non-current asset.

(i) Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost, less any identified impairment loss.

(j) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate/ jointly controlled entity at the date of acquisition. Goodwill on acquisitions of subsidiaries and jointly controlled entities is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing.

(k) Interests in associates

The consolidated income statement includes the Group’s share of the post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates plus the premium paid on acquisition in so far as it has not already been amortised to the income statement, less any identified impairment loss.

When the Group transacts with its associates, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associates, except where unrealised loss provide evidence of an impairment of the asset transferred.

(l) Club memberships

Club memberships are stated at cost less any identified impairment loss.

(m) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

— 91 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(n) Film rights deposits

Licence fees paid in advance and/or by instalments during the production of films under licensing agreements for the reproduction and distribution of films and sub-licensing of film rights, in specific geographical areas and time periods, are accounted for as film rights deposits. The balance payable under the licensing agreement is disclosed as a commitment.

In those cases where the Group is unable to exercise its rights under a licensing agreement because the film producer fails to complete the film, the Group writes off the difference between the advances made and the estimated recoverable amount from the film producer.

When the Group decides not to exercise its rights under a particular licensing agreement after the licensor has fulfilled all the terms and conditions of a licensing agreement, all advances made under that licensing agreement will be written off to the income statement.

(o) Investments

Before adoption of the new HKFRSs, the Group classified the investment in securities into non-trading securities and trading securities except for the investment in subsidiaries, associates and jointly control entities.

(i) Non-trading securities

Investments which were held for non-trading purpose were stated at fair value at the balance sheet date. Change in the fair value of individual securities were credited or debited to the investment revaluation reserve until the securities was sold, or was determined to be impaired. Upon disposal, the cumulative gain or loss representing the difference between the net sales proceeds and the carrying amount of the relevant security, together with any surplus/deficit transferred from the investment revaluation reserve, was dealt with the income statement.

When there was objective evidence that individual investments were impaired the cumulative loss recorded in the revaluation reserve to the income statement.

(ii) Trading securities

Trading securities were carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of trading securities were recognised in the income statements. Profits or losses on disposal of trading securities, representing the difference between the net sale proceeds and the carrying amounts, were recognised in the income statement as the arised.

From 1 January 2005 onward, the Group classifies its investment in the following categories depends on the purpose of such investment were acquired. Management determines the classification of its investments at initial recognition and re-evaluate this designation at every reporting date.

— 92 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(1) Financial assets at fair value through profit and loss

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(2) Loans and receivables

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

(3) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. During the year, the Group did not hold any investments in this category.

(4) Available-for-sale financial assets

Available-for-sale financial assets are non-derivative that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Purchases and sales of investments are recognised on trade-date — the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risk and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables and held-to-maturity investments are carried at amortised cost using effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the “financial assets at fair value through profit or loss” category are included in the income statement in the period in which they arise. Unrealised gains and losses arising from changes in the fair value of non-monetary securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement as gains or losses from investment securities.

— 93 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances.

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

(p) Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

(q) Cash and cash equivalent

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(r) Provision

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

(s) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory

— 94 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

(t) Deferred income

Deferred income represents unrealised profit arising from the delivery of master materials in respect of the sub-licensing of film rights to an associate under the sub-licensing agreement. Unrealised profit arising from delivery of master materials will be recognised by the Group when the cost of the relevant portion of film rights has been charged to the associate’s income statement.

(u) Leased assets

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at the lower of fair values or the present value of the minimum lease payments. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation. Finance costs are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight-line basis over the relevant lease term.

(v) Foreign currencies

Transactions in foreign currencies are initially recorded at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year.

On consolidation, the assets and liabilities of the Group’s operations outside Hong Kong are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the year. Exchange differences arising, if any are classified as equity and transferred to the Group’s exchange reserve. Such translation differences are recognised as income or as expenses in the year in which the operation is disposed of.

(w) Employee benefits

(i) Bonuses

The Group recognises a liability for bonuses when there is a contractual obligation and the amount can be estimated reliably.

(ii) Retirement benefit obligations

The Group operates the Mandatory Provident Fund Scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee-administered funds.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% to 10% of the employees' relevant income, with the employees' contributions subject to a cap of monthly relevant income of HK$20,000. The Group's contributions to the scheme are expensed as incurred. 5% of relevant income vests immediately upon the completion of service in the relevant service period, while the remaining portion vests in accordance with the scheme's vesting scales. Where employees leave the scheme prior to the full vesting of the employer's contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.

(iii) Share-based compensation

The fair value of the employee services received in exchange for the grant of the share options and restricted share awards is recognised as an expense in the profit and loss account.

The total amount to be expensed over the vesting period is determined with reference to the fair value of the share options and restricted share awards granted. At each balance sheet date, the Company revises its estimates of the number of share options that are expected to become exercisable and the number of restricted share awards that become vested. It recognises the impact of the revision of original estimates, if any, in the profit and loss account, and a corresponding adjustment to equity in the balance sheet will be made over the remaining vesting periods.

The proceeds received, net of any directly attributable transaction costs, are credited to share capital and share premium accounts when the share options are exercised and when the restricted share awards are vested.

Share options granted under the Company's share option scheme are not expensed as the options were all vested and not subject to requirements of HKFRS 2.

(x) Related parties transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influences. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

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

— 96 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(a) Market risk

Currency risk

The Group’s sales are primarily in Hong Kong Dollars and Renminbi and its purchases are denominated primarily in Hong Kong Dollars. As its sales and purchases are denominated in Hong Kong Dollars and Renminbi, the Group considers there is no material currency risk and the Group do not have any formal hedging policy.

In July 2005, The People’s Bank of China announced the introduction of a regulated, managed floating exchange rate system in the PRC based on market supply and demand and with reference to a basket of currencies. Removal of the peg to the United States Dollar allowed more flexibility for the exchange rate system of Renminbi. As a result, the exchange rate between United States Dollar and Renminbi was adjusted from US$1: RMB8.27 to US$1: RMB8.11. The Group believes that such appreciation of Renminbi does not have any adverse effect on the current operating results and financial position of the Group.

Price risk

The Group has financial assets at fair value through profit and loss which are exposed to equity securities price risk.

(b) Credit risk

The Group has policies in place to ensure that distribution of films and sub-licensing of film rights to customers with an appropriate credit history. The Group also performs periodic credit evaluations of its customers and believes that adequate impairment loss on provision of bad and doubtful debts has been made in the financial statements.

(c) Liquidity risk

The Group’s principal uses of cash have been for capital expenditure and operational requirements such as purchase of film rights, investments in financial assets and meeting its operating expenses.

The Group finances its operations through cash generated from operations, the issuance of new shares and a one-year loan granted by China Star. At 31 December 2005, the cash and bank balances of the Group amounted to HK$137,973,000 and its current ratio was 3.43.

The directors believe that cash generated from operations and cash and bank balances in hand will be sufficient to meet the Group’s operating cashflow.

(d) Interest rate risk

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

— 97 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

3.2 Fair value estimation

The carrying amounts of the Group’s financial assets, including cash and bank balances, trade receivables, deposits, prepayments and other receivables, and financial liabilities, including trade payables, other payables, accruals and amounts due to related companies, approximate their fair values due to their short maturities. The face values less any credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values.

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

In assessing the fair value of financial instruments traded in active markets (such as financial assets at fair value through profit and loss) is based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets held by the Group are the current bid price.

The fair value of financial instruments that are not traded in an active market (for example, available-for-sale financial assets) is determined by using valuation techniques. The Group uses a variety of methods, such as estimated discounted value of future cash flows, and makes assumptions that are based on market conditions existing at each balance sheet date.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

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

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year are discussed below.

(a) Estimated impairment of film rights

The Group tests annually whether film rights have suffered any impairment in accordance with accounting policies stated in note 2 (c) to the financial statements. The recoverable amount of film rights has been determined based on value-in-use calculations using cash flow projection based on financial budgets approved by senior management covering a four-year period. The discount rate applied to cash flow projection is 20%.

(b) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment in accordance with accounting policies stated in note 2 (c) to the financial statements. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations using cash flow projections based on financial budgets approved by senior management covering a period of eight to ten years. The discount rate applied to cash flow projections is 17%.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

The aged debt profile of trade debtors is reviewed on a regular basis to ensure that the trade debtor balances are collectible and follow up actions are promptly carried out if the agreed credit periods have been exceeded. However, from time to time, the Group may experience delays in collection. Where recoverability of trade debtor balances are called into doubts, specific provisions for bad and doubtful debts are made based on credit status of the customers, the aged analysis of the trade receivable balances and write-off history. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-off of the related receivable to the income statement. Changes in the collectibility of trade receivables for which provisions are not made could affect our results of operations.

(d) Useful lives of fixed assets

In accordance with HKAS 16, the Group estimates the useful lives of fixed assets in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands. The Group also performs annual reviews on whether the assumptions made on useful lives continue to be valid.

BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into three operating divisions, namely distribution, sub-licensing and investments in securities. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Distribution	Distribution of films
Sub-licensing	Sub-licensing of film rights
Investments in securities	Investments in listed and unlisted equity securities

Segment information about these businesses for the years ended 31 December 2005 and 2004 is presented below.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated income statement for the year ended 31 December 2005

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Investments in securities
HK$'000 | Consolidated
HK$'0000 |
| --- | --- | --- | --- | --- |
| Turnover | 9,382 | 10,534 | 18,423 | 38,339 |
| Segment profit/(loss) before impairment losses recognised in respect of film rights and goodwill | 2,443 | (4,613) | (2,045) | (4,215) |
| Impairment loss recognised in respect of film rights | (8,956) | — | — | (8,956) |
| Impairment loss recognised in respect of goodwill | — | (12,056) | — | (12,056) |
| Segment loss | (6,513) | (16,669) | (2,045) | (25,227) |
| Unallocated corporate income | | | | 9,176 |
| Unallocated corporate expenses | | | | (13,273) |
| Loss from operations | | | | (29,324) |
| Finance costs | | | | (340) |
| Loss before taxation | | | | (29,664) |
| Taxation charge | | | | — |
| Net loss for the year attributable to equity holders of the Company | | | | (29,664) |

Consolidated balance sheet for the year ended 31 December 2005

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Investments in securities
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- |
| Assets | | | | |
| Segment assets | 4,582 | 4,729 | 41,869 | 51,180 |
| Unallocated corporate assets | | | | 184,047 |
| Consolidated total assets | | | | 235,227 |
| Liabilities | | | | |
| Segment liabilities | 2,439 | 6,172 | — | 8,611 |
| Unallocated corporate liabilities | | | | 59,006 |
| Consolidated total liabilities | | | | 67,617 |

— 100 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Other information for the year ended 31 December 2005

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Investments in securities
HK$'000 | Unallocated
HK$'000 | Consolidated
HK$'000 |
| --- | --- | --- | --- | --- | --- |
| Additions of film rights | 3,600 | 5,347 | — | — | 8,947 |
| Depreciation and amortisation | 3,246 | 7,086 | 1,108 | 10 | 11,450 |
| Impairment losses recognised | 1,661 | 8,483 | 12,056 | — | 22,200 |

Consolidated income statement for the year ended 31 December 2004

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Investments in securities
HK$'000 | Consolidated
HK$'000 (restated) |
| --- | --- | --- | --- | --- |
| Turnover | 27,285 | 16,319 | 14,778 | 58,382 |
| Segment loss before amortisation of other asset, impairment losses recognised in respect of film rights, other asset, goodwill and available-for-sale financial assets and allowance for advances to an associate | (3,222) | (216) | (1,460) | (4,898) |
| Amortisation of other asset | — | (6,644) | — | (6,644) |
| Allowance for advances to an associate | — | (138,531) | — | (138,531) |
| Impairment loss recognised in respect of film rights | (980) | (15,233) | — | (16,213) |
| Impairment loss recognised in respect of other asset | — | (46,512) | — | (46,512) |
| Impairment loss recognised in respect of goodwill | (20,000) | (8,072) | — | (28,072) |
| Impairment loss recognised in respect of available-for-sale financial assets | — | — | (12,000) | (12,000) |
| Segment loss | (24,202) | (215,208) | (13,460) | (252,870) |
| Unallocated corporate income | | | | 390 |
| Unallocated corporate expenses | | | | (15,250) |
| Loss from operations | | | | (267,730) |
| Finance costs | | | | (340) |
| Loss before taxation | | | | (268,070) |
| Taxation charge | | | | (277) |
| Net loss for the year attributable to equity holders of the Company | | | | (268,347) |

— 101 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated balance sheet for the year ended 31 December 2004

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | Investments in securities
HK$'000 | Unallocated
HK$'000 | Consolidated
HK$'000
(restated) |
| --- | --- | --- | --- | --- | --- |
| Assets | | | | | |
| Segment assets | 22,974 | 25,192 | 59,732 | 2,108 | 110,006 |
| Unallocated corporate assets | | | | | 22,875 |
| Consolidated total assets | | | | | 132,881 |
| Liabilities | | | | | |
| Segment liabilities | 1,254 | 5,057 | — | — | 6,311 |
| Unallocated corporate liabilities | | | | | 57,999 |
| Consolidated total liabilities | | | | | 64,310 |

Other information for the year ended 31 December 2004

| | Distribution
HK$'000 | Sub-licensing
HK$'000 | in securities
HK$'000 | Investments Unallocated
HK$'000 | Consolidated
HK$'000
(restated) |
| --- | --- | --- | --- | --- | --- |
| Additions of property, plant and equipment | 54 | 5 | — | 40 | 99 |
| Additions of film rights | 13,358 | 4,970 | — | — | 18,328 |
| Allowance for inventory obsolescence | 917 | — | — | — | 917 |
| Allowance for film rights deposits | 1,000 | — | — | — | 1,000 |
| Allowance for advances to an associate | — | 138,531 | — | — | 138,531 |
| Depreciation and amortisation | 10,270 | 18,905 | — | 615 | 29,790 |
| Impairment loss on provision of bad and doubtful debts | 147 | 1,445 | — | 56 | 1,648 |
| Impairment losses recognised | 20,980 | 69,817 | 12,000 | — | 102,797 |

Geographical segments

The Group's operations are substantially located in Hong Kong and Macau. Thus, no geographical analysis for the carrying amounts of segment assets and additions to property, plant and equipment and intangible assets is presented.

