Ulferts International Limited - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

Financial adviser to Shougang Concord Grand (Group) Limited

CIMB-GK Securities (HK) Limited

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

A notice convening a SGM of the Company to be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong at 11:00 a.m. on 12 January 2007 is set out on pages 165 to 167 of this circular. A form of proxy for the SGM for use by the Shareholders is enclosed with this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Hong Kong branch share registrars and transfer office of the Company, Tengis Limited of 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting (as case may be) should you so wish.

For identification purpose only

27 December 2006

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix I – Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Appendix II – Additional financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	128
Appendix III – Unaudited pro forma financial information on the Remaining Group. . . . . .	138
Appendix IV – Valuer’s report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	149
Appendix V – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	154
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	165

DEFINITIONS

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

“Agreement”	the agreement dated 1 December 2006 entered into between Grand
	Award, the Purchasers and Shougang Holding in relation to the
	Disposal
“associate”	has the meaning ascribed to it under the Listing Rules
“BDIA”	Beijing Dongzhimen International Apartment Co., Limited, a
	company incorporated in the PRC and is currently owned as to (i)
	44.0% by Grand Award; (ii) 51.0% by Shougang Hotel; and (iii)
	5.0% by The East Asiatic Co. (China) Limited
“Board”	the board of Directors
“Company”	Shougang Concord Grand (Group) Limited, a company
	incorporated in Bermuda with limited liability whose securities
	are listed on the main board of the Stock Exchange
“Completion”	completion of the Disposal pursuant to the Agreement
“connected person”	has the meaning ascribed to it under the Listing Rules
“Directors”	the directors of the Company
“Disposal”	the disposal of the Transferred Interests by Grand Award to the
	Purchasers pursuant to the Agreement
“East Lake Villas”	a developed complex with a total site area of approximately 44,226
	square meters, principally comprising low-rise villas, apartment
	buildings, an office building, restaurants and a mini-supermarket
“GDC”	Global Digital Creations Holdings Limited, a company
	incorporated in Bermuda with limited liability whose securities
	are listed on GEM and is a non-wholly owned subsidiary of the
	Company
“GDC Shares”	shares of HK$0.01 each in the capital of GDC
“GDC Subscriber”	Great Horizon International Limited, a company incorporated in
	the British Virgin Islands whose principal activity is investment
	holding
“GDC Subscription”	the subscription of the GDC Subscription Shares by the GDC
	Subscriber pursuant to the GDC Subscription Agreement

DEFINITIONS

“GDC Subscription Agreement”
the subscription agreement dated 1 December 2006 entered into between GDC and the GDC Subscriber
“GDC Subscription Price”
HK$ 0.2436 per GDC Subscription Share
“GDC Subscription Shares” 40,000,000 new GDC Shares, representing approximately 4.99% of the existing issued share capital of GDC and approximately 4.75% of the issued share capital of GDC as enlarged by the GDC Subscription
“GDC Tech” GDC Technology Limited, a company incorporated in the British Virgin Islands, and is indirectly owned as to approximately 83.34% by GDC before completion of the GDC Tech Subscription
“GDC Tech Shares” shares of HK$0.10 each in the capital of GDC Tech
“GDC Tech Subscriber” Greater Appeal Investments Limited, a company incorporated in the British Virgin Islands whose principal activity is investment holding
“GDC Tech Subscription” the subscription of the GDC Tech Subscription Shares by the GDC Tech Subscriber pursuant to the GDC Tech Subscription Agreement
“GDC Tech Subscription Agreement” the subscription agreement dated 1 December 2006 entered into between GDC Tech and the GDC Tech Subscriber
“GDC Tech Subscription Price” US$0.12408 per GDC Tech Subscription Share
“GDC Tech Subscription Shares” 52,383,580 new GDC Tech Shares, representing approximately 48.14% of the existing issued share capital of GDC Tech and approximately 32.49% of the issued share capital of GDC Tech as enlarged by the GDC Tech Subscription
“GEM” the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM and any amendments thereto
“Grand Award” Grand Award Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company
“Group” the Company and its subsidiaries
“Hong Kong” the Hong Kong Special Administrative Region of the PRC

DEFINITIONS

“Hong Kong GAAP”

the accounting principles generally accepted in Hong Kong

“Independent Board Committee”

the independent committee of the Board established for the purpose of reviewing and advising the Independent Shareholders on the terms of the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement

“Independent Financial Adviser”
Ernst & Young Corporate Finance Limited, a licensed corporation to carry out types 1 (dealing in securities) and 6 (advising on corporate finance) regulated activities for the purposes of the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Disposal, the GDC Subscription and the GDC Tech Subscription
“Independent Shareholders”
in respect of (i) the Disposal, Shareholders other than Shougang Holding and its associates; and (ii) the GDC Subscription and the GDC Tech Subscription, Shareholders other than Mr. Li Ka-shing and his associates
“Latest Practicable Date” 21 December 2006, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular
“Listing Rules”
The Rules Governing the Listing of Securities on the Stock Exchange
“PRC” The People’s Republic of China, which for the purpose of this circular, shall exclude Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan
“Purchasers” Shougang Hotel and Strength Up, the purchasers under the Agreement
“Remaining Group” the Group immediately after the Completion
“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“SGM”
a special general meeting of the Company to be held for the purpose of considering, and if thought fit, approving (i) the Agreement and the transactions contemplated thereunder; (ii) the GDC Subscription Agreement and the transactions contemplated thereunder; and (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder

DEFINITIONS

“Shares”

ordinary shares of HK$0.01 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Shares
“Shougang Corporation” Shougang Corporation, a state-owned enterprise established in the PRC whose principal activity is investment holding and is the beneficial owner of the entire issued share capital of Shougang Holding, the substantial shareholder of the Company
“Shougang Hotel” China Beijing Shougang Hotel Development Company, a company incorporated in the PRC and a wholly-owned subsidiary of Shougang Corporation
“Shougang Holding” Shougang Holding (Hong Kong) Limited, a company incorporated in Hong Kong whose principal activity is investment holding and is the controlling shareholder of the Company beneficially interested in approximately 40.87% of the issued share capital of the Company
“Strength Up” Strength Up Investments Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Shougang Holding
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Transferred Interests” the 44.0% interest in the registered capital of BDIA held by Grand Award, to be transferred pursuant to the terms and conditions of the Agreement
“United States” the United States of America “HK$” Hong Kong dollars, the lawful currency of Hong Kong
“RMB” Renminbi, the lawful currency of the PRC “US$” United States dollars, the lawful currency of the United States “%” per cent.

In this circular, conversion of US$ into HK$ is based on the exchange rate of US$1.00 = HK$7.78 and the conversion of RMB into HK$ is based on the exchange rate of RMB1.00 = HK$0.9668. No representation is made that any amounts in US$ or RMB could have been or could be converted at the above rate or at any other rates or at all.

LETTER FROM THE BOARD

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

Directors:

Mr. Wang Qinghai (Chairman)

Mr. Cao Zhong (Vice Chairman and Managing Director)
Mr. Chen Zheng (Managing Director of Operations)
Mr. Wang Tian (Deputy Managing Director)

Registered office:

Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Ms. Cheng Xiaoyu (Deputy Managing Director)
Mr. Yuan Wenxin (Deputy Managing Director)
Mr. Leung Shun Sang, Tony
Mr. Liu Wei
Mr. Tam King Ching, Kenny (Independent Non-executive Director)

Principal place of business in Hong Kong: 6th Floor

Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai, Hong Kong

Ms. Zhou Jianhong (Independent Non-executive Director)

27 December 2006

To the Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

I. INTRODUCTION

On 5 December 2006, the Company announced that on 1 December 2006:

(i) Grand Award, a wholly-owned subsidiary of the Company, entered into the Agreement with the Purchasers to dispose of the Transferred Interests for an aggregate consideration of RMB170.00 million (equivalent to approximately HK$164.36 million), representing Grand
For identification purpose only

LETTER FROM THE BOARD

Award’s entire 44.0% equity interest in BDIA, the principal underlying asset of which is its ownership of East Lake Villas, located in Dongcheng District, Beijing, the PRC;

(ii) GDC, a non-wholly owned subsidiary of the Company, entered into the GDC Subscription Agreement with the GDC Subscriber pursuant to which, GDC has conditionally agreed to issue and allot to the GDC Subscriber, and the GDC Subscriber has conditionally agreed to subscribe for the GDC Subscription Shares at the GDC Subscription Price for an aggregate consideration of approximately HK$9.74 million, representing approximately 4.99% of the existing issued share capital of GDC and approximately 4.75% of the issued share capital of GDC as enlarged by the GDC Subscription; and
(iii) GDC Tech, a non-wholly owned subsidiary of GDC, which in turn is an indirect non-wholly owned subsidiary of the Company, entered into the GDC Tech Subscription Agreement with the GDC Tech Subscriber pursuant to which, GDC Tech has conditionally agreed to issue and allot to the GDC Tech Subscriber, and the GDC Tech Subscriber has conditionally agreed to subscribe for the GDC Tech Subscription Shares at the GDC Tech Subscription Price for an aggregate consideration of approximately US$6.5 million (equivalent to approximately HK$50.57 million). The GDC Tech Subscription Shares represent approximately 48.14% of the existing issued share capital of GDC Tech and approximately 32.49% of the issued share capital of GDC Tech as enlarged by the GDC Tech Subscription.

The Disposal constitutes a very substantial disposal of the Company under the Listing Rules and is therefore subject to the shareholders’ approval requirements under Chapter 14 of the Listing Rules. As Strength Up, one of the Purchasers, is a wholly-owned subsidiary of Shougang Holding which in turn holds approximately 40.87% interest in the Company, and Shougang Hotel, another Purchaser, is whollyowned by Shougang Corporation which in turn wholly owns Shougang Holding, both Strength Up and Shougang Hotel are connected persons of the Company. The Disposal also constitutes a connected transaction of the Company and is subject to approval of the Independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to be held to approve the Disposal.