— 102 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

The following table provides an analysis of the Group's sales by location of markets:

	Hong Kong		PRC		Others		Consolidated
	2005	2004	2005	2004	2005	2004	2005	2004
	HK$'000	HK$'000	HK$000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
Segment revenue:
Sales to external customers	18,892	15,978	19,447	42,404	—	—	38,339	58,382
Other revenue	2,066	390	—	—	—	—	2,066	390
Other income	7,110	—	—	—	—	—	7,110	—
	28,068	16,368	19,447	42,404	—	—	47,515	58,772

6. PROPERTY, PLANT AND EQUIPMENT

The Group

| | Buildings
HK$'000
(restated) | Leasehold improvements
HK$'000 | Office equipment
HK$'000 | Motor vehicles
HK$'000 | Furniture and fixtures
HK$'000 | Total
HK$'000
(restated) |
| --- | --- | --- | --- | --- | --- | --- |
| Cost/revaluation | | | | | | |
| At 1 January 2004 | 5,930 | 2,136 | 3,971 | 1,633 | 2,116 | 15,786 |
| Effect on adoption of HKAS 17 | (3,084) | — | — | — | — | (3,084) |
| As restated at | | | | | | |
| 1 January 2004 | 2,846 | 2,136 | 3,971 | 1,633 | 2,116 | 12,702 |
| Additions | — | — | 87 | — | 12 | 99 |
| Surplus on revaluation | 1,440 | — | — | — | — | 1,440 |
| Effect on adoption of HKAS 17 | (749) | — | — | — | — | (749) |
| At 31 December 2004 and at 1 January 2005 | 3,537 | 2,136 | 4,058 | 1,633 | 2,128 | 13,492 |
| Additions | — | 39 | 14 | — | — | 53 |
| Disposals | (3,537) | — | (1) | — | — | (3,538) |
| At 31 December 2005 | — | 2,175 | 4,071 | 1,633 | 2,128 | 10,007 |
| Accumulated depreciation | | | | | | |
| At 1 January 2004 | — | 1,290 | 1,990 | 312 | 765 | 4,357 |
| Charged for the year | 56 | 282 | 410 | 264 | 204 | 1,216 |
| Written back on revaluation | (56) | — | — | — | — | (56) |
| At 31 December 2004 and at 1 January 2005 | — | 1,572 | 2,400 | 576 | 969 | 5,517 |
| Charged for the year | 35 | 385 | 310 | 211 | 167 | 1,108 |
| Written back on disposals | (35) | — | (1) | — | — | (36) |
| At 31 December 2005 | — | 1,957 | 2,709 | 787 | 1,136 | 6,589 |
| Net book value | | | | | | |
| At 31 December 2005 | — | 218 | 1,362 | 846 | 992 | 3,418 |
| At 31 December 2004 | 3,537 | 564 | 1,658 | 1,057 | 1,159 | 7,975 |

There was no asset held under finance lease at 31 December 2005 (2004: HK$42,000).

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

7. INTERESTS IN LEASEHOLD LAND

The Group’s interests in leasehold land represented prepaid operating lease payments in respect of leasehold land in Hong Kong under long-term leases.

| | The Group
HK$’000
(restated) |
| --- | --- |
| Cost | |
| At 1 January 2004 | — |
| Effect of adopting HKAS 17 | 1,932 |
| At 31 December 2004 and
1 January 2005 | 1,932 |
| Disposals | (1,932) |
| At 31 December 2005 | — |
| Accumulated Amortisation | |
| At 1 January 2004 | 332 |
| Amortisation of prepaid operating
lease payments | 20 |
| At 31 December 2004 and
1 January 2005 | 352 |
| Amortisation of prepaid operating
lease payments | 10 |
| Written back on disposals | (362) |
| At 31 December 2005 | — |
| Net book value | |
| At 31 December 2005 | — |
| At 31 December 2004 | 1,580 |

— 104 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

8. FILM RIGHTS

| | The Group
HK$'000 |
| --- | --- |
| Cost | |
| At 1 January 2004 | 163,682 |
| Additions | 18,328 |
| At 31 December 2004 and
1 January 2005 | 182,010 |
| Additions | 8,947 |
| At 31 December 2005 | 190,957 |
| Amortisation and impairment | |
| At 1 January 2004 | 137,562 |
| Charged for the year | 17,894 |
| Impairment loss recognised | 16,213 |
| At 31 December 2004 and
1 January 2005 | 171,669 |
| Charged for the year | 10,332 |
| Impairment loss recognised | 8,956 |
| At 31 December 2005 | 190,957 |
| Carrying amounts | |
| At 31 December 2005 | — |
| At 31 December 2004 | 10,341 |
| | 2005 2004
HK$'000 HK$'000 |
| Analysed as: | |
| Non-current portion | 9,236 |
| Current portion | 1,105 |
| | 10,341 |

The directors reassessed the recoverable amount of the film rights at 31 December 2005 and recognised a total impairment loss of approximately HK$8,956,000, which was determined with reference to the estimated amount obtainable from the sale of these assets less cost of disposal.

— 105 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

9. INTERESTS IN SUBSIDIARIES

	The Company
	2005	2004
	HK$'000	HK$'000
Unlisted shares, at cost	83,553	83,553
Less: Impairment loss recognised	(83,553)	—
	—	83,553
Amounts due from subsidiaries	249,304	255,472
Less: Impairment loss on provision of amounts due from subsidiaries	(249,304)	(243,000)
	—	96,025

The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the directors, the amount will not be repaid in the next twelve months.

Details of the Company’s principal subsidiaries at 31 December 2005 are set as follows:

Name of subsidiary	Country/place of incorporation	Particulars of issued share capital	Principal activities and place of operation
Bluelagoon Investment Holdings Limited	British Virgin Islands	1 ordinary share of US$1	Investment holding, distribution of films and sub-licensing of film rights in the PRC
Dragon Leader Limited	British Virgin Islands	1 ordinary share of US$1	Investment holdings in Hong Kong
Gainful Fortune Limited	British Virgin Islands	160,000,100 ordinary shares of HK$1 each	Holding of film rights outside Hong Kong
Legend Rich Limited	British Virgin Islands	1 ordinary share of US$1	Distribution of video products in the PRC through a PRC agent
Ocean Shores Licensing Limited	British Virgin Islands	10,000 ordinary shares of US$1 each	Holding of film rights outside Hong Kong
Riche Advertising Limited	British Virgin Islands	1 ordinary share of US$1	Investments in securities in Hong Kong
Riche (BVI) Limited	British Virgin Islands	1,000 ordinary shares of US$1 each	Investment holding in Hong Kong
Riche Distribution Limited	Hong Kong	1,000,000 ordinary shares of HK$1 each	Sub-licensing of film rights and investments in securities in Hong Kong

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Name of subsidiary	Country/place of incorporation	Particulars of issued share capital	Principal activities and place of operation
Riche International (Macao Commercial Offshore) Limited	Macau	1 share of MOP100,000	Distribution of films and sub-licensing of film rights in the PRC
Riche Multi-Media Limited	Hong Kong	2 ordinary shares of HK$1 each	Distribution of films and other video features in the PRC
Riche Pictures Limited	British Virgin Islands	1 ordinary share of US$1	Investment holding in Hong Kong
Riche Video Limited	Hong Kong	10 ordinary share of HK$100 each
20,000 non-voting deferred shares of HK$100 each*	Distribution of video products in Hong Kong
World East Investments Limited	British Virgin Islands	1 ordinary share of US$1	Distribution of films and sub-licensing of film rights in the PRC through a PRC agent

The non-voting deferred shares, which are not held by the Group, carry practically no rights to dividends nor to receive notice of nor to attend or vote at any general meeting of the relevant company nor to participate in any distribution on winding up.

The Company directly holds the interest in Riche (BVI) Limited. All other subsidiaries are indirectly held by the Company.

None of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.

— 107 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

10. GOODWILL

| | The Group
HK$'000 |
| --- | --- |
| Cost | |
| At 1 January 2004 and
31 December 2004 | 39,530 |
| Elimination of goodwill on adoption of HKFRS 3 | (7,058) |
| Acquisition of a subsidiary | 7,656 |
| At 31 December 2005 | 40,128 |
| Amortisation and impairment | |
| At 1 January 2004 | 3,105 |
| Amortised for the year | 3,953 |
| Impairment loss recognised | 28,072 |
| At 31 December 2004 and
1 January 2005 | 35,130 |
| Elimination of goodwill on adoption of HKFRS 3 | (7,058) |
| Impairment loss recognised | 12,056 |
| At 31 December 2005 | 40,128 |
| Carrying amounts | |
| At 31 December 2005 | — |
| At 31 December 2004 | 4,400 |

In prior years, the amortisation period adopted for goodwill is 10 years. Following the adoption of HKFRS 3, amortisation of goodwill has ceased since 1 January 2005. The accumulated amortisation of goodwill would be offset against the cost. Annual impairment review was performed.

On 19 April 2005, the Group exercised the right under the convertible notes issued by Gainful Fortune Limited ("Gainful Fortune") to convert the outstanding principal of HK$160,000,000 into shares of Gainful Fortune at a conversion price of HK$1 per share. Since then, Gainful Fortune and its wholly-owned subsidiary, Ocean Shores Licensing Limited ("OSLL"), (hereinafter collectively refer as "Gainful Fortune Group") become subsidiaries of the Group. As a result, a positive goodwill of approximately HK$7,656,000 was arisen from the acquisition of Gainful Fortune.

The directors reassessed the recoverable amounts of goodwill and recognised a total impairment loss of approximately HK$12,056,000.

— 108 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

11. INTERESTS IN ASSOCIATES

	The Group
	2005	2004
	HK$'000	HK$'000
Convertible notes issued by an associate	—	160,000
Less: Allowance for convertible notes	—	(160,000)
	—	—

The convertible notes bore interest at 1% per annum, which was payable yearly in arrears, and matured on 17 April 2005. Prior to the maturity, only Gainful Fortune had the right to redeem early part or all of the amount of the convertible notes. The convertible notes carried the right to convert the outstanding principal amount of the convertible notes into ordinary share of HK$1 each in the share capital of Gainful Fortune at a conversion price of HK$1 share on the maturity date. However, prior to the maturity, the Group might convert the convertible notes with the consent of Gainful Fortune.

At 31 December 2004, the directors assessed the financial position of Gainful Fortune and considered that the convertible notes cannot be recovered in the future, therefore, an allowance of HK$160,000,000 had been made.

On 17 April 2005, the Group exercised the right under the convertible notes to convert the outstanding principal amount of HK$160,000,000 into shares of Gainful Fortune at a conversion price of HK$1 per share. Since then, Gainful Fortune become a subsidiary of the Group.

12. INVENTORIES

	The Group
	2005	2004
	HK$'000	HK$'000
Finished goods	6	15

Finished goods of HK$6,000 (2004: HK$15,000) are carried at net realisable value.

13. TRADE RECEIVABLES

The granting of distribution rights and sub-licensing of film rights are covered by customers' deposits placed with the Group. The balance is receivable upon delivery of the master materials to customers.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

The following is an aged analysis of the trade receivables at the balance sheet date:

	The Group
	2005	2004
	HK$'000	HK$'000 (restated)
0 — 30 days	386	3,054
31 — 60 days	258	92
61 — 90 days	426	1,979
Over 90 days	4,743	19,831
	5,813	24,956
Less: Impairment loss on provision of bad and doubtful debts	(1,084)	(1,648)
	4,729	23,308

The carrying amounts of trade receivables approximate their fair values.

The collectibility of the trade receivables has been assessed in accordance with HKAS 39 and impairment loss on provision of bad and doubtful debts has been recognised in the income statement.

14. DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES

	The Group
	2005	2004
	HK$'000	HK$'000
Deposits	41,734	270
Prepayments	1,195	1,394
Other receivables	13,851	2,920
	56,780	4,584
Less: Impairment loss recognised in respect of prepayments	(1,188)	—
Impairment loss on provision of bad and doubtful debts	(1,390)	—
	54,202	4,584

The carrying amounts of deposits, prepayments and other receivables approximate their fair values.

15. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS

	The Group
	2005	2004
	HK$'000	HK$'000 (restated)
Held-for-trading:
Equity securities, at fair value
— listed in Hong Kong	30,567	38,911
— listed outside Hong Kong	—	2,821
	30,567	41,732

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

16. AVAILABLE-FOR-SALE FINANCIAL ASSETS

	The Group
	2005	2004
	HK$'000	HK$'000 (restated)
Unlisted investment	18,000	30,000
Less: Impairment loss recognised	—	(12,000)
Capital repayment	(7,100)	—
Reclassification to other receivables	(10,900)	—
	—	18,000

Unlisted investment represented the Group’s investment in Rainbow Choice Enterprises Limited (“Rainbow Choice”), a company incorporated in the British Virgin Islands. The Group’s investment represented a holding of 40% of the ordinary shares of Rainbow Choice. The principal activities of Rainbow Choice were the production and distribution of entertainment news in the PRC. Rainbow Choice started operations in July 2004 and its operations and assets were controlled by the other shareholder. Although the Group appointed a representative to the board of directors of Rainbow Choice, the Company found that its representative encountered significant difficulty in influencing the management of Rainbow Choice in practice. As a result, Rainbow Choice was reclassified from an associate of the Group to available-for-sale financial assets of the Group.

On 23 April 2005, the Group entered into an agreement with other shareholder of Rainbow Choice pursuant to which both parties agreed that the ownership of all the entertainment news programmes produced by Rainbow Choice would be transferred to the Group and the other shareholder of Rainbow Choice agreed to pay HK$18,000,000 to the Group. Upon signing the agreement and up to the date of this report, the Group received HK$18,000,000 from the other shareholder of Rainbow Choice.

17. AMOUNT DUE FROM AN ASSOCIATE

The Group

The amount was unsecured, non-interest bearing and had no fixed terms of repayment.

18. TAX PREPAYMENT

	The Group
	2005	2004
	HK$'000	HK$'000
Tax reserve certificates	3,055	—
Tax paid in advance	1,091	—
	4,146	—

Tax reserve certificates bear interest at 0.01% per annum.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

19. SHARE CAPITAL

	Number of shares '000	Amount HK$'000
Authorised:
At 31 December 2004
(Ordinary shares of HK$0.1 each)	2,000,000	200,000
At 31 December 2005
(Ordinary shares of HK$0.01 each)	20,000,000	200,000
Issued and fully paid:
At 31 December 2004 and 1 January 2005	475,200	47,520
Shares subdivision (note i)	4,276,800	—
Issuance of new shares (notes ii & iii)	402,018	4,020
At 31 December 2005	5,154,018	51,540

Notes:

(i) At the general meeting of the Company held on 14 January 2005, resolutions were passed to approve, among other things, the share subdivision on the basis of one share of HK$0.10 in the issued and unissued share capital of the Company be subdivided into 10 subdivided share of HK$0.01 each in the issued and unissued share capital of the Company. The share subdivision became effective on 17 January 2005.

(ii) During May and June 2005, 2,018,000 new shares of HK$0.01 were allotted and issued to independent third parties at a subscription price of HK$0.36 per share resulting from the exercise of subscription rights attached to the warrants of the Company. An amount of approximately HK$706,380 has been recognised as share premium during the year.

(iii) On 12 September 2005, 400,000,000 new shares of HK$0.01 were allotted and issued to independent third parties at a price of HK$0.34 per share pursuant to a placing and subscription agreement dated 7 September 2005. The net proceeds of approximately HK$131,179,000 are intended to use for investment in other relevant business opportunities that may arise in the future and for general working of the Group. An amount of approximately HK$132,000,000 has been recognised as share premium during the year.

Warrants

During the year ended 31 December 2002, the Company issued 95,040,000 warrants by way of bonus to the shareholders on the basis of one warrant for every five shares of HK$0.10 each in the share capital of the Company held on 27 May 2002. Each warrant entitles the holder to subscribe for one share of HK$0.10 in the Company at an initial subscription price of HK$3.60 per share, subject to adjustment, at any time on or after 17 June 2002 up to and including 16 June 2005.