As GDC is owned as to 74.98% by the Company before completion of the GDC Subscription, and the GDC Subscriber is ultimately beneficially wholly-owned by Mr. Li Ka-shing who, through his associates, currently holds approximately 11.70% shareholding interest in the Company, the GDC Subscriber is a connected person of the Company. Accordingly, the GDC Subscription constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules, and is conditional upon approval of the Independent Shareholders by way of poll at the SGM. Though GDC is a major subsidiary of the Company under the Listing Rules, the GDC Subscription does not constitute a deemed disposal of interest in a major subsidiary under note 4 to Rule 13.36(1)(a)(ii) of the Listing Rules. The GDC Tech Subscription constitutes a deemed disposal of interest in a major subsidiary under Rule 13.36(1)(a)(ii) of the Listing Rules, and a discloseable transaction of the Company under Chapter 14 of the Listing Rules. As the GDC Tech Subscriber is also ultimately beneficially wholly-owned by Mr. Li Ka-shing, the GDC Tech Subscriber is a connected person of the Company, and the GDC Tech Subscription also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. Accordingly, the GDC Tech Subscription is subject to approval of the Independent Shareholders by way of poll at the SGM. Mr.

LETTER FROM THE BOARD

Li Ka-shing and his associates are required to abstain from voting at the SGM to be held to approve the GDC Subscription and the GDC Tech Subscription.

The Independent Board Committee, comprising Mr. Tam King Ching, Kenny and Ms. Zhou Jianhong, being the independent non-executive Directors, has been formed to advise the Independent Shareholders on the terms of the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement. Ernst & Young Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Disposal, the GDC Subscription and the GDC Tech Subscription.

The purpose of this circular is to give you (i) further details of the Disposal, the GDC Subscription and the GDC Tech Subscription; (ii) a letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders on the Disposal, the GDC Subscription and the GDC Tech Subscription; (iii) the recommendation of the Independent Board Committee regarding the Disposal, the GDC Subscription and the GDC Tech Subscription; and (iv) a notice of SGM.

II. THE DISPOSAL

1. THE AGREEMENT

Date

1 December 2006

Parties

Seller : Grand Award

Purchasers : (i) Shougang Hotel, a wholly-owned subsidiary of Shougang Corporation
(ii) Strength Up, a wholly-owned subsidiary of Shougang Holding
Guarantor : Shougang Holding, is to guarantee the due performance of Strength Up under the Agreement

Asset to be disposed of

The Transferred Interests represent Grand Award’s entire 44.0% interest in BDIA. Grand Award has conditionally agreed to dispose of the Transferred Interests to:

(i) Shougang Hotel, as to a 24.0% interest in the registered capital of BDIA; and
(ii) Strength Up, as to a 20.0% interest in the registered capital of BDIA.

Upon Completion, Grand Award will cease to hold any interest in the registered capital of BDIA.

LETTER FROM THE BOARD

Consideration

The aggregate consideration for the Transferred Interests is RMB170.00 million (equivalent to approximately HK$164.36 million) which shall be paid in cash by:

(i) Shougang Hotel for an amount of RMB92,727,273 (equivalent to approximately HK$89.65 million) for the 24.0% interest in the registered capital of BDIA; and
(ii) Strength Up for an amount of RMB77,272,727 (equivalent to approximately HK$74.71 million) for the 20.0% interest in the registered capital of BDIA.

The aggregate consideration shall be settled in cash in the following manner:

(i) upon Completion, a sum of RMB55,636,363.80 (equivalent to approximately HK$53.79 million) and a sum of RMB46,363,636.20 (equivalent to approximately HK$44.82 million) payable by Shougang Hotel and Strength Up respectively, being 60.0% of the consideration; and
(ii) within 3 months from the date of Completion, a sum of RMB37,090,909.20 (equivalent to approximately HK$35.86 million) and a sum of RMB30,909,090.80 (equivalent to approximately HK$29.88 million) payable by Shougang Hotel and Strength Up respectively, being the remaining 40.0% of the consideration.

The consideration was arrived at after arm’s length negotiations between Grand Award and the Purchasers with reference to (i) the carrying value of the Transferred Interests in the unaudited consolidated balance sheet of the Group as at 30 June 2006 of approximately HK$119.36 million; (ii) the minority interests of the Transferred Interests in BDIA and the relatively low investment return generating therefrom; (iii) the intention of Shougang Hotel and Strength Up to retain the existing use and existing operating model of East Lake Villas, with no disposal or redevelopment plan in the next five years from the date of Completion; and (iv) with such intention of Shougang Hotel and Strength Up, the capital worth to the investors of East Lake Villas (defined as the value of the property to particular investors for identified investment objectives) as a whole as at 31 October 2006 of approximately RMB366 million (equivalent to approximately HK$353.86 million). Sallmanns (Far East) Limited, an independent valuer, has assessed such capital worth of East Lake Villas as at 31 October 2006 which is derived from the capitalization of the historical net income. For details, please refer to the valuer’s report set out in Appendix IV to this circular.

Conditions to Completion

Completion will take place on the fifth business day after the following conditions are fulfilled:

(i) the Independent Shareholders having passed the resolution(s) at the SGM to approve the Disposal; and

LETTER FROM THE BOARD

(ii) all outstanding authorisations, consents and approvals from the relevant PRC authorities required for the Disposal having been obtained.

As the above conditions are not waivable, in the event that any of the above conditions precedent shall not have been fulfilled on or before 30 June 2007 (or such later date as the parties to the Agreement may agree in writing), the Agreement shall forthwith terminate.

Post Completion event

Each of the Purchasers has represented to Grand Award that each of them presently has no intention to dispose of the Transferred Interests or to procure BDIA to dispose of or to redevelop East Lake Villas and/or the site and/or to effect substantial change to the existing use and/or BDIA’s existing operating model of East Lake Villas within five years from the date of Completion.

If any of the Purchasers and/or BDIA effect substantial changes to the existing use and/or existing operating model of East Lake Villas or to directly or indirectly dispose of East Lake Villas and/or the site (where East Lake Villas is located) or to redevelop East Lake Villas and/or the site within five years from the date of Completion, Grand Award may, within three months from the date of occurrence of such changes, disposal and/or redevelopment, request the Purchasers to appoint a qualified valuer as approved by Grand Award and in accordance with the relevant requirements of the Listing Rules, to assess the new valuation of East Lake Villas and/or the site based on such changes and other principles as the parties may agree. The new valuation report of East Lake Villas and/or the site is to be issued within thirty days from the date of appointment of the valuer. The Purchasers shall base on their proportional interests underlying the Transferred Interests pay to Grand Award the difference between the consideration for the Transferred Interests and the 44.0% attributable interest in the new valuation of East Lake Villas and/or the site within three months from the date of the issuance of the new valuation report, if any.

2. INFORMATION ON BDIA

BDIA is principally engaged in the provision of serviced apartment services through its ownership of East Lake Villas located in Dongcheng District, Beijing, the PRC. East Lake Villas has a total site area of about 44,226 square meters, comprising mainly 36 units of 2-storey and 3-storey villas, four apartment buildings and one office building. Most of the villas and buildings were completed between 1989 and 1991 whilst some of the apartment buildings were completed in 2003. BDIA also operates restaurants and a mini-supermarket in East Lake Villas.

As at the date of the Agreement, BDIA is owned as to 44.0% by Grand Award, as to 51.0% by Shougang Hotel; and as to 5.0% by The East Asiatic Co. (China) Limited, an independent third party not connected with the Company or any connected person of the Company. BDIA is a jointly controlled entity of the Company and the contributions from the Transferred Interests have been equity accounted for in the financial statements of the Group.

LETTER FROM THE BOARD

The unaudited net (loss)/ profit (before and after taxation and extraordinary items) of BDIA prepared under Hong Kong GAAP for the two years ended 31 December 2005 and the six months ended 30 June 2006 were as follows:

			For the six
			months ended
	For the year ended 31 December		30 June
	2004	2005	2006
	(unaudited)	(unaudited)	(unaudited)
	RMB’000/HK$’000	RMB’000/HK$’000	RMB’000/HK$’000
Net (loss)/ profit before taxation and
extraordinary items	(8,780)/(8,488)	2,643/2,555	3,170/3,064
Net (loss)/ profit attributable to shareholders
of BDIA	(11,764)/(11,373)	(2,107)/(2,037)	216/209

The unaudited net asset value of BDIA prepared under Hong Kong GAAP was approximately RMB236.86 million (equivalent to approximately HK$229.00 million) as at 30 June 2006.

3. REASONS FOR AND BENEFITS OF THE DISPOSAL AND USE OF PROCEEDS

The Group is principally engaged in property investment and management, cultural mass media and provision of financial services. BDIA is principally engaged in the provision of serviced apartment services through its ownership of East Lake Villas.

Shougang Hotel, through BDIA, is principally engaged in the provision of serviced apartment services. The principal activity of Strength Up is investment holding.

The Company invested in BDIA since October 1998 as a long-term investment. In recent years, as stated in the annual reports of the Company, the Group has been reformulating its business strategies to diverse from property related activities and to focus on the financial services and cultural mass media businesses. Furthermore, the Transferred Interests represent a minority stake in BDIA whereby the Company has always been a passive investor and contribute relatively low return on the book value of the Transferred Interests in recent years. Notwithstanding the potential resale and redevelopment value of East Lake Villas, both Shougang Hotel and Strength Up have represented to the Company that they intend to maintain East Lake Villas at its existing state and they have no plan to dispose of or redevelop East Lake Villas and/or the site within five years from the date of Completion. Having taken account of these factors as well as the recent renovation of East Lake Villas completed in 2003, the Directors believe that it is unlikely BDIA will dispose of or redevelop East Lake Villas and/or the site in the near future.

Notwithstanding the Disposal, the remaining businesses of the Group comprise the provision of financial services, cultural mass media and property investment. The Board considers that by effecting the Disposal, the Group can recoup capital for developing its other businesses, which the Board believes that given the past performance and industry prospects of these other businesses, these businesses would have a greater growth and earnings potential than those of the Transferred Interests.