— 112 —

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FINANCIAL INFORMATION ON THE GROUP

As a result of the share subdivision in January 2005, the subscription price of the warrants was adjusted from HK$3.60 per share of HK$0.10 to HK$0.36 per share of HK$0.01 with effect from 17 January 2005.

During the year, 2,018,000 warrants were exercised and converted into 2,018,000 shares of HK$0.01 each at HK$0.36 per share. All other warrants expired on 16 June 2005.

20. RESERVES

The Group

	Share premium HK$'000	Capital reserve HK$'000	Contributed surplus HK$'000	(Accumulated)
				Properties revaluation reserve HK$'000 (restated)	losses)/ retained profits HK$'000 (restated)	Total HK$'000 (restated)
At 1 January 2004	—	19,834	80,103	5,073	185,125	290,135
Effect on adoption of HKAS 17	—	—	—	(2,638)	1,154	(1,484)
As restated at 1 January 2004	—	19,834	80,103	2,435	186,279	288,651
Revaluation surplus on leasehold land and buildings not recognised in the consolidated income statement	—	—	—	1,559	—	1,559
Effect on adoption of HKAS 17	—	—	—	(812)	—	(812)
Net loss for the year	—	—	—	—	(268,347)	(268,347)
As restated at 31 December 2004 and 1 January 2005	—	19,834	80,103	3,182	(82,068)	21,051
Reserve realised on disposal of leasehold land and buildings	—	—	—	(3,182)	—	(3,182)
Issuance of new shares	132,706	—	—	—	—	132,706
Share issue expenses	(4,841)	—	—	—	—	(4,841)
Net loss for the year	—	—	—	—	(29,664)	(29,664)
At 31 December 2005	127,865	19,834	80,103	—	(111,732)	116,070

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

The Company

	Share Premium HK$’000	Contributed surplus HK$’000	Accumulated losses HK$’000	Total HK$’000
At 1 January 2004	—	163,456	(1,972)	161,484
Net loss for the year	—	—	(148,631)	(148,631)
At 31 December 2004 and 1 January 2005	—	163,456	(150,603)	12,853
Issuance of new shares	132,706	—	—	132,706
Share issue expenses	(4,841)	—	—	(4,841)
Net loss for the year	—	—	(93,239)	(93,239)
At 31 December 2005	127,865	163,456 *	(243,842)	47,479

The contributed surplus of the Company represents the difference between the underlying net assets of the subsidiaries acquired by the Company as at the date of the group reorganisation and the nominal amount of the Company's share capital issued as consideration for the acquisition as well as the net amount transferred from the share premium account and to the accumulated losses account pursuant to the special resolution passed at a special general meeting on 22 August 2003.

Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus account of the Company is available for distribution. However, the Company cannot declare or pay a dividend, or make a distribution out of contributed surplus, if:

(a) it is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of its assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

At 31 December 2005, the Company had no reserves available for distribution.

The Group

The capital reserve of the Group represents the difference of the share capital and share premium of the subsidiaries and the nominal value of the 880 shares issued by Ocean Shores (BVI) Limited (now renamed Riche (BVI) Limited) prior to the allotment of 120 shares to Classical Statue Limited and the amount arising from issue of shares by a subsidiary.

The contributed surplus of the Group represents the net amount transferred from the share premium account and to the accumulated losses account pursuant to the special resolution passed at a special general meeting on 22 August 2003.

All the reserves of the Group are attributable to the Company and its subsidiaries.

— 114 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

21. DEFERRED TAXATION

The followings are the major deferred tax liabilities and assets recognised by the Group and movements thereon:

	Accelerated tax depreciation HK$’000	Estimated tax losses HK$’000	Total HK$’000
At 1 January 2004	550	(550)	—
Credit to income statement for the year	(123)	123	—
At 31 December 2004 and 1 January 2005	427	(427)	—
Credit to income statement for the year	(173)	173	—
At 31 December 2005	254	(254)	—

At the balance sheet date, the Group had unused estimated tax losses of approximately HK$50,935,000 (2004: HK$51,200,000) available for offset against future profits. A deferred tax asset of approximately HK$254,000 (2004: HK$427,000) has been recognised. No deferred tax asset has been recognised in respect of the remaining balance of approximately HK$8,666,000 (2004: HK$8,533,000) due to the unpredictability of future profit streams.

22. TRADE PAYABLES

The following is an aged analysis of fair value of the trade payables at the balance sheet date:

	The Group
	2005	2004
	HK$’000	HK$’000
China Star Entertainment Limited and its subsidiaries (“China Star Group”):
0 — 30 days	3	123
31 — 60 days	—	116
61 — 90 days	—	85
Over 90 days	15	1
	18	325
Others:
0 — 30 days	—	—
61 — 90 days	—	—
Over 90 days	1,696	1,658
	1,696	1,658
	1,714	1,983

— 115 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

China Star Entertainment Limited (“China Star”) is a substantial shareholder of the Company.

The carrying amounts of trade payables approximate their fair values.

23. OTHER PAYABLES AND ACCRUALS

	The Group
	2005
HK$’000	2004
HK$’000
Accruals	1,971	1,813
Other payables	5,648	1,984
	7,619	3,797

The carrying amounts of other payables and accruals approximate their fair values.

24. AMOUNTS DUE TO RELATED COMPANIES

	The Group
	2005
HK$’000	2004
HK$’000
China Star (note i)	33,800	—
China Star’s subsidiaries (note ii)	1,032	549
	34,832	549
	The Company
	2005
HK$’000	2004
HK$’000
China Star (note i)	33,800	—
China Star’s subsidiaries	—	—
	33,800	—

Notes:

i. The amount due to China Star was unsecured, interest bearing at 1% per annum and matured on 19 April 2006.

ii. The amounts due to China Star’s subsidiaries are unsecured, non-interest bearing and have no fixed terms of repayment.

— 116 —

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FINANCIAL INFORMATION ON THE GROUP

25. OBLIGATIONS UNDER A FINANCE LEASE

The Group

	Minimum lease payments		Present value of minimum lease payments
	2005 HK$’000	2004 HK$’000	2005 HK$’000	2004 HK$’000
Amounts payable under a finance lease:
Within one year	—	10	—	8
In the second to fifth year inclusive	—	—	—	—
	—	10	—	8
Less: Future finance charges	—	2	—	—
Present value of lease obligations	—	8	—	8
Less: Amount due for payment within one year			—	8
Amount due for payment after one year			—	—

The Group leased certain of its equipment under a finance lease. The lease term was 5 years. Interest was charged at commercial rates and was fixed at the contract date.

26. CONVERTIBLE NOTES PAYABLE

The Group and the Company

On 5 February 2002, the Group and China Star Group entered into a licensing agreement pursuant to which China Star Group granted to the Group the licensing rights in the PRC and Mongolia in respect of 116 motion pictures for a term of 10 years from 8 April 2002 at a total consideration of HK$33,800,000. The consideration was settled by the issue of convertible notes in an aggregate amount of HK$33,800,000 by the Company.

The convertible notes bore interest at 1% per annum which was payable semi-annually in arrears and matured on 19 April 2005. Prior to the maturity, neither the holder nor the Company had the right to redeem or request for redemption of the notes. The convertible notes carried the right to convert the whole or any part of the outstanding principal amount of the convertible notes into ordinary shares of HK$0.10 each in the share capital of the Company at HK$4.00 per share, subject to adjustment, at any time on or before 19 April 2005. The convertible notes might be transferred in whole or in part of the outstanding principal amount into the share capital of the Company by the holder.

As a result of the share subdivision in January 2005, the conversion price of the convertible notes was adjusted from HK$4.00 per share of HK$0.10 to HK$0.40 per share of HK$0.01 with effect from 17 January 2005.

— 117 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

On 19 April 2005, the convertible notes issued by the Company matured. China Star Group did not exercise the right to convert the outstanding principal amount of HK$33,800,000 into share capital of the Group and the Company repaid HK$33,800,000 to China Star Group.

27. TURNOVER

| | 2005
HK$'000 | 2004
HK$'000 |
| --- | --- | --- |
| Distribution of films | 9,382 | 27,285 |
| Sub-licensing of film rights | 10,534 | 16,319 |
| Sales of financial assets at
fair value through profit and loss | 18,423 | 14,778 |
| | 38,339 | 58,382 |

28. OTHER REVENUE AND OTHER INCOME

| | 2005
HK$'000 | 2004
HK$'000 |
| --- | --- | --- |
| Other revenue | | |
| Dividend income from financial assets
at fair value through profit and loss | 627 | 315 |
| Interest income on bank deposits | 1,339 | 14 |
| Sundry income | 100 | 61 |
| | 2,066 | 390 |
| Other income | | |
| Gain on disposal of leasehold land and buildings | 7,110 | — |

— 118 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

29. LOSS FROM OPERATIONS

| | 2005
HK$'000 | 2004
HK$'000
(restated) |
| --- | --- | --- |
| Loss from operations has been arrived after charging: | | |
| Allowance for film right deposits | — | 1,000 |
| Allowance for inventory obsolescence | — | 917 |
| Amortisation of prepaid operating lease payments | 10 | 20 |
| Amortisation of film rights | 10,332 | 17,894 |
| Amortisation of goodwill | — | 3,953 |
| Amortisation of other asset | — | 6,644 |
| Auditors’ remuneration | 500 | 720 |
| Cost of inventories sold | 33 | 1,904 |
| Depreciation of property, plant and equipment: | | |
| — owned assets | 1,098 | 1,206 |
| — leased assets | 10 | 10 |
| | 1,108 | 1,216 |
| Impairment loss recognised in respect of prepayments | 1,188 | — |
| Impairment loss on provision of bad and doubtful debts | 2,474 | 1,648 |
| Operating leases rental in respect of rented premises | 900 | 1,616 |
| Staff costs including directors’ emoluments | | |
| — Salaries | 6,813 | 10,008 |
| — Contribution to retirement
benefits scheme | 143 | 212 |
| | 6,956 | 10,220 |
| Unrealised loss on financial assets
at fair value through profit and loss | 3,928 | 852 |

30. FINANCE COSTS

| | 2005
HK$'000 | 2004
HK$'000 |
| --- | --- | --- |
| Interest on borrowing wholly repayable within five years: | | |
| — convertible notes payable | 100 | 338 |
| — loan payable | 238 | — |
| — a finance lease | 2 | 2 |
| | 340 | 340 |

— 119 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

31. DIRECTORS' EMOLUMENTS

The board of directors of the Company is currently composed of two executive directors and three non-executive directors.

The aggregate amount of emoluments payable to the directors of the Company during the year was HK$1,710,000 (2004: HK$1,830,000). The remuneration of every director for the years ended 31 December 2005 and 2004 was as follows:

Name of director	Fee		Salaries and bonuses		Contribution to retirement benefit scheme		Total
	2005 HK$'000	2004 HK$'000	2005 HK$000	2004 HK$'000	2005 HK$'000	2004 HK$'000	2005 HK$'000	2004 HK$'000
Mr. Heung Wah Keung	—	—	—	—	—	—	—	—
Ms. Chen Ming Yin, Tiffany	—	—	—	—	—	—	—	—
Mr. Lei Hong Wai (note i)	—	—	1,341	1,548	9	12	1,350	1,560
Mr. Tang Chak Lam, Gilbert	120	120	—	—	—	—	120	120
Mr. Ho Wai Chi Paul	120	30	—	—	—	—	120	30
Mr. Lien Wai Hung (note ii)	90	—	—	—	—	—	90	—
Mr. Lai Hok Lim (note iii)	30	120	—	—	—	—	30	120
	360	270	1,341	1,548	9	12	1,710	1,830

Notes:

(i) Mr. Lei Hong Wai resigned as a director on 13 October 2005.

(ii) Mr. Lien Wai Hung was appointed as a director on 12 April 2005.

(iii) Mr. Lai Hok Lim resigned as a director on 12 April 2005.

32. FIVE HIGHEST PAID INDIVIDUALS

Of the five individuals whose emoluments were the highest in the Group for the year include one director (2004: one) whose emoluments are reflected in note 31 above and amounted to HK$1,350,000 (2004: HK$1,560,000). The emoluments payable to the remaining four individual (2004: four) during the year were as follow:

	2005	2004
	HK$'000	HK$'000
Salaries and other allowances	2,244	2,364
Retirement benefits scheme contributions	48	48
	2,292	2,412

During the year, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments during the year.

— 120 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

33. TAXATION

	2005	2004
	HK$'000	HK$'000

The taxation (charge)/credit is as follows:

Hong Kong Profits Tax:
— current year — (284)
— overprovision in prior years — 7

Taxation charge attributable to the Company and its subsidiaries — (277)

No provision for Hong Kong Profits Tax has been made for the year ended 31 December 2005 as the Company and its subsidiaries either have no estimated assessable profits or their estimated assessable profits are wholly absorbed by estimated tax losses brought forward.

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profit for the year ended 31 December 2004.

The taxation for the year can be reconciled to the loss before taxation per the consolidated income statement as follows:

	2005		2004
	HK$'000	%	HK$'000	%
Loss before taxation	(29,664)		(268,070)
Taxation at income tax rate of 17.5%	5,191	17.5	46,912	17.5
Tax effect of income that is not taxable in determining taxable profit	8,554	28.8	606	0.2
Tax effect of expenses that are not deductible in determining tax profit	(11,308)	(38.1)	(45,632)	(17.0)
Underprovision in respect of prior years	—	—	7	—
Tax effect of estimated tax losses for which deferred tax assets have not been recognised	—	—	(2,170)	(0.8)
Tax losses not yet recognised	(2,437)	(8.2)	—	—
Taxation charge for the year	—	—	(277)	(0.1)

In April 2002, April 2003, March 2004, and January 2005, the Inland Revenue Department (the "IRD") of Hong Kong issued estimated assessments to Ocean Shores Licensing Limited ("OSLL") in respect of its potential tax liabilities for the years of assessments from 1995/1996 to 2000/2001 in the amount of HK$22,971,000. OSLL has formally objected to the estimated assessments. The directors consider appropriate tax provision has already been made in the financial statements.

At the request of the IRD, OSLL has already paid deposits totaling approximately HK$4,146,000 by way of purchase of tax reserve certificates and payment of instalments in cash. There are possible obligations in penalty and interest arising in respect of the potential tax liabilities in the event that the objection is settled.

— 121 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

34. LOSS PER SHARE

The calculation of the basic and diluted loss per share is based on the following data:

| | 2005
HK$'000 | 2004
HK$'000
(restated) |
| --- | --- | --- |
| Loss for the purposes of basic loss
per share — net loss for the year | (29,664) | (268,347) |
| Effect of dilutive potential ordinary
shares: | | |
| Interest on convertible notes payable | — | — |
| Loss for the purposes of diluted loss
per share | (29,664) | (268,347) |
| | '000 | '000 |
| Number of shares | | |
| Weighted average number of ordinary
shares for the purpose of basic
loss per share | 4,865,190 | 4,752,000 |
| Effect of dilutive potential ordinary
shares: | | |
| Warrants | — | — |
| Convertible notes payable | — | — |
| Share options | — | — |
| Weighted averaged number of
ordinary share for the purposes
of diluted loss per share | 4,865,190 | 4,752,000 |

The computation of diluted loss per share for the year ended 31 December 2005 did not assume the exercise of the Company's share options because the effect of exercising an option to subscribe for an additional share in the Company would result in a decrease of net loss per share.