LETTER FROM THE BOARD

The Disposal is a cash transaction. The net proceeds of approximately HK$160.43 million generated from the Disposal will be utilised as to approximately HK$56.00 million for meeting the Group’s capital commitment arising from other existing businesses, as to approximately HK$40.78 million for repaying certain loans of the Group and as to the remaining balance of approximately HK$63.65 million would be used as working capital of the Group.

Having considered the terms of the Agreement which were negotiated on an arm’s length basis and the above reasons and benefits, the Board (including the independent non-executive Directors) is of the view that the terms of the Agreement are fair and reasonable and that the Agreement is entered into on normal commercial terms and is in the interests of the Company and the Shareholders as a whole.

4. FINANCIAL EFFECT OF THE DISPOSAL

Upon Completion, the Group will cease to hold any interest in the registered capital of BDIA.

Based on (i) the consideration for the Transferred Interests of RMB170.00 million (equivalent to approximately HK$164.36 million); and (ii) the carrying value of the Transferred Interests in the unaudited consolidated balance sheet of the Group as at 30 June 2006 of approximately HK$119.36 million, it is currently expected that the Group would realize an estimated gain of approximately HK$45.00 million (before taxation, expenses and release of translation reserve) from the Disposal. The actual amount of gain on the Disposal will be finalised upon Completion in 2007 and accounted for in the consolidated financial statements of the Group for the year ending 31 December 2007.

Based on the unaudited pro forma financial information on the Remaining Group set out in Appendix III to this circular, assuming the Disposal had taken place at the commencement of the year ended 31 December 2005, the unaudited pro forma net loss of the Remaining Group attributable to equity holders of the Company would have decreased from approximately HK$316.80 million before the Completion to approximately HK$278.43 million after the Completion and assuming the Disposal took place on 30 June 2006, the unaudited pro forma net asset value of the Remaining Group would have increased from approximately HK$226.02 million before the Completion to approximately HK$267.73 million after the Completion.

5. PROSPECTS

Following Completion, the Remaining Group will continue to engage in the provision of financial services, cultural mass media and property investment. The Board considers that by effecting the Disposal, the Remaining Group can recoup capital for developing its other businesses which the Board believes to have a greater growth and earnings potential.

As for the cultural recreation content provision business, the Remaining Group will focus on producing television series to gain relatively reliable return. The Remaining Group will also invest in and produce quality movie projects. The Remaining Group’s business of contractor of computer graphic creation and production has been becoming mature. GDC has developed from purely contract and process production of animation television series and movies to co-production with producers. Taking into consideration the amount of contracts signed and being negotiated during the year 2006 and up to the Latest Practicable Date, the Directors expect that the business will continue to grow significantly.

LETTER FROM THE BOARD

The Remaining Group will continue to be engaged in the business of distribution and exhibition of digital content through GDC Tech, especially in respect of developing products fully complied with the specifications issued by Digital Cinema Initiative, LLC. (“DCI”) which is adopted as an industrial specifications (the “DCI Specifications”). During the six months ended 30 June 2006, deployment of digital cinema was increasing and several projects of roll-out of digital cinema theatres have successfully raised funds. The full scale roll-out of digital cinema around the world is nearly realised in the foreseeable future. Such digitalisation of cinema will bring huge business opportunity to GDC Tech. GDC Tech expects a significant increase in revenue when GDC Tech’s server completely complying with the DCI Specifications is fully developed. GDC Tech is also developing the upgrade kit for GDC Tech’s servers already installed to enable them to fully comply with the DCI Specifications. Both the server and upgrade kit complying with the DCI Specification are planned to be launched around the end of the year 2006. To capture the benefit of the enormous growth in digital cinema equipment business, the Remaining Group has completed the first stage of business restructuring of GDC Tech by inducing GDC Tech’s management becoming its shareholders and the second stage by completing the GDC Tech Subscription, and now is considering to introduce more strategic partners.

The Remaining Group has been operating its financial services business through its wholly-owned subsidiary, 首方投資管理（深圳）有限公司 (“Capital Steel”). Capital Steel is completing the project of assisting a bank to restructure debts of the bank’s client and will continue to look for investment opportunities and engage in the provision of financial services business.

For the property investment and management business, the Directors expect that investment properties in Hong Kong and the PRC will continue to contribute stable cash return in the foreseeable future.

III. THE GDC SUBSCRIPTION AND THE GDC TECH SUBSCRIPTION

1. THE GDC SUBSCRIPTION AGREEMENT

Date

1 December 2006

Parties

Issuer : GDC, a non-wholly owned subsidiary of the Company

Subscriber : GDC Subscriber, an investment holding company ultimately beneficially whollyowned by Mr. Li Ka-shing who, through his associates, currently holds approximately 11.70% shareholding interest in the Company

LETTER FROM THE BOARD

Shares to be issued

40,000,000 GDC Subscription Shares, representing approximately 4.99% of the existing issued share capital of GDC and approximately 4.75% of the issued share capital of GDC as enlarged by the GDC Subscription.

The GDC Subscription Shares will be issued pursuant to the existing general mandate of GDC granted by the shareholders of GDC on 26 May 2006, which remained unutilised as at the Latest Practicable Date, and will rank pari passu in all respects with the other GDC Shares in issue on the date of completion of the GDC Subscription including the rights to all dividends and other distributions declared, made or paid at any time on or after the date of allotment of such GDC Subscription Shares.

Application will be made by GDC to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the GDC Subscription Shares.

Upon completion of the GDC Subscription, the Company’s shareholding interest in GDC will be diluted from approximately 74.98% to 71.41%, and GDC will continue to be a subsidiary of the Company, and the assets and results of GDC will continue to be consolidated into the consolidated financial statements of the Group.

Consideration

HK$0.2436 per GDC Subscription Share, which has been determined after arm’s length negotiations between the parties thereto with reference to the average closing price of the GDC Shares as quoted on GEM for the last 30 trading days, up to and including 30 November 2006 (being the last trading day immediately before the date of the GDC Subscription Agreement), and represents (i) a discount of approximately 4.5% to the closing price of GDC Shares of HK$0.2550 as quoted on GEM on 1 December 2006 (being the last trading day immediately before the suspension of trading of the GDC Shares pending the release of the announcement jointly issued by the Company and GDC in relation to the GDC Subscription and the GDC Tech Subscription); (ii) a discount of approximately 6.3% to the closing price of the GDC Shares of HK$0.26 as at the Latest Practicable Date; and (iii) a premium over the audited consolidated net liability of GDC per GDC Share of approximately HK$0.16 as at 31 December 2005. Based on the GDC Subscription Price, the total consideration of the GDC Subscription is approximately HK$9.74 million which will be settled in cash.

The Directors consider that the GDC Subscription Price is fair and reasonable so far as the Company and the Shareholders are concerned.

Conditions to completion

Completion of the GDC Subscription shall be conditional upon, among other things:

(i) the approval for the listing of, and permission to deal in, the GDC Subscription Shares being granted by the Listing Committee of the Stock Exchange;

LETTER FROM THE BOARD

(ii) the passing by the Independent Shareholders and the shareholders of GDC (other than those prohibited from voting under the GEM Listing Rules), as required under the Listing Rules and the GEM Listing Rules (as the case may be), of all necessary resolutions at the SGM and the special general meeting of GDC (as the case may be) approving the GDC Subscription Agreement, the allotment and issue of the GDC Subscription Shares and other transactions contemplated thereunder; and
(iii) the GDC Tech Subscription Agreement having become unconditional in accordance with terms thereof (other than conditions in connection with completion of the GDC Subscription).

Completion will take place on the third business day after all of the conditions of the GDC Subscription Agreement have been satisfied. If the conditions are not fulfilled (or in the case of, among others, the condition set out in (iii) above, waived by the GDC Subscriber in writing) on or before 30 June 2007, the GDC Subscription Agreement shall terminate and neither of the parties shall have any claim against the other for costs, damages, compensation or otherwise, except that such termination shall not affect the then accrued rights and obligations of the parties.

2. THE GDC TECH SUBSCRIPTION AGREEMENT

Date

1 December 2006

Parties

Issuer : GDC Tech, a non-wholly owned subsidiary of GDC, which in turn is an indirect non-wholly owned subsidiary of the Company
Subscriber : GDC Tech Subscriber, an investment holding company ultimately beneficially wholly-owned by Mr. Li Ka-shing who, through his associates, currently holds approximately 11.70% shareholding interest in the Company

Shares to be issued

52,383,580 GDC Tech Subscription Shares, representing approximately 48.14% of the existing issued share capital of GDC Tech and approximately 32.49% of the issued share capital of GDC Tech as enlarged by the GDC Tech Subscription.

Upon completion of the GDC Subscription and the GDC Tech Subscription, the Company’s indirect attributable interest in GDC will be diluted from approximately 62.49% to 40.17%. Given that upon completion of the GDC Subscription and the GDC Tech Subscription, GDC Tech will remain as a subsidiary of GDC and GDC will remain as a subsidiary of the Company, GDC Tech’s financial results and assets and liabilities will remain to be consolidated into the consolidated financial statements of the Group.

LETTER FROM THE BOARD

Consideration

The total cash consideration for the GDC Tech Subscription Shares amounts to approximately US$6.5 million (equivalent to approximately HK$50.57 million), representing US$0.12408 (equivalent to approximately HK$0.965) per GDC Tech Subscription Share. Such consideration has been determined after arm’s length negotiations between the parties thereto with reference to the digital content distribution related projects under negotiation and future prospects of GDC Tech in light of the trend of deployment of digital cinemas worldwide, and the future prospects of a publicly traded comparable company in the United States, which is engaged in digital content distribution related activities.

The Directors consider that the GDC Tech Subscription Price is fair and reasonable so far as the Company and the Shareholders are concerned.