The computation of diluted loss per share for the year ended 31 December 2004 did not assume the exercise of the Company's warrants, convertible notes payable and share options because the effect of exercising a warrant, a convertible note payable and an option to subscribe for an additional share in the Company would result in a decrease of net loss per share.

— 122 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

35. ACQUISITION OF A SUBSIDIARY

During the year ended 31 December 2005, the Company acquired 59.99% interest in Gainful Fortune. The fair values of assets acquired and liabilities assumed are as follows:

	2005	2004
Net assets acquired
Other receivables	784	—
Cash and bank balances	95	—
Tax prepayment	4,133	—
Receipt in advance	(8,978)	—
Other payables and accruals	(3,690)	—
	(7,656)	—
Goodwill	7,656	—
	—	—
Satisfied by Cash	—	—
	—	—

Analysis of the net inflow in respect of the acquisition of a subsidiary:

	2005	2004
Cash consideration	—	—
Cash and bank balances in hand acquired	95	—
Net cash inflow in respect of the acquisition of a subsidiary	95	—

No turnover was contributed from the subsidiary acquired during the year ended 31 December 2005. The subsidiary acquired contributed to the Group a loss of approximately HK$155,000 for the year. The subsidiary acquired contributed approximately HK$110,000 to the Group's net operating cash flows. There is no significant impact of the Group's cash flows for investing and financing activities and payment of tax.

— 123 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

36. COMMITMENTS

(a) Lease commitments

As leasee

At 31 December 2005, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings which fall due as follows:

	The Group
	2005	2004
	HK$’000	HK$’000
Within one year	539	981
In the second to fifth year inclusive	38	463
	577	1,444

Operating lease payments represent rentals payable by the Group for its office premises. Leases are mainly negotiated for an average term of two years and rentals are fixed for an average of two years.

As lessor

At 31 December 2005 the Group had contracted with tenants for future minimum lease payments under non-cancellable operating leases in respect of the Group's property, which fall due as follows:

	The Group
	2005	2004
	HK$’000	HK$’000
Within one year	—	26

At the balance sheet date, the Company did not have any lease commitments.

(b) Other commitments

(i) At 31 December 2004, the Group had commitments for purchase of film rights amounted to approximately HK$56,000, which were contracted but not provided for in the financial statements.

At 31 December 2005, the Group had no commitments for purchase of film rights.

(ii) Pursuant to the undertaking letters issued by the owners of 上海昇平文化發展有限公司 during the year ended 31 December 2003, they will transfer their ownership in the company to the Group at price determined by the valuers in the PRC when the laws in the PRC allow foreign investors own more than 51% in the company.

— 124 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(iii) On 9 April 2005, the Group entered into a conditional sale and purchase agreement with Leadfirst Limited, a company wholly-owned by Mr. Benny Ki, as a seller, and Mr. Benny Ki, as a guarantor, pursuant to which the Group agreed to acquire 100% of the issued share capital of Best Winning Group Limited from Leadfirst Limited at a consideration of HK$600,000,000. Upon completion of the conditional sales and purchase agreement, the consideration shall be satisfied by the issue of convertible notes in principal amount of HK$500,000,000 and the payment of cash of HK$100,000,000. At 31 December 2005, the Group has paid deposits amounted to HK$40,000,000 to Leadfirst Limited.

Subsequent to the year end, the Company announced that the conditional sale and purchase agreement ceased and determined on 31 March 2006.

37. EQUITY SETTLED SHARE-BASED TRANSACTIONS

(A) Share option scheme

Pursuant to an ordinary resolution passed at a special general meeting of the company held on 21 January 2002, the Company adopted a share option scheme (the "Option Scheme") to replace the share option scheme adopted by the Company on 19 January 2000.

The major terms of the Option Scheme are summarised as follows:

(a) The purpose was to provide incentives to:

(i) award and retain the participants who have made contributions to the Group; or
(ii) attract potential candidates to serve the Group for the benefit of the development of the Group.

(b) The participants included:

(i) any director or proposed director (whether executive or non-executive, including any independent non-executive director), employee or proposed employee (whether full time or part time) of, or
any individual for the time being seconded to work for,
any member of the Group or any controlling shareholder or any company controlled by a controlling shareholder.

(ii) any holder of any securities issued by any member of the Group or any controlling shareholder or any company controlled by a controlling shareholder.
- any business or joint venture partner, contractor, agent or representative of,
- any person of entity that provides research, development or other technological support or any advisory, consultancy, professional or other services to,

— 125 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

— any supplier, producer or licensor of films, television programmes, video features, goods or services to,

— any customer, licensee (including any sub-licensee) or distributor of films, television programmes, video features, goods or services of, or

— any landlord or tenant (including any sub-tenant) of,

any member of the Group or any controlling shareholder or a company controlled by a controlling shareholder.

and, for the purposes of the Option Scheme, shall include any company controlled by one or more persons belonging to any of the above classes of participants.

(c) The maximum number of shares in respect of which share options might be granted under the Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of the Option Scheme and such limit might be refreshed by shareholders in general meeting. The total maximum number of shares which might be issued upon exercise of all outstanding share options granted and yet to be exercised under the Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time. The total number of shares available for issue under the Option Scheme at the date of this annual report was approximately 475,401,800, which represented 9.22% of the issued share capital of the Company at the date of this annual report.

(d) The maximum number of shares in respect of share which share options might be granted to a participant, when aggregate with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any share option granted to the same participant under the Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.

(e) The exercise period should be any period fixed by the board of directors upon grant of the share option but in any event the share option period should not go beyond 10 years from the date of offer for grant.

(f) There was no requirement for a grantee to hold the share option for a certain period before exercising the share option save as determined by the board of directors and provided in the offer of grant of share option.

(g) The acceptance of a share option, if accepted, must be made within 30 days from the date of grant with a non-refundable payment of HK$1 from the grantee to the Company.

(h) The exercise price of a share option must be highest of:

(i) the closing price of the share of the Company on the date of grant which day must be a trading day;

(ii) the average closing price of the share of the Company for the 5 trading days immediately preceding the date of grant; and

(iii) the nominal value of the share of the Company.

— 126 —

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(i) The life of the Option Scheme is effective for 10 years from the date of adoption until the date of expiry.

The following table discloses details of the Company’s share options granted and the Option Scheme held by the employees and movements during the year.

Category of participants	Date of grant HK$	Exercise price per share	Exercisable period (note i)	Number of share options
				Outstanding at 1 January 2004 and 1 January 2005	Granted during 2005 (note ii)	Outstanding at 31 December 2005
Employees	8 March 2002	0.26	8 March 2002 — 7 March 2012	190,000,000	—	190,000,000
Employees	13 December 2004	0.194	13 December 2004 — 12 December 2014	275,700,000	—	275,700,000
				465,700,000	—	465,700,000

Notes:

(i) The exercisable period commenced on the date of grant of the relevant share options.

(ii) No share option was granted, cancelled nor exercised during the year.

(B) Share-based payment compensation

Following to the adoption of HKFRS2, Share-based Payment, the fair value of the employee services received in exchange for the grant of the options after 7 November 2002 is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted.

Share options granted under the Option Scheme are not expensed as the options were all vested and not subject to requirements of HKFRS 2.

RETIREMENT BENEFITS SCHEMES

With effect from the 1 December 2000, the Group has set up a defined contribution retirement scheme, the Mandatory Provident Fund Scheme (the “MPF Scheme”), for all the eligible employees of the Group. The Group did not provide retirement benefits for its employees prior to set up of the MPF Scheme.

Under the MPF Scheme, the employees are required to contribute 5% of their monthly salaries up to maximum of HK$1,000 per employee and they can choose to make additional contributions. The employer’s monthly contributions are calculated at 5% of each employee’s monthly salaries up to a maximum of HK$1,000 (the “Mandatory Contribution”). The employees are entitled to 100% of the employer’s Mandatory Contribution upon their retirement at the age of 65 years old, death or total incapacity.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

39. MATERIAL RELATED PARTY TRANSACTIONS

During the year, the Group had the following material transactions with related parties:

(a) On 5 February 2002, the Group and China Star Group entered into a territory supply agreement whereby China Star Group, during the term of 3 years from 8 April 2002, granted in favour of the Group a first right of refusal to acquire the exclusive distribution rights excluding the theatrical and internet rights in respect of each film in the PRC and Mongolia and an option to acquire the theatrical rights.

Pursuant to the territory supply agreement, the Group paid an amount of HK$5,000,000 to China Star Group as a deposit for the grant of the first of refusal to acquire the distribution rights and as security for the license fees payable under the territory supply agreement to be entered into. If the Group elects to acquire the distribution rights, a territory distribution agreement in respect of the film will be entered into pursuant to which the Group shall pay a license fee in respect of each film ranging from approximately HK$200,000 to HK$1,000,000, calculated by reference to its grading. The distribution rights in respect of a film will be for a period of 10 years. In relation to the option to acquire the theatrical rights, the additional license fee shall be equal to the balance of the total income received by the Group in respect of the exploitation of such theatrical rights before payment of any distribution expenses but after deducting a sum equal to 20% of the said total income which shall be retained by the Group.

During the year ended 31 December 2005, the Group acquired the distribution rights of five films (2004: 10) from China Star Group at a total consideration of approximately HK$3,600,000 (2004: HK$8,500,000) and the theatrical rights of five films (2004: six) from China Star Group at a total license fee of approximately HK$5,347,000 (2004: HK$4,970,000) pursuant to the relevant territory distribution agreements.

In April 2005, the territory supply agreement expired and China Star Group settled the deposit of HK$5,000,000 with the Group.

(b) During the year, the Group entered into the following transactions with China Star Group:

Nature of transactions	Notes	2005 HK$'000	2004 HK$'000
Interest expense
— Loan	(i)	100	—
— Convertible notes payable	(ii)	238	338
Post-production expenses	(iii)	736	1,781

Notes:

(i) Interest expense was calculated at 1% per annum in accordance with the terms of the loan of HK$33,800,000 granted by China Star to the Company.
(ii) Interest expense was calculated at 1% per annum in accordance with the terms of the convertible notes payable issued by the Company.
(iii) The post-production expenses were determined at prices agreed between the parties.

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

(c) During the year ended 31 December 2004, the Group had interest receivable of HK$1,600,000 from an associate. The interest was calculated at 1% per annum in accordance with the terms of the convertible notes issued by the associate.

During the year ended 31 December 2005, the Group had no interest receivable from the associate as the Group exercised the right under the convertible notes to convert the outstanding principal amount of HK$160,000,000 into shares of the associate. Details of amount due from and the convertible notes issued by the associate are set out in notes 11 and 17 to the financial statements.

(d) During the year ended 31 December 2004, the Group granted the hotel and intranet distribution rights in the PRC in respect of 24 films to an associate at a total consideration of HK$6,384,000 in accordance with the agreements entered into between the parties.

During the year ended 31 December 2005, the Group did not grant any hotel and intranet distribution rights in respect of films to the associate.

(e) On 19 April 2005, the convertible notes of HK$33,800,000 issued by the Group to China Star Group matured. China Star Group did not exercise the right to convert the outstanding principal amount of HK$33,800,000 into shares of the Company and the Company repaid HK$33,800,000 to China Star Group. Details of the convertible notes payable to China Star Group are set out in note 26 to the financial statements.

(f) On 19 April 2005, China Star granted a one year term loan of HK$33,800,000 to the Company. The loan is unsecured, interest bearing at 1% per annum and repayable on 19 April 2006. Details of the amount due to China Star are set out in note 24 to the financial statements.

(g) On 7 July 2007, the Group disposed its leasehold land and buildings to China Star Group at a total consideration of HK$9,000,000. The consideration was agreed between the parties based on arms' length negotiations with reference to a property valuation done by an independent firm of professional chartered surveyors appointed by China Star Group.

The board of directors of the Company (including the independent non-executive directors) considered the terms of the disposal to be on normal commercial terms and fair and reasonable and in the interests of the Company's shareholders.

The disposal constitutes a discloseable and connected transaction for the Company under the Chapter 14 of the Listing Rules. Please refer to the Company's announcement dated 7 July 2005 and circular dated 29 July 2005 for details.

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FINANCIAL INFORMATION ON THE GROUP

(h) Details of the amounts due to China Star Group are set out in note 24 to the financial statements.

(i) Compensation for key personnel management

Remuneration for key personnel management, including amount paid to the Company's directors and certain of the highest paid employee, as disclosed in notes 31 and 32 to the financial statements, is as follows:

	2005	2004
	HK$'000	HK$'000
Salaries	3,276	3,186
Contribution to retirement benefits scheme	36	36
	3,312	3,222

40. LITIGATION

At the date of this annual report, save as disclosed below, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the directors to be pending or threatened against any member of the Group.

The Commissioner of Inland Revenue had issued proceedings on 30 March 2005 against OSLL, a subsidiary of the Company, in respect of an aggregate amount of outstanding taxation of HK$13,928,226 in respect of the years of assessments from 1998/1999 to 2000/2001. Provision for this amount has been made in the Group's audited financial statements for the year ended 31 December 2005 and OSLL is currently in discussions with the Inland Revenue Department as to whether such taxation is payable and how to settle this matter.

41. SUBSEQUENT EVENTS

(i) On 17 February 2006, the Group entered into a conditional sale and purchase agreement with Northbay Investments Holdings Limited, pursuant to which the Group would acquire 100% interest in Shinhan-Golden Faith International Development Limited and a sale loan, at an aggregate consideration of approximately HK$266,064,350. The consideration shall be satisfied by the allotment and issue of 1,330,321,745 shares issued at HK$0.20 per share. Please refer to the Company's announcement dated 23 February 2006 for details.

(ii) On 9 April 2005, the Group entered into a conditional sale and purchase agreement with Leasdfirst Limited, a company wholly-owned by Mr. Benny Ki, as a seller, and Mr. Benny Ki, as a guarantor, pursuant to which the Group agreed to acquire 100% of the issued share capital of Best Winning Group Limited from Leadfirst Limited at a consideration of HK$600,000,000. Subsequent to the year end, the Group announced that the conditional sale and purchase agreement ceased and determined on 31 March 2006. Please refer to the Company's announcement dated 31 March 2006 for details.

On 19 April 2006, the Company announced that the repayment date of the initial deposit and further deposit totaling HK$40,000,000 in regard to the aforementioned deal, will be extended to a date falling on or before 30 April 2006, of which

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

constitutes a discloseable transaction under Chapter 14 of the Listing Rules and is also subject to the disclosure requirement under Rule 13.13 of the Listing Rules. The initial deposit and further deposit shall be refunded to the Group on or before 30 April 2006 with interest accruing thereon at the rate of 6% per annum. Please refer to the Company’s announcement dated 19 April 2006 for details.

42. COMPARATIVE AMOUNTS

As further explained in note 2 to the financial statements, due to the adoption of new HKFRSs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, comparative amounts have been reclassified and restated to conform with the current year’s presentation and accounting treatment.

43. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on 24 April 2006.

— 131 —

APPENDIX IV

FINANCIAL INFORMATION ON THE

ENLARGED GROUP

INDEBTEDNESS OF THE ENLARGED GROUP

Borrowings

As at the close of business on 30th April 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had total outstanding borrowings of approximately HK$316,570,000, comprising a RMB bank loan of approximately HK$242,718,000 which is secured by the Property with a carrying value of approximately HK$636,893,000 as at 30th April 2006, interest bearing at prevailing bank interest rate and repayable on 1st August 2006; an amount due to the director of Shinhan-Golden of approximately HK$30,097,000 which is unsecured, interest bearing at 5.5% to 5.58% per annum and repayable within one year; amounts due to related companies of approximately HK$5,012,000 which is unsecured, non-interest bearing and has no fixed terms of repayment; and an amount due to the Vendor of approximately HK$38,743,000 which is unsecured, interest-free and has no fixed terms of repayment.

As at 30th April 2006, the Enlarged Group has a loan facility of HK$250,000,000 granted by a Hong Kong financial institution secured by the Property available for 36 calendar months from the date of drawdown. The loan facility has not been utilised as at 30th April 2006.

Contingencies

As at 30th April 2006, the Enlarged Group have the following litigations:

Case 1

The Commissioner of Inland Revenue had issued proceeding on 30th March 2005 against Ocean Shores Licensing Limited, a subsidiary of the Company, in respect of an aggregate amount of outstanding taxation of HK$12,575,614 in respect of the financial years ended 1999, 2000 and 2001. Provision for this amount has been made in the Company's audited financial statements for the year ended 31st December 2005 and the Company is currently in discussion with the Inland Revenue Department as to whether such taxation is payable and how to settle this matter.

Case 2

Di Yi Ao Yuan Real Estate Management (Shanghai) Limited ("Di Yi") filed a statement of claim alleging JV Co. owed Di Yi approximately RMB354,000 (approximately HK$344,000) with actual cost and thereof in respect of consulting service supplied to JV Co. based on the signed contract. As at 30th April 2006, this case is yet to be proceeded in the court.

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APPENDIX IV

FINANCIAL INFORMATION ON THE

ENLARGED GROUP

Case 3

De Ren Advertising Limited (“De Ren”) had a claim against JV Co. for approximately RMB100,000 (approximately HK$97,000) in respect of marketing campaign contracted with JV Co. As at 30th April 2006, this case is yet to be proceeded in the court.

Case 4

A writ of summons and statements of claim was made by CL3 Architects Limited (“CL3”) against JV Co. for a claim of approximately HK$2,500,000 over design contracts for the Property with JV Co. As at 30th April 2006, this case is under court proceeding and no verdict has been reached.

Disclaimer

Save as aforesaid above and apart from intra-group liabilities, at the close of business on 30th April 2006, the Enlarged Group did not have any outstanding mortgages, charges, debentures or other loan capital or bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptances or acceptances credits or hire purchase commitments, or any guarantees or other material commitment or any material contingent liabilities.

WORKING CAPITAL

As at the Latest Practicable Date, after taking into account the available credit facilities as described in more detail in the above section “Indebtedness of the Enlarged Group”, internal resources (for example, cash generated from operating activities, financial assets at fair value through profit and loss and cash and bank balances) of the Enlarged Group, the Directors are of the opinion that the Enlarged Group has sufficient working capital for at least twelve months from the date of this circular, including financing the Acquisition.

MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31st December 2005 (being the date to which the latest published audited financial statements of the Company were made up).

— 133 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The following is the text of a letter, prepared for the sole purpose of inclusion in this circular, received from HLB Hodgson Impey Cheng, Chartered Accountants, Certified Public Accountants.

國術會計師事務所

Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

31st Floor

Gloucester Tower

The Landmark

11 Pedder Street

Central

Hong Kong

19th May 2006

The Directors

Riche Multi-Media Holdings Limited

Units 609-610 Miramar Tower

132 Nathan Road

Tsimshatsui

Kowloon

Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the "Pro Forma Financial Information") of Riche Multi-Media Holdings Limited (the "Company") and its subsidiaries (collectively referred to as the "Group") and Shinhan-Golden Faith International Development Limited ("Shinhan-Golden") and its subsidiaries (the "Shinhan-Golden Group") (together with the Group hereinafter referred to as the "Enlarged Group") which has been prepared by the directors of the Company for illustrative purpose only, to provide information about how the proposed acquisition of 100% issued share capital of Shinhan-Golden and the sale loan (the "Proposed Acquisition"), might have affected the financial information presented for inclusion as Appendix V of the circular of the Company dated 19th May 2006 (the "Circular"). The basis of preparation for the Pro Forma Financial Information is set out on page 137 to the Circular.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS OF THE COMPANY AND REPORTING ACCOUNTANTS

It is the responsibility solely of the directors of the Company to prepare the 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

— 134 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

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

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagement (“HKSIR”) 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Financial Information with the directors of the Company. The 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 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 Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The Pro Forma Financial Information is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Enlarged Group as at 31st December 2005 or any future date; or
the financial results and cash flows of the Enlarged Group for the year ended 31st December 2005 or for any future period.

— 135 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

OPINION

In our opinion:

the Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
such basis is consistent with the accounting policies of the Group; and
the adjustments are appropriate for the purposes of the Pro Forma Financial Information as disclosed pursuant to Rule 4.29(1) of the Listing Rules.

Yours faithfully,

HLB Hodgson Impey Cheng

Chartered Accountants

Certified Public Accountants

Hong Kong

— 136 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

INTRODUCTION TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the Pro Forma Financial Information of the Enlarged Group as if the Proposed Acquisition has been completed on 31st December 2005 for the pro forma consolidated balance sheets and on 1st January 2005 for the pro forma consolidated income statements and pro forma consolidated cash flow statements. The accompanying Pro Forma Financial Information of the Enlarged Group has been prepared to illustrate the effect of the Proposed Acquisition of 100% issued share capital of Shinhan-Golden and the sale loan at a consideration of approximately HK$266,064,000 (the "Consideration") which shall be satisfied by the allotment and issue of the shares of the Company.

The accompanying Pro Forma Financial Information of the Enlarged Group is based on a number of assumptions, estimates, uncertainties and currently available information, and is provided for illustrative purposes. Accordingly, as a result of the uncertain nature of the accompanying Pro Forma Financial Information of the Enlarged Group, it may not give a true picture of the actual financial position or results of the Enlarged Group's operations that would have been attained had the Proposed Acquisition actually occurred on the dates indicated herein. Further, the accompanying Pro Forma Financial Information of the Enlarged Group does not purport to predict the Enlarged Group's future financial position or results of operations.

The Pro Forma Financial Information of the Enlarged Group should be read in conjunction with the Accountants' Report on Shinhan-Golden Group as set out in Appendix II, the historical financial information on the Group as set out in Appendix III and other financial information included elsewhere in this Circular.

— 137 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

(I) UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP

The following is the unaudited pro forma consolidated balance sheet of the Enlarged Group, assuming that the Proposed Acquisition has been completed on 31st December 2005. The unaudited information is based on the audited consolidated financial statements of the Group for the year ended 31st December 2005 and the audited consolidated financial statements of Shinhan-Golden Group as set out in Appendix III and II to this Circular respectively. Such information is adjusted to reflect the effect of the Proposed Acquisition.

As the unaudited pro forma consolidated balance sheet of the Enlarged Group has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the financial position of the Enlarged Group as at the date to which it is made up to or at any future date.

	Audited Consolidated Balance Sheet of the Group as at 31st December 2005 HK$’000	Audited Consolidated Balance Sheet of Shinhan-Golden Group as at 31st December 2005 HK$’000	Sub-total HK$’000	Pro forma adjustments HK$’000	Pro forma Consolidated Balance Sheet of the Enlarged Group as at 31st December 2005 HK$’000
ASSETS
Non-current assets
Property, plant and equipment	3,418	564	3,982		3,982
Investment properties	—	636,893	636,893		636,893
Goodwill	—	—	—	86,535	86,535
Club memberships	172	—	172		172
	3,590	637,457	641,047		727,582
Current assets
Property held for sale	—	43,839	43,839		43,839
Inventories	6	—	6		6
Film rights deposits	14	—	14		14
Trade receivables	4,729	11	4,740		4,740
Prepayments, deposit and other receivables	54,202	570	54,772		54,772
Financial assets at fair value through profit and loss	30,567	—	30,567		30,567
Tax prepayment	4,146	—	4,146		4,146
Cash and bank balances	137,973	26,110	164,083	(6,311)	157,772
	231,637	70,530	302,167		295,856
Total assets	235,227	707,987	943,214		1,023,438

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

	Audited Consolidated Balance Sheet of the Group as at 31st December 2005 HK$'000	Audited Consolidated Balance Sheet of Shinhan-Golden Group as at 31st December 2005 HK$'000	Sub-total HK$'000	Pro forma adjustments HK$'000	Pro forma Consolidated Balance Sheet of the Enlarged Group as at 31st December 2005 HK$'000
EQUITY
Capital and reserves attributable to the equity holders of Enlarged Group
Share capital	51,540	74,100	125,640	(60,797)	1(ii) 64,843
Reserves	116,070	66,541	182,611	186,340	1(iii) 368,951
	167,610	140,641	308,251		433,794
Minority interests	—	3,896	3,896		3,896
	167,610	144,537	312,147		437,690
LIABILITIES
Current liabilities
Trade payables	1,714	641	2,355		2,355
Other payables and accruals	7,619	65,941	73,560		73,560
Receipt in advance	483	—	483		483
Amount due to a related company	34,832	—	34,832		34,832
Amount due to a director	—	25,230	25,230	(25,230)	2(i) —
Promissory notes	—	—	—	25,637	2(iii) 25,637
Amounts due to related parties	—	10,846	10,846	(6,838)	2(i) 4,008
Amount due to an immediate holding company	—	38,888	38,888	(38,888)	3 —
Bank loan, secured	—	367,416	367,416		367,416
Taxation payable	22,969	—	22,969		22,969
	67,617	508,962	576,579		531,260
Non-current liabilities
Deferred taxation	—	54,488	54,488		54,488
Total liabilities	67,617	563,450	631,067		585,748
Total equity and liabilities	235,227	707,987	943,214		1,023,438
Net current assets/(liabilities)	164,020	(438,432)	(274,412)		(235,404)

— 139 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

(II) UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT FOR THE ENLARGED GROUP

The following is the unaudited pro forma consolidated income statement of the Enlarged Group, assuming that the Proposed Acquisition has been completed on 1st January 2005. The unaudited information is based on the audited consolidated financial statements of the Group for the year ended 31st December 2005, the audited consolidated financial information of Shinhan-Golden Group for the year ended 31st December 2005 as set out in Appendix III and II to this Circular respectively. Such information is adjusted to reflect the effect of the Proposed Acquisition.

As the unaudited pro forma consolidated income statement of the Enlarged Group has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the results of the Enlarged Group for the year ended to which it is made up to or for any future period.

	Audited Consolidated Income Statement of the Group for the year ended 31st December 2005	Audited Consolidated Income Statement of Shinhan-Golden Group for the year ended 31st December 2005	Sub-total	Pro forma adjustments	Pro forma Consolidated Income Statement of the Enlarged Group for the year ended 31st December 2005
	HK$'000	HK$'000	HK$'000	HK$'000	Heks'000
Turnover	38,339	5,111	43,450		43,450
Cost of sales	(36,466)	—	(36,466)		(36,466)
Gross profit	1,873	5,111	6,984		6,984
Other revenue	2,066	496	2,562		2,562
Other income	7,110	70,943	78,053		78,053
Administrative expenses	(19,332)	(5,079)	(24,411)		(24,411)
Operating expenses	—	(3,478)	(3,478)		(3,478)
Selling expenses	(29)	—	(29)		(29)
Impairment loss recognised in respect of goodwill	(12,056)	—	(12,056)		(12,056)
Impairment loss recognised in respect of film rights	(8,956)	—	(8,956)		(8,956)
(Loss)/profit from operations	(29,324)	67,993	38,669		38,669
Finance costs	(340)	(21,959)	(22,299)	120	2(iv)
(Loss)/profit before taxation	(29,664)	46,034	16,370		16,490
Taxation	—	(16,794)	(16,794)		(16,794)
Net (loss)/profit for the year attributable to equity holders	(29,664)	29,240	(424)		(304)

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

(III) UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT FOR THE ENLARGED GROUP

The following is the unaudited pro forma consolidated cash flow statement of the Enlarged Group, assuming that the Proposed Acquisition has been completed on 1st January 2005. The unaudited information is based on the audited consolidated financial statements of the Group for the year ended 31st December 2005, the audited consolidated financial statements of Shinhan-Golden Group for the year ended 31st December 2005 as set out in Appendix III and II to this Circular respectively. Such information is adjusted to reflect the effect of the Proposed Acquisition.

As the unaudited pro forma consolidated cash flow statement of the Enlarged Group has been prepared for illustrative purpose only and because of its nature, it may not give a true picture of the cash flows of the Enlarged Group for the year ended to which it is made up to or for any future period.