Conditions to completion

Completion of the GDC Tech Subscription shall be conditional upon, among other things:

(i) the passing by the Independent Shareholders and the shareholders of GDC (other than those prohibited from voting under the GEM Listing Rules), as required under the Listing Rules and the GEM Listing Rules (as the case may be), of all necessary resolutions at the SGM and the special general meeting of GDC (as the case may be) approving the GDC Tech Subscription Agreement, the allotment and issue of the GDC Tech Subscription Shares and other transactions contemplated thereunder; and
(ii) the GDC Subscription Agreement having become unconditional in accordance with terms thereof (other than conditions in connection with completion of the GDC Tech Subscription).

Completion will take place on the third business day after all of the conditions of the GDC Tech Subscription Agreement have been satisfied. If the conditions are not fulfilled (or in the case of, among others, the condition set out in (ii) above, waived by the GDC Tech Subscriber in writing) on or before 30 June 2007, the GDC Tech Subscription Agreement shall terminate and neither of the parties shall have any claim against the other for costs, damages, compensation or otherwise, except that such termination shall not affect the then accrued rights and obligations of the parties.

3. INFORMATION ON GDC AND GDC TECH

GDC and its subsidiaries are principally engaged in the digital content business, encompassing creation, production and distribution of digital contents. GDC Tech, a non-wholly owned subsidiary of GDC, which in turn is an indirect non-wholly owned subsidiary of the Company, is principally engaged in the provision of computing solutions for digital content distribution and exhibitions on a worldwide basis.

LETTER FROM THE BOARD

The following table shows the audited consolidated financial information of GDC for the two years ended 31 December 2005 and the unaudited consolidated financial information of GDC for the six months ended 30 June 2006 and the nine months ended 30 September 2006, which has been prepared in accordance with Hong Kong GAAP:

			For the	For the
			six months	nine months
	For the year ended		ended	ended
	31 December		30 June	30 September
	2004	2005	2006	2006
	(audited)	(audited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000
Loss before taxation	(131,202)	(76,205)	(18,843)	(23,096)
Loss attributable to ordinary
equity holders of GDC	(131,227)	(76,356)	(18,843)	(23,096)

The unaudited consolidated net liability of GDC prepared under Hong Kong GAAP was approximately HK$147.20 million as at 30 June 2006.

The following table shows the unaudited consolidated financial information of GDC Tech for the two years ended 31 December 2005, the six months ended 30 June 2006 and the nine months ended 30 September 2006, which has been prepared in accordance with Hong Kong GAAP:

				For the	For the
				six months	nine months
	For the year ended			ended	ended
	31 December			30 June	30 September
	2004		2005	2006	2006
	(unaudited)	(unaudited)		(unaudited)	(unaudited)
	HK$’000		HK$’000	HK$’000	HK$’000
Profit/(loss) before taxation	229		(10,932)	(4,993)	(6,266)
Loss attributable to ordinary equity
holders of GDC Tech	(208)		(10,572)	(4,993)	(6,266)

The unaudited consolidated net liability of GDC Tech prepared under Hong Kong GAAP was approximately HK$36.67 million as at 30 June 2006.

LETTER FROM THE BOARD

4. REASONS FOR AND BENEFITS OF THE GDC SUBSCRIPTION AND THE GDC TECH SUBSCRIPTION AND USE OF PROCEEDS

The Directors noted that in 2006, there has been a significant increase in the number of digital cinemas around the world, which involve the conversion of film projectors-based analogue cinemas to digital projector and server based digital cinemas. The Directors are of the view that such trend will bring ample business opportunities to GDC Tech, which has been actively developing its digital cinema equipment business in recent years, and consider that it is in the interest of the Group to secure additional funding, by entering into the GDC Tech Subscription Agreement, to expedite the rolling out of GDC Tech’s business plan, including the intended provision of digital cinema equipment and related network operation service to Institute of Digital Media Technology (Shenzhen) Limited, a fellow subsidiary of GDC Tech and a wholly-owned subsidiary of GDC, for its co-operation agreement signed with China Film Group Corporation as announced by GDC on 31 October 2006. The net proceeds of approximately HK$50.07 million of the GDC Tech Subscription Agreement will be utilised for business expansion of GDC Tech in the PRC and other countries and for enhancement of research and development activities of GDC Tech.

As regards to the GDC Subscription Agreement, the Directors consider that it will enlarge the existing capital and investor base of GDC and the net proceeds of approximately HK$9.23 million will be used as general working capital of GDC.

The Directors consider that the terms of the GDC Subscription Agreement and the GDC Tech Subscription Agreement, which were negotiated on an arm’s length basis, are fair and reasonable and that the GDC Subscription Agreement and the GDC Tech Subscription Agreement are entered into on normal commercial terms and are in the best interest of the Company and the Shareholders as a whole.

5. FINANCIAL EFFECT OF THE GDC SUBSCRIPTION AND THE GDC TECH SUBSCRIPTION

The Company expects to realise a combined unaudited gain on the deemed disposal of interest in GDC and GDC Tech under the GDC Subscription Agreement and GDC Tech Subscription Agreement (which are inter-conditional with each other) of approximately HK$54.89 million, being the difference between the Company’s attributable interest in (i) the respective unaudited consolidated net liability of GDC of approximately HK$147.20 million and GDC Tech of approximately HK$36.67 million as at 30 June 2006, and (ii) the net liability of GDC as at 30 June 2006 and the net asset of GDC Tech as at 30 June 2006 after taking into consideration the completion of the GDC Subscription and the GDC Tech Subscription. Based on the estimated combined unaudited gain on the deemed disposal of interest in GDC and GDC Tech, the consolidated net asset of the Group will be increased by approximately HK$54.89 million immediately upon completion of the GDC Subscription and the GDC Tech Subscription. Shareholders should note that the actual combined gain on the deemed disposals of interest in GDC and GDC Tech to be recorded by the Company depends on the respective net asset/liability of GDC and GDC Tech, immediately after completion of the GDC Subscription and the GDC Tech Subscription.

LETTER FROM THE BOARD

Upon completion of the GDC Subscription, the Company’s shareholding interest in GDC will be diluted from approximately 74.98% to 71.41%, and GDC will remain as a subsidiary of the Company and its financial results and assets and liabilities will remain to be consolidated into the consolidated financial statements of the Group.

Upon completion of the GDC Subscription and the GDC Tech Subscription, the Company’s indirect attributable interest in GDC Tech will be diluted from approximately 62.49% to 40.17%. However, given that upon completion of the GDC Subscription and the GDC Tech Subscription, GDC Tech will remain as a subsidiary of GDC and GDC will remain as a subsidiary of the Company, GDC Tech’s financial results and assets and liabilities will remain to be consolidated into the consolidated financial statements of the Group.

As for GDC, GDC expects to realise an unaudited gain on the deemed disposal of interest in GDC Tech pursuant to the GDC Tech Subscription Agreement of approximately HK$45.66 million, being the difference between GDC’s attributable interest in (i) the unaudited consolidated net liability of GDC Tech of approximately HK$36.67 million as at 30 June 2006, and (ii) the net asset value of GDC Tech as at 30 June 2006 after taking into consideration the completion of the GDC Tech Subscription. It should be noted that the actual gain on the deemed disposal of interest in GDC Tech to be recorded by GDC depends on the net asset/liability of GDC Tech as at the date of completion of the GDC Tech Subscription.

Upon completion of the GDC Tech Subscription, GDC’s shareholding interest in GDC Tech will be diluted from approximately 83.34% to 56.25%, and GDC Tech will remain as a subsidiary of GDC and its financial results and assets and liabilities will remain to be consolidated into the consolidated financial statements of GDC.

IV. LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

constitutes a deemed disposal of interest in a major subsidiary under Rule 13.36(1)(a)(ii) of the Listing Rules, and a discloseable transaction of the Company under Chapter 14 of the Listing Rules. As the GDC Tech Subscriber is also ultimately beneficially wholly-owned by Mr. Li Ka-shing, the GDC Tech Subscriber is a connected person of the Company, and the GDC Tech Subscription also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. Accordingly, the GDC Tech Subscription is subject to approval of the Independent Shareholers at the SGM. Mr. Li Ka-shing and his associates are required to abstain from voting at the SGM to be held to approve the GDC Subscription and the GDC Tech Subscription.

Completion of the Disposal is independent of and will not be conditional upon the completion of the GDC Subscription and the GDC Tech Subscription.

V. INDEPENDENT BOARD COMMITTEE

VI. SGM

The SGM will be held at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong at 11:00 a.m. on 12 January 2007 to consider and, if thought fit, approve, among other matters, (i) the Agreement and the transactions contemplated thereunder; (ii) the GDC Subscription Agreement and the transactions contemplated thereunder; and (iii) the GDC Tech Subscription Agreement and the transactions contemplated thereunder.

A notice convening the SGM is set out on pages 165 to 167 of this circular. A form of proxy for the SGM is enclosed herewith. Whether or not you are able to attend the SGM in person, you are advised to read the notice and complete and return the enclosed form of proxy to the Hong Kong branch share registrars and transfer office of the Company, Tengis Limited of 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon, as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM should you so wish.

VII. PROCEDURE FOR DEMANDING A POLL AT THE SGM

Pursuant to bye-law 70 of the bye-laws of the Company, unless voting by way of a poll is required by the Listing Rules, every resolution submitted to a general meeting shall be determined on a show of hands in the first instance by the Shareholders present in person, but a poll may be demanded (before or

LETTER FROM THE BOARD

upon the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) by the chairman of the relevant meeting or by:

(a) at least 3 Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(b) any Shareholder or Shareholders present in person (or in the case of 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
(c) a Shareholder or Shareholders present in person (or in the case of a corporation, by its duly authorised representative) or by proxy and holding Shares conferring a right to vote at the meeting, being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right; or
(d) any Director or Directors who, individually or collectively, hold proxies in respect of Shares representing 5% or more of the total voting rights at such meeting.

VIII. RECOMMENDATION

The Directors consider