	Audited Consolidated Cash Flow Statement of the Group for the year ended 31st December 2005 HK$’000	Audited Consolidated Cash Flow Statement of Shinhan-Golden Group for the year ended 31st December 2005 HK$’000	Sub-total HK$’000	Pro forma Consolidated Cash Flow Statement of the Enlarged Group for the year ended 31st December 2005 HK$’000
Operating activities
(Loss)/profit from operations	(29,324)	67,993	38,669	38,669
Adjustments for:
Interest income	(1,339)	(151)	(1,490)	(1,490)
Trade and other payable written back	—	(4,181)	(4,181)	(4,181)
Impairment loss on provision of bad and doubtful debts	2,474	—	2,474	2,474
Amortisation of film rights	10,332	—	10,332	10,332
Amortisation of prepaid operating lease payments	10	—	10	10
Depreciation of property, plant and equipment	1,108	199	1,307	1,307
Wavier of amount due to holding company	—	(14,270)	(14,270)	(14,270)
Impairment loss recognised in respect of film rights	8,956	—	8,956	8,956
Impairment loss recognised in respect of goodwill	12,056	26	12,082	12,082

— 141 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

	Audited Consolidated Cash Flow Statement of the Group for the year ended 31st December 2005 HK$’000	Audited Consolidated Cash Flow Statement of Shinhan-Golden Group for the year ended 31st December 2005 HK$’000	Sub-total HK$’000	Pro forma adjustments HK$’000	Notes	Pro forma Consolidated Cash Flow Statement of the Enlarged Group for the year ended 31st December 2005 HK$’000
Impairment loss recognised in respect of prepayments	1,188	—	1,188			1,188
Gain on disposal of leasehold land and buildings	(7,110)	—	(7,110)			(7,110)
Gain on disposal of property, plant and equipment	—	(9)	(9)			(9)
Fair value gains from investment properties	—	(49,922)	(49,922)			(49,922)
Operating cash flows before movements in working capital	(1,649)	(315)	(1,964)			(1,964)
Decrease in inventories	9	—	9			9
Additions of film rights	(8,947)	—	(8,947)			(8,947)
Decrease in trade receivables	16,105	—	16,105			16,105
Increase in prepayments and deposits, other receivables	(50,037)	(490)	(50,527)			(50,527)
Decrease in financial assets at fair value through profit and loss	11,165	—	11,165			11,165
Decrease in available-for-sale financial assets	18,000	—	18,000			18,000
Decrease in deposit with a related company	5,000	—	5,000			5,000
Decrease in amount due from an associate	300	—	300			300
Decrease in trade payables	(269)	(681)	(950)			(950)
Increase/(decrease) in other payables and accruals	132	(2,868)	(2,736)			(2,736)
Decrease in receipt in advance	(9,699)	—	(9,699)			(9,699)
Increase in amounts due to related parties/companies	34,283	10,846	45,129	(6,866)	2(ii)&(v)	38,263
Increase in amount due to an immediate holding company	—	38,888	38,888			38,888
Increase in amount due to a director	—	24,698	24,698	(24,698)	2(ii)&(v)	—
Increase in promissory notes	—	—	—	25,253	2(ii)&(v)	25,253

— 142 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

	Audited Consolidated Cash Flow Statement of the Group for the year ended 31st December 2005 HK$’000	Audited Consolidated Cash Flow Statement of Shinhan-Golden Group for the year ended 31st December 2005 HK$’000	Sub-total HK$’000	Pro forma Consolidated Cash Flow Statement of the Enlarged Group for the year ended 31st December 2005 HK$’000
Cash generated from operations	14,393	70,078	84,471	78,160
Interest received	—	151	151	151
Net cash generated from operating activities	14,393	70,229	84,622	78,311
Investing activities
Interest received	1,339	—	1,339	1,339
Proceed from sale of leasehold land and buildings	9,000	—	9,000	9,000
Effect from acquisitions of subsidiaries	95	—	95	95
Purchase of property, plant and equipment	(53)	(207)	(260)	(260)
Payments for renovation of investment properties	—	(10,126)	(10,126)	(10,126)
Proceeds from disposal of property, plant and equipment	—	24	24	24
Net cash generated from/(used in) investing activities	10,381	(10,309)	72	72
Financing activities
Interest paid	(340)	—	(340)	(340)
Issuance of new shares	131,179	—	131,179	131,179
Issuance of new shares upon exercise of share options	706	—	706	706
Payment of convertible notes payable	(33,800)	—	(33,800)	(33,800)
Payment of capital element of a finance lease	(6)	—	(6)	(6)
Repayment of bank loan	—	(34,993)	(34,993)	(34,993)
Net cash generated from/(used in) financing activities	97,739	(34,993)	62,746	62,746

— 143 —

APPENDIX V

PRO FORMA FINANCIAL INFORMATION

ON THE ENLARGED GROUP

	Audited Consolidated Cash Flow Statement of the Group for the year ended 31st December 2005	Audited Consolidated Cash Flow Statement of Shinhan-Golden Group for the year ended 31st December 2005	Sub-total HK$'000	Pro forma adjustments HK$'000	Notes	Pro forma Consolidated Cash Flow Statement of the Enlarged Group for the year ended 31st December 2005
	HK$'000	HK$'000
Net increase in cash and cash equivalents	122,513	24,927	147,440			141,129
Cash and cash equivalents at the beginning of the year	15,460	1,183	16,643			16,643
Cash and cash equivalents at the end of the year	137,973	26,110	164,083			157,772
Analysis of the balances of cash and cash equivalents
Cash and bank balances	137,973	26,110	164,083	(6,311)	2(ii)	157,772

Notes:
1. Under HKFRS 3 Business Combinations ("HKFRS 3"), the Group will apply the purchase method to account for the acquisition of Shinhan-Golden Group. In applying the purchase method, the identifiable assets, liabilities and contingent liabilities of Shinhan-Golden Group will be recorded on the consolidated balance sheet of the Group at their fair values at the date of completion. Any goodwill or discount arising on the acquisition will be determined as the excess or deficit of the purchase price to be incurred by the Group over the Group's interests in the net fair value of the identifiable assets, liabilities and contingent liabilities of Shinhan-Golden at the date of completion. Negative goodwill resulting from the business combinations should be recognised immediately in the consolidated income statement.

The adjustments reflect the following:

(i) the total consideration is approximately HK$266,064,000 which is to be satisfied by the allotment and issue of a total of 1,330,321,745 new shares of the Company of par value of HK$0.01 each at a price of HK$0.2 per share. On completion, the share capital and share premium/reserves of the Company will increase by approximately HK$13,303,000 and HK$252,761,000 respectively.

(ii) the pro forma adjustment of the share capital represented results of the increase of approximately HK$13,303,000 in share capital described in note 1(i) above and the elimination of share capital of Shinhan-Golden of approximately HK$74,100,000 on consolidation.

(iii) the pro forma adjustment of reserves represented the results of the increase of approximately HK$252,761,000 in reserves described in note 1(i) above and the elimination of the pre-acquisition reserves of Shinhan-Golden Group of approximately HK$66,541,000 on consolidation and decrease in the net effect of finance costs at approximately of HK$120,000 in (Note 2(iv)).

APPENDIX V

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

(iv) Goodwill of approximately HK$86,535,000 arising from the acquisition of Shinhan-Golden Group, which is derived from the consideration of HK$266,064,000 minus the net assets of Shinhan-Golden Group acquired which amounted to approximately HK$140,641,000 as at 31st December 2005 minus the loan of approximately HK$38,888,000 due by Shinhan-Golden to Northbay Investments Holdings Limited (the "Vendor") as at the date of the sale and purchase agreement of the Proposed Acquisition (the "S&P Agreement") ("Investment Cost"). For the purpose of preparing the Pro Forma Financial Information of the Enlarged Group, the carrying value of the net assets of Shinhan-Golden Group as per the Accountants' Report as set out in Appendix II of the Circular is taken to be their fair value.

Pursuant to HKFRS 3, HKAS 36 Impairment of Assets and HKAS 38 Intangible Assets, amortisation of positive goodwill will be ceased and will be tested annually for impairment, as well as when there is indication of impairment.

(i) The pro forma adjustment amounted to approximately HK$25,230,000 represented (i) director's loan due to Mr. Andrew Nan Sherill amounted to approximately HK$24,757,000; (ii) interest payable on director's loan of approximately HK$445,000; and (iii) current account with the director amounted to approximately HK$28,000. Upon completion of the Proposed Acquisition, the Group will settle and repay to Mr. Andrew Nan Sherrill, the beneficial owner of the Vendor and a director of Beijing Jian Guo and Shinhan-Golden, 20% of the indebtedness of Beijing Jian Guo due to him of approximately HK$4,951,000. The Group will deliver a promissory note to Mr. Andrew Nan Sherrill for the settlement of the balance 80% indebtedness due from Beijing Jian Guo to him. Interest expenses on director's loan was reversed upon the replacement of the director's loan with the promissory note and the current account balance with the director was reclassified as amounts due to related parties.

The pro forma adjustment amounted to approximately HK$6,838,000 represents (i) settlement of a loan due to Mr. Nan Pin Ren of approximately HK$6,796,000; (ii) interest payable on Mr. Nan Pin Ren's loan of approximately HK$70,000; and (iii) reallocation of amount due to a director, Mr. Andrew Nan Sherill abovementioned. In addition, upon completion of the Proposed Acquisition, the Group will settle and repay to Mr. Nan Pin Ren, a director of Beijing Jian Guo, 20% of the indebtedness of Beijing Jian Guo due to him of approximately HK$1,360,000. The Group will deliver a promissory note to Mr. Nan Pin Ren for the settlement of the balance 80% indebtedness due from Beijing Jian Guo to him. Interest expenses on Mr. Nan Pin Ren's loan was reversed upon the replacement of his loan with the promissory note.

(ii) Pro forma adjustment on cash and bank balances of HK$6,311,000 represented the repayment on the 20% of the indebtedness of Beijing Jian Guo to Mr. Andrew Nan Sherril and Mr. Nan Pin Ren.

(iii) Pro forma adjustment on promissory notes represented the reclassification of 80% of the loan due to Mr. Andrew Nan Sherrill and Mr. Nan Pin Ren of approximately HK$19,805,000 and HK$5,437,000 respectively and the interests accrued at 5.5% per annum during the year was approximately HK$364,000 and HK$31,000 respectively pursuant to the S&P Agreement.

(iv) By assuming that the Proposed Acquisition has been completed on 1st January 2005, the pro forma adjustment of decrease of approximately HK$120,000 to the finance costs represented the net effect on the reversal of the loan interests payable to Mr. Andrew Nan Sherril and Mr. Nan Pin Ren, and interests incurred from the promissory notes.

(v) the sum of pro forma adjustments in consolidated cash flow statement of the Enlarged Group represented the net cash effect on repayment of the 20% indebtedness of Beijing Jian Guo to Mr. Andrew Nan Sherrill and Mr. Nan Pin Ren.

Loan amounted to approximately HK$38,888,000 as at the date of the S&P Agreement represented the amount advanced to Shinhan-Golden by the Vendor for the purpose of financing the operations of Shinhan-Golden (the "Sale Loan"). Upon completion of the Proposed Acquisition, the Group acquired the Sale Loan which set off part of Investment Cost. As a result, the Group recorded a balance of amount due from Shinhan-Golden and this intra-group balance would be eliminated on consolidation.

— 145 —

APPENDIX VI

VALUATION REPORT

Set out below is the letter and valuation certificate received from DTZ Debenham Tie Leung Limited, an independent property valuer, prepared for the purpose of incorporation in this circular in connection with the valuation on property interest of the Group as at 28th February 2006.

Debenham Tie Leung

International Property Advisers

戴德梁行

10th Floor

Jardine House

1 Connaught Place

Central

Hong Kong

19th May 2006

The Directors

Riche Multi-Media Holdings Limited

Units 609-610, 6th Floor

Miramar Tower

132 Nathan Road

Tsim Sha Tsui

Kowloon

Hong Kong

Dear Sirs,

RE: NO. 9 GONGYUAN XIJIE, DONGCHENG DISTRICT, BEIJING, THE PRC (The property, our scope of valuation, comprises Part A - the unsold portion of the development, a) the 179 unsold residential units, 177 unsold car parks, and the ancillary commercial area on Levels 1 and 2; b) the ancillary building, with a total gross floor area of 41,652.78 sq.m. (448,350 sq.ft.); Part B - 22 residential units, and 16 car parks, with a total gross floor area of 3,841.99 sq.m. (41,355 sq.ft.), were previously sold between 1999 and 2001 but have not been officially transferred to the respective purchasers yet.)

Instructions, Purpose & Date of Valuation

In accordance with the instructions for us to carry out market valuation a) on completion basis (according to the proposed finishing standard provided to us) in respect of Part A and b) in existing state in respect of Part B of the property interest situated in the People's Republic of China ("the PRC"), we confirm that we have carried out inspection, make relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you (the "Company") and its subsidiary (together refer to as the "Group") with our opinion of value of such property interest as at 28th February 2006.

Basis of Valuation

Our valuation of the property interest represents 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.

APPENDIX VI
VALUATION REPORT

Valuation Assumptions

Our valuation excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangement, special considerations or concessions granted by anyone associated with the sale, or any element of special value.

In the course of our valuation of the property interest in the PRC, we have assumed that transferable land use rights in respect of the property interest for its specific term at nominal annual land use fees have been granted and that any land premium payable has already been fully settled. We have relied on the advice given by the Group and its PRC legal adviser, Jingtian & Gongcheng, regarding the title to the property interest and the interest in the property.

In valuing the property interest in the PRC, we have assumed that the grantee or the user of the property interest have an enforceable title to the property interest and have free and uninterrupted rights to use or to assign or lease the property interest for the whole of the unexpired terms as granted.

We have prepared our valuation on an entire interest basis in respect of the property interest.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property interest nor for any expenses or taxation, which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interest is free from encumbrances, restrictions and outgoing of an onerous nature which could affect its value.

Method of Valuation

We have valued the vacant portion of the property by Direct Comparison Method assuming sale of the property with immediate vacant possession by making reference to the comparable sales transaction as available in the relevant market.

We have valued the leased portion of the property by Investment Method by capitalizing the current rent passing derived from the existing tenancies and the reversionary income potential of the property interest.

In valuing the property, we have complied with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and Valuation Standards (First Edition 2005) on Properties published by the Hong Kong Institute of Surveyors.

— 147 —

APPENDIX VI
VALUATION REPORT

Source of Information

We have relied to a very considerable extent on information given by the Group and its PRC legal advisor, Jingtian & Gongcheng, on the PRC laws in respect of the property interest. We have accepted advice given to us by the Group and Beijing Jian Guo Real Estate Development Co., Ltd. (the owner of the property) on such matters as planning approvals or statutory notices, easements, tenure, completion date, identification of property interest, particulars of occupancy, tenancy details, sold area and prices, 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 and are therefore only approximations. We have had no reason to doubt the truth and accuracy of the information provided to us which is material to the valuation. We were also advised by the Group that no material facts have been omitted from the information supplied.

Title Investigation

We would point out that the copies of documents provided to us are mainly complied in Chinese characters and the transliteration into English represents our understanding of the contents. We would therefore advise the Group to make reference to the original Chinese edition of the documents and consult your legal adviser regarding the validity and legality as well as the interpretation of the documents.

Site Inspection

The Group has provided us with copies of documents in relation to the title to the property interest. However, we have not searched the original documents to verify ownership or to ascertain any amendments which may not appear on the copies handed to us.

We have inspected the exterior and, where possible, the interior of the property. However, no structural survey had been made and no tests had been carried out on any of the services. In the course of our inspection, we did note any serious defects. We are not, however, able to report whether the property is free of rot, infestation or any other structural defect.

We have not been able to carry out detailed on-site measurements to verify the site and floor areas of the property and we have assumed that the areas shown on the copies of documents handed to us are correct.

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APPENDIX VI
VALUATION REPORT

Exchange Rate
Unless otherwise stated, all money amounts stated are in Renminbi, the official currency of the PRC.

Yours faithfully,
for and on behalf of
DTZ Debenham Tie Leung Limited
Philip C. Y. Tsang
Registered Professional Surveyor (GP)
China Real Estate Appraiser
MSc., M.H.K.I.S., M.R.I.C.S
Senior Associate Director

Note: Mr. Philip C.Y. Tsang is a Registered Professional Surveyor who has over 13 years’ of experience in the valuation of properties in the PRC.

— 149 —

APPENDIX VI

VALUATION REPORT

VALUATION CERTIFICATE

Property held for investment purpose in the PRC

Property	Description and tenure	Particulars of occupancy	Capital value on completion as at 28th February 2006
No. 9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC
(The property, our scope of valuation, comprises Part A - the unsold portion of the development, a) the 179 unsold residential units, 177 unsold car parks, and the ancillary commercial area on Levels 1 and 2; b) the ancillary building, with a total gross floor area of 41,652.78 sq.m. (448,350 sq.ft.); Part B - 22 residential units, and 16 car parks, with a total gross floor area of 3,841.99 sq.m. (41,355 sq.ft.), were previously sold between 1999 and 2001 but have not been officially transferred to the respective purchasers yet.) (Please see Note 1 below)	No. 9 Gongyuan Xijie (“the development”) is erected on a site with a site area of 5,679.75 sq.m. (61,137 sq.ft.).

The development consists of two buildings, the main building and the ancillary building with a total gross floor area of approximately 46,809.97 sq.m. (503,863 sq.ft.). The development was completed in 2000.

The main building is a 19-storey plus 3 levels of basement apartment building with ancillary commercial area on Levels 1 and 2. The basement provides car parking spaces. The main building has ancillary commercial area on Levels 1 and 2, a total of 210 residential units and 199 car parks, in which 9 residential units and 6 car parks were previously sold between 1999 and 2001; and 22 residential units and 16 car parks were previously sold between 1999 and 2001 but have not been officially transferred to the respective purchasers yet. (please see Note 1 below).

The ancillary building is a 5-storey plus 1 level of basement composite building mainly devoted as a residents’ clubhouse.

The property, our scope of valuation, comprises Part A - the unsold portion of the development, a) the 179 unsold residential units, 177 unsold car parks, and the ancillary commercial area on Levels 1 and 2; b) the ancillary building, with a total gross floor area of 41,652.78 sq.m. (448,350 sq.ft.); Part B - 22 residential units, and 16 car parks, with a total gross floor area of 3,841.99 sq.m. (41,355 sq.ft.), were previously sold between 1999 and 2001 but have not been officially transferred to the respective purchasers yet. (Please see Note 1 below).

The land use rights of the property is granted a term from 7th October 1997 to 20th May 2067 for apartment use. | Part A of the property is being renovated and is scheduled for completion in late 2006. We have valued the property on completion basis according to the proposed finishing standard provided to us.

The retail area on Level 1 of the main building, with a gross floor area of 1,685.67 sq.m. is being occupied by a restaurant under a tenancy agreement due to expire on 23rd June 2007 at a current monthly rent of RMB434,000 with a rent increase to RMB468,000 in June 2006.

According to the PRC legal opinion, Level 1 of the main building has been occupied as commercial use. It does not comply with the permitted use in the Certificate of the Use of State-owned Land No. (2001) 10136 in which the permitted use of the land is apartment (Please see Note 3 below).

The remaining portion is vacant.

Part B of the Property is being occupied by the respective purchasers. | RMB800,000,000
(For Part A of the property)

Capital value in existing state as at 28th February 2006

RMB59,300,000
(For Part B of the property) |

— 150 —

APPENDIX VI

VALUATION REPORT

Notes:

(1) The property, our scope of valuation, comprises the following part of the development:

Part A — Unsold

	Approximate Gross Floor Area
	sq.m.	sq.ft.
a. Main building
179 unsold apartment units	28,263.20	304,225
Ancillary commercial area on Levels 1 & 2	3,822.61	41,147
177 Basement Car Parks	6,642.00	71,494
Sub-total	38,727.81	416,866
b. Ancillary building	2,924.97	31,484
Grand Total	41,652.78	448,350

Renovation work is being carried out to the Part A of the property. As advised by Beijing Jian Guo Real Estate Development Co., Ltd., the estimated renovation cost is about RMB58,000,000 for the main building. We have valued it on completion basis.

Part B — Sold but not officially transferred to the purchasers yet

	Approximate Gross Floor Area
	sq.m.	sq.ft.
a. Main building
22 residential units	3,241.99	34,897
16 Basement Car Parks	600.00	6,458
Grand Total	3,841.99	41,355

As advised by Beijing Jian Guo Real Estate Development Co., Ltd., the legal title of 22 residential units and 16 car parks of the said sold portion have not been officially transferred to the respective purchasers yet. Such sold 22 residential units and 16 car parks are being occupied by the respective purchasers. As advised by Beijing Jian Guo Real Estate Development Co., Ltd., the total sold consideration of the said 22 residential and 16 car parks was about RMB59,300,000. Our valuation of Part B of the property has taken into account the said sold consideration.

Part B of the property will not be renovated; we have valued it in existing state basis.

(2) According to Certificate for the Use of State-owned Land No. (2001) 10136 issued by the Beijing Land Resources and Building Administration Bureau on 9th April 2001:

(i) Owner : Beijing Jian Guo Real Estate Development Co., Ltd. (北京建國房地產開發有限公司)

(ii) Location : No. 9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC

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APPENDIX VI

VALUATION REPORT

(iii) Uses : Apartment
(iv) Land use rights area : 5,679.75 sq.m.
(v) Land use term : Due to expire on 20th May 2067

(3) According to the PRC legal opinion, Level 1 of the main building has been occupied as commercial use. It does not comply with the permitted use in the Certificate of the Use of State-owned Land No. (2001) 10136 in which the permitted use of the land is apartment.

According to a Supplemental Agreement dated 10th May 2006 entered into between Northbay Investments Holdings Limited (the "Vendor") and Riche (BVI) Limited (the "Purchaser"), the Vendor undertakes to fully and effectually indemnify and hold harmless the Purchaser against all claims, damages, losses, costs, expenses, actions and proceedings whatsoever and howsoever arising directly or indirectly at any time whether present or future arising from or in connection with the leasing of the ground floor ("refer to Level 1") of the main building to Beijing Qiannan Lizhi Bay Catering Co., Ltd. 北京岭南荔枝灣餐飲有限公司 under existing tenancy agreement dated 11th December 2001 (as supplemented by the supplemental agreement dated 25 May 2002 and entered into between Beijing Jian Guo Real Estate Development Co., Ltd., Guangzhou New Lizhi Bay Hotel Management Company Limited and Beijing Qiannan Lizhi Bay Catering Co., Ltd. 北京岭南荔枝灣餐飲有限公司) for land use purpose other than for the land use purpose allowed under the Certificate for the Use of State-owned Land No. (2001) 10136.

In the course of our valuation, we have taken into account the said lease till 2007.

(4) According to Building Ownership Certificate No. 10098 issued by the Beijing Land Resources and Building Administration Bureau on 9th April 2001:

(i) Owner : Beijing Jian Guo Real Estate Development Co., Ltd. (北京建國房地產開發有限公司)
(ii) Location : No.9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC
(iii) Land use right area : 5,679.75 sq.m.
(iv) Gross floor area : 46,809.97 sq.m.
(v) Uses : Apartment
(vi) Land use term : From 7th October 1997 to 20th May 2067

According to the PRC legal opinion, the unsold portion of the development is covered by said Certificate for the Use of State-owned Land and Building Ownership Certificate.

(5) According to Permit for Commencement of Construction Works No. (00) 2005. 2322 issued by Beijing Construction Committee on 19th October 2005, Beijing Jian Guo Real Estate Development Co., Ltd. is permitted to decorate No. 9 Gongyuan Xijie which is located on No.9 Gongyuan Xijie, Dongcheng District, Beijing, the PRC with construction scale of 32,344 sq.m..

(6) According to Business Licence No. 011824, Beijing Jian Guo Real Estate Development Co., Ltd. was incorporated on 5th November 1996 with a registered capital of US$15,000,000 for a valid operation period from 5th November 1996 to 4th November 2046.

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APPENDIX VI

VALUATION REPORT

(7) According to the PRC legal opinion:

(i) The investors of Beijing Jian Guo Real Estate Development Co., Ltd are Beijing Urban Development Group Co., Ltd. (Party A) and Shinhan-Golden Faith International Development Limited (Party B). The details of the proportion of contribution of registered capital of Party A and Party B are as follows:

Party A	Proportion of Contribution of Registered Capital
Party B	US$500,000 (3.3%)
	US$14,500,000 (96.67%)
Total:	US$15,000,000 (100%)

(ii) Beijing Jian Guo Real Estate Development Co., Ltd was established on 5th November 1996 legally.

(iii) According to Certificate for the Use of State-owned Land No. (2001) 10136, the land situated on No. 9 Gongyuan Xijie comprises a site area of 5,679.75 sq.m. The expiry date of the land use term is 20th May 2067 and the land is for apartment use.

(iv) According to Building Ownership Certificate No. 10098, the buildings situated on No. 9 Gongyuan Xijie comprise a total gross floor area of 46,809.97 sq.m.

(v) Beijing Jian Guo Real Estate Development Co., Ltd. owns the unsold portion (including those sold but not yet officially transferred units and car parks) of the land use rights and the building ownership situated on No. 9 Gongyuan Xijie. It has been obtained all of the necessary permission from the relevant government departments and such permission is still valid and has not been revoked.

(vi) Beijing Jian Guo Real Estate Development Co., Ltd. can freely transfer, lease and mortgage the land and buildings.

(vii) Portion of the land use rights and building ownership of the land and buildings which are owned by Beijing Jian Guo Real Estate Development Co., Ltd. on No. 9 Gongyuan Xijie are subject to mortgage in favour of China Merchants Bank Holdings Company Limited. The land area of the mortgaged land is 5,146.17 sq.m. The mortgage period is from 28th April 1999 to 30th August 2008. Without the written consent of the mortgagee, Beijing Jian Guo Real Estate Development Co., Ltd. cannot sell the land and buildings in the mortgage period. The land and buildings are not subject to any seizure, distraint, guarantor and other litigation, penalty, dispute and contention related to third-party interests except for the said mortgage above.

(viii) Except for the portion of Level 1 of the main building which has been leased to Beijing Qiannan Lizhi Bay Catering Co., Ltd. 北京岭南荔枝灣餐飲有限公司 for commercial use, the use of the property owned by Beijing Jian Guo Real Estate Development Co., Ltd. has complied with the permitted use.

(ix) If Beijing Jian Guo Real Estate Development Co., Ltd. continues to lease Level 1 of the main building for commercial use, Beijing Jian Guo Real Estate Development Co., Ltd. has to bear the legal risk of penalty or even forfeiture of the land use rights of the property.

(8) In accordance with the information provided by the Group and the PRC legal opinion, the status of title and grant of major approvals and licences are as follows:

Certificate for the Use of State-owned Land	Yes
Grant Contract of Land Use Right	Yes
Building Ownership Certificate	Yes
Permit for Commencement of Construction Works	Yes
Business Licence	Yes

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APPENDIX VII

GENERAL INFORMATION

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.

DIRECTORS' AND CHIEF EXECUTIVE'S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date none of the Directors or chief executive of the Company had or was deemed to have interests or short position in the shares, underlying shares or 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 Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules, to be notified to the Company and the Stock Exchange.

INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS

Save as disclosed below, as at the Latest Practicable Date, according to the register of interest kept by the Company under Section 336 of the SFO and so far as was known to the Directors, no other person or companies (other than a Director or chief executive of the Company) had an interest or short positions 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 carrying rights to vote in all

— 154 —

APPENDIX VII

GENERAL INFORMATION

circumstances at general meetings of any other member of the Enlarged Group or had any option in respect of such capital:

Long positions

Name	Notes	Capacity	Interest in Shares	Interest in underlying Shares	Total interest in Shares	Percentage of the issued capital of the Company
China Star Entertainment Limited	1 and 5	Interest of corporation	2,116,590,000	nil	2,116,590,000	41.06%
China Star Entertainment (BVI) Limited	1 and 5	Interest of corporation	2,116,590,000	nil	2,116,590,000	41.06%
Classical Statue Limited	5	Beneficial owner	2,116,590,000	nil	2,116,590,000	41.06%
Andrew Nan Sherrill	2	Interest of corporation	1,330,321,745	nil	1,330,321,745	25.81%
Asia Vest Partners Limited	2	Interest of corporation	1,330,321,745	nil	1,330,321,745	25.81%
Asia Vest Partners VII Limited	2	Interest of corporation	1,330,321,745	nil	1,330,321,745	25.81%
Asia Vest Partners X Limited	2	Interest of corporation	1,330,321,745	nil	1,330,321,745	25.81%
Northbay Investments Holdings Limited	2	Beneficial owner	1,330,321,745	nil	1,330,321,745	25.81%
Top Vision Management Limited		Beneficial owner	792,000,000	nil	792,000,000	15.37%
Mr. Chan Kam Sum	3	Interest of corporation	792,000,000	nil	792,000,000	15.37%
Lucky Star Consultants Limited		Beneficial owner	354,000,000	nil	354,000,000	6.87%

— 155 —

APPENDIX VII

GENERAL INFORMATION

Name	Notes	Capacity	Interest in Shares	Interest in underlying Shares	Total interest in Shares	Percentage of the issued capital of the Company
Mr. Lau Tung Hoi	4	Interest of corporation	354,000,000	nil	354,000,000	6.87%

Notes:

2,116,590,000 Shares are beneficially owned by Classical Statue Limited. Classical Statue Limited is a wholly-owned subsidiary of China Star Entertainment (BVI) Limited. China Star Entertainment (BVI) Limited is a wholly-owned subsidiary of China Star Entertainment Limited. China Star Entertainment Limited and China Star Entertainment (BVI) Limited are deemed to be interested in shares owned by Classical Statue Limited.
1,330,321,745 Shares will be beneficially owned by Northbay Investments Holdings Limited upon Completion. 35.5% and 64.5% of the entire shareholding of Northbay Investments Holdings Limited are respectively owned by Asia Vest Partners VII Limited and Asia Vest Partners X Limited, and both of them are indirectly wholly-owned by Mr. Andrew Nan Sherrill through Asia Vest Partners Limited.
792,000,000 Shares are held by Top Vision Management Limited, which is wholly-owned by Mr. Chan Kam Sum.
354,000,000 Shares are held by Lucky Star Consultants Limited, which is wholly-owned by Mr. Lau Tung Hoi.
Mr. Heung Wah Keung, Ms. Chen Ming Yin, Tiffany and Mr. Ho Wai Chi, Paul are directors of the Company and China Star Entertainment Limited. Mr. Heung Wah Keung and Ms. Chen Ming Yin, Tiffany are directors of the Company, China Star Entertainment (BVI) Limited and Classical Statue Limited.

Short positions

Name	Note	Capacity	Interest in Shares	Interest in underlying Shares	Total interest in Shares	Percentage of the issued capital of the Company
Top Vision Management Limited		Beneficial owner	420,000,000	nil	420,000,000	8.15%
Mr. Chan Kam Sum	1	Interest of corporation	420,000,000	nil	420,000,000	8.15%

Note:

420,000,000 Shares for short position are held by Top Vision Management Limited, which is wholly-owned by Mr. Chan Kam Sum.

— 156 —

APPENDIX VII

GENERAL INFORMATION

4. DIRECTORS' INTERESTS IN CONTRACTS AND ASSETS

None of the Directors was materially interested, directly or indirectly, in any contract or arrangement entered into by any member of the Enlarged Group which was subsisting as at the date of this circular and which was significant in relation to the business of the Enlarged Group.

None of the Directors has or had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to member of the Enlarged Group since 31st December 2005, being the date to which the latest published audited accounts of the Group were made up.

5. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors nor their respective associates had any business or interest that competes or may compete with the business of the Group or any other conflicts of interest with the Group.

6. LITIGATION

As at the Latest Practicable Date, save as disclosed below, neither the Company nor any of its subsidiaries nor any member of the Shinhan-Golden Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened against any member of the Enlarged Group.

(i) The Commissioner of Inland Revenue had issued proceedings on 30th March 2005 against Ocean Shores Licensing Limited, a subsidiary of the Company, in respect of an aggregate amount of outstanding taxation of HK$12,575,614 in respect of the financial years ended 1999, 2000 and 2001. Provision for this amount has been made in the Company's audited financial statements for the year ended 31st December 2004 and the Company is currently in discussions with the Inland Revenue Department as to whether such taxation is payable and how to settle this matter;

(ii) PRC court proceeding between Beijing Jun Ying Real Estate Management Limited (北京均赢物業管理有限公司) and JV Co. (as defendant) for a claim of approximately RMB243,000 (approximately HK$236,000). Beijing Jun Ying Real Estate Management Limited is the service provider of security and fire safety for the Property. Subsequent to 31st December 2005, the PRC courts made a verdict that JV Co. was liable to pay Beijing Jun Ying Real Estate Management Limited approximately RMB213,000 (approximately HK$207,000) and the directors of JV Co. made a provision for this liability;

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APPENDIX VII

GENERAL INFORMATION

(iii) PRC court proceeding between CL3 Architects Limited and JV Co. (as defendant) for a claim of approximately HK$2,500,000. CL3 Architects Limited is the service provider of interior design for the Property;

(iv) the failure of the JV Co. to pay the balance of contract sum of approximately RMB354,000 (approximately HK$344,000) under the agreement with Di Yi Ao Yuan Real Estate Management (Shanghai) Limited (第一澳元物業管理(上海)有限公司) dated 27th May 2005. Di Yi Ao Yuan Real Estate Management (Shanghai) Limited is the service provider of property management and hotel management service of the Property; and

(v) the failure of the JV Co. to pay the balance of contract sum of approximately RMB100,000 (approximately HK$97,000) under the oral agreement with De Ren Advertising Limited (德人廣告公司). De Ren Advertising Limited is the service provider of advertisement advisory service during the launch of the Property.

7. SERVICES CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contracts with any member of the Enlarged Group which was not determinable by the Company within one year without payment of compensation, other than statutory compensation.

8. EXPERTS AND CONSENTS

The followings are the qualifications of the experts who have given opinion and advise, which is contained in this circular:

Name	Qualification
HLB Hodgson Impey Cheng	Chartered Accountants, Certified Public Accountants
DTZ Debenham Tie Leung Ltd.	Property Valuer

HLB Hodgson Impey Cheng and DTZ Debenham Tie Leung Ltd. have given and have not withdrawn their written consent to the issue of this circular with the inclusions of their respective letters and references to their names in the form and context in which they appear.

— 158 —

APPENDIX VII

GENERAL INFORMATION

9. EXPERT'S INTERESTS IN ASSETS

As at the Latest Practicable Date, HLB Hodgson Impey Cheng and DTZ Debenham Tie Leung Ltd.:

(a) were not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to an member of the Enlarged Group or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31st 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 Enlarged 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 Enlarged Group.

10. MATERIAL ADVERSE CHANGE

The Directors confirm that, as at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31st December 2005, being the date to which the latest published audited accounts of the Company were made up.

11. PROCEDURES TO DEMAND FOR A POLL AT GENERAL MEETING

Pursuant to the Company's Bye-laws, a resolution put to the vote of any general 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) by the chairman of the meeting; or

(b) by at least three Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

(c) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or

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APPENDIX VII

GENERAL INFORMATION

(d) by a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and holding Shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

12. MISCELLANEOUS

(a) The Company has established an audit committee on 19th January 2000 in accordance with the requirements of the Code of Best Practice, for the purposes of reviewing and providing supervision over the Group’s financial reporting process and internal controls. The present members of the audit committee are three of the independent non-executive Directors, namely Mr. Tang Chak Lam, Gilbert, Mr. Ho Wai Chi, Paul and Mr. Lien Wai Hung.

(b) The register office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda and the principal office of the Company is situated at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong.

(c) The Hong Kong branch share registrar and transfer office of the Company is Standard Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

(d) Mr. Chan Kin Wah, Billy, the company secretary and qualified accountant of the Company, is an associate member of the Hong Kong Institute of Certified Public Accountants, a CPA member of CPA Australia and a non-practicing member of the Chinese Institute of Certified Public Accountants. He holds a Bachelor of Administration Degree from the University of Ottawa in Canada and a Master of Commerce Degree in Professional Accounting from the University of New South Wales in Australia.

(e) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

(f) There has been no alterations in any member of the Enlarged Group since the date to which the latest published accounts of the Company was made up.

(g) No capital of any member of the Enlarged Group is under option.

(h) No commissions, discounts, brokerage or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Enlarged Group.

— 160 —

APPENDIX VII

GENERAL INFORMATION

13. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the members of the Enlarged Group within the two years immediately preceding the Latest Practicable Date:

(i) a shareholders’ agreement dated 26th March 2004 entered into between Bluelagoon Investments Holdings Limited (“Bluelagoon”), a wholly owned subsidiary of the Company, and Mr. Liu Shu Jin, an independent third party, pursuant to which Bluelagoon agreed to invest HK$30,000,000 as production and distribution fees for a 40% equity interest in Rainbow Choice Enterprises Limited (“Rainbow Choice”), a company which principally engaged in production and distribution of entertainment news programmes in the PRC;

(ii) an agreement dated 23rd April 2005 entered into between Bluelagoon and Mr. Liu Shu Jin, pursuant to which both parties agreed to cease the operations of Rainbow Choice and the ownership of all entertainment news programmes produced by Rainbow Choice would be transferred to Bluelagoon and Mr. Liu Shu Jin agreed to repay the production and distribution fees of HK$18,000,000 to Bluelagoon;

(iii) a conditional sale and purchase agreement entered into between Dragon Leader Limited, a wholly-owned subsidiary of the Company, Leadfirst Limited and Mr. Benny Ki dated 9th April 2005 in relation to the acquisition of the entire issued share capital of Best Winning Group Limited by Dragon Leader Limited for a total consideration of HK$600,000,000;

(iv) an unconditional agreement entered into between Riche Video Limited, a wholly-owned subsidiary of the Company, and China Star Laser Disc Company Limited, a wholly-owned subsidiary of China Star Entertainment Limited, dated 7th July 2005, pursuant to which China Star Laser Disc Company Limited agreed to acquire and Riche Video Limited agreed to sell Units 5-18, 9 and 10, and private parking space P5 on the 15th (including respective roof), 6th and 2nd Floors respectively of Leader Industrial Centre, Nos. 57-59 Au Pui Wan Street, Shatin, New Territories, Hong Kong at a total consideration of HK$9,000,000;

(v) a deed of variation dated 29th December, 2005 entered into between Dragon Leader Limited, Leadfirst Limited as Mr. Benny Ki relating to the agreement referred to in (iii) above;

(vi) a placing agreement dated 7th September 2005 in relation to the placing by Goldbond Securities Limited of up to 400,000,000 Shares at a price on HK$0.34 per Share;

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APPENDIX VII

GENERAL INFORMATION

(vii) a facilities letter entered into between the Company and Kingston Finance Limited dated 30th March 2006 relating to a HK$250,000,000 loan facility;

(vii) the S&P Agreement; and

(viii) the supplemented agreement dated 10th May 2006 entered into between the parties to the S&P Agreement relating to the S&P Agreement.

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong during normal business hours on any weekday other than public holidays, up to and including 12th June 2006:

(a) the Memorandum and Bye-laws of the Company;

(b) the material contracts referred to in the paragraph headed “Material Contracts” to this Appendix;

(d) the accountant’s report of Shinhan-Golden from HLB Hodgson Impey Cheng, the text of which is set out in Appendix II to this circular;

(e) the letter from HLB Hodgson Impey Cheng regarding the unaudited proforma financial information of the Enlarged Group as set out in Appendix V to this circular;

(f) all reports, letters and other documents, balance sheets, valuations and statements by any expert of part of which is extracted or referred to in this circular;

(g) the written consents referred to in paragraph 8 of this Appendix;

(h) the circular of the Company dated 24th June 2005 relating to, inter alia, the acquisition of Best Winning Group Limited; and

(i) the circular of the Company dated 11th May 2006 relating to the extension of the repayment of the initial deposit and further deposit in respect of the acquisition of Best Winning Group Limited from Mr. Benny Ki.

— 162 —

NOTICE OF SPECIAL GENERAL MEETING

RICHE MULTI-MEDIA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

(Stock Code: 764)

NOTICE IS HEREBY GIVEN that a special general meeting of the Company will be held at Units 609-610, 6th Floor, Miramar Tower, 132 Nathan Road, Kowloon, Hong Kong on Monday, 12th June 2006, at 12:00 p.m. to consider and, if thought fit, pass the following resolution no.1 as an ordinary resolution and resolution no. 2 as a special resolution:

ORDINARY RESOLUTION

A. "THAT (i) the sale and purchase agreement dated 17th February 2006 (as supplemented by the supplemental agreement dated 10th May 2006) entered into between Riche (BVI) Limited and Northbay Investments Holdings Limited (a copy of such sale and purchase agreement has been produced to the meeting marked "A" and signed by the Chairman of the meeting for the purpose of identification) in relation to the acquisition (the "Acquisition") by Riche (BVI) Limited of 100% interest in Shinhan-Golden Faith International Development Limited, and all obligations, liabilities and debts owing or incurred by Shinhan-Golden Faith International Development Limited to Northbay Investments Holdings Limited be and are hereby approved, ratified and confirmed in all respects and that all transactions contemplated under the Acquisition be and are hereby approved and that any one director of the Company be and is hereby authorized to do or execute all such acts or such other documents which the director may deem to be necessary, desirable or expedient to carry into effect or to give effect to the Acquisition; and

B. THAT subject to the Listing Committee of The Stock Exchange of Hong Kong Limited granting the approval of listing of, and permission to deal in 1,330,321,745 ordinary shares of HK$0.01 each in the share capital of the Company to be allotted and issued as consideration for the Acquisition, the directors of the Company be and are hereby authorised to allot, issue and deal with such 1,330,321,745 shares."

NOTICE OF SPECIAL GENERAL MEETING

SPECIAL RESOLUTION

THAT the existing Bye-Laws of the Company be amended in the following matter:

(a) by deleting the word "annual" in the sixth sentence of Bye-law 86(2) so as to read "The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the Board or, subject to authorisation by the Members in general meeting, as an addition to the existing Board but so that the number of Directors so appointed shall not exceed any maximum number determined from time to time by the Members in general meeting. Any Director so appointed by the Board shall hold office only until the next following general meeting of the Company and shall then be eligible for re election at that meeting."

(b) by deleting the word "special" in the second sentence of Bye-law 86(4) and replacing it with the word "ordinary" so as to read "Subject to any provision to the contrary in these Bye laws the Members may, at any general meeting convened and held in accordance with these Bye laws, by ordinary resolution remove a Director at any time before the expiration of his period of office notwithstanding anything in these Bye laws or in any agreement between the Company and such Director (but without prejudice to any claim for damages under any such agreement) provided that the Notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served on such Director fourteen (14) days before the meeting and at such meeting such Director shall be entitled to be heard on the motion for his removal".

By Order of the Board
Riche Multi-Media Holdings Limited
Heung Wah Keung
Chairman

Hong Kong, 19th May 2006

— 164 —

NOTICE OF SPECIAL GENERAL MEETING

Registered office:
Clarendon House
2 Church Street
Hamilton HM11
Bermuda

Head office and principal place of business:
Units 609-610, 6th Floor
Miramar Tower
132 Nathan Road
Tsimshatsui
Kowloon
Hong Kong

As at the date of this notice, the executive directors of the Company are Mr. Heung Wah Keung and Ms. Chen Ming Yin, Tiffany and the independent non-executive directors of the Company are Mr. Tang Chak Lam, Gilbert, Mr. Ho Wai Chi, Paul and Mr. Lien Wai Hung.

Notes:

Any member of the Company entitled to attend and vote at the meeting is entitled to appoint proxy to attend and vote in his stead. A proxy not be a member of the Company.
To be valid, the form of proxy, together with any power of attorney or other attorney (if any) under which it is signed, or a notarially certified copy thereof, must be lodged with the Company's branch share registrars in Hong Kong, Standard Registrars Limited of 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 meeting or any adjournment thereof.

— 165 —

AI assistant

Samsonite Group S.A. — Proxy Solicitation & Information Statement 2006

50259_rns_2006-05-19_d215ef74-e7b8-48c6-b9c1-82c717b2a16a.pdf

RICHE MULTI-MEDIA HOLDINGS LIMITED

DEFINITIONS

DEFINITIONS

RICHE MULTI-MEDIA HOLDINGS LIMITED

INTRODUCTION

THE ACQUISITION

The S&P Agreement

The Acquisition

Consideration

Conditions

Signing, Completion and Incidental Documents

Relationship of the Group with Shanghai Shengping

Vendor's Undertaking

CHANGES IN SHAREHOLDING STRUCTURE OF THE COMPANY

INFORMATION ON SHINHAN-GOLDEN

PROSPECTS OF THE ENLARGED GROUP

INFORMATION ON THE GROUP

REASONS FOR AND EFFECT OF THE ACQUISITION ON THE GROUP

(a) Reasons

(b) Financial effects of the Acquisition

Net assets

Earnings

Gearing ratio

BYE-LAWS

SPECIAL GENERAL MEETING

RECOMMENDATION

MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Track record of the Group

Overview

Distribution of films

Sub-licensing of film rights

Investments in securities

Sales of advertising rights

Analysis on the results of operation of the Group during the three years ended 31st December 2005

Turnover

Cost of sales and gross profit margin

(Loss) profit from operations

Taxation

Net (loss) profit for the year attributable to the equity holders of the Company

Liquidity and financial resources

Charges on group assets

Net current assets

Material acquisitions and disposals of subsidiaries and associated companies

Contingent liabilities

Capital structure

Exchange risk and hedging

Staff, remuneration policies and share option scheme

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SHINHAN-GOLDEN GROUP

Track record of the Shinhan-Golden Group

Overview

Analysis on the results of operation of the Shinhan-Golden Group during the three years ended 31st December 2005

Turnover

Other revenue

Other income

Operating expenses

Administrative expenses

Finance costs

Taxation

Net profit for the year attributable to the equity holders of Shinhan-Golden

Analysis on the financial position of the Shinhan-Golden Group during the three years ended 31st December 2005

Liquidity and financial resources

Charges on group assets

Net current liabilities

Material acquisitions and disposals of subsidiaries and associated companies

Contingent liabilities

Case 1

CORPORATE INFORMATION OF SHINHAN-GOLDEN GROUP

ACCOUNTANTS' REPORT ON THE FINANCIAL INFORMATION FOR THE RELEVANT PERIOD

Respective responsibilities of Shinhan-Golden Director and reporting accountants

Basis of opinion

Opinion

1. THE FINANCIAL INFORMATION

D. Consolidated Statements of Changes in Equity

2. GENERAL INFORMATION AND BASIS OF PREPARATION OF FINANCIAL INFORMATION

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(r) Translation of foreign currencies

(a) Functional and presentation currency

Samsonite Group S.A. Proxy Solicitation & Information Statement 2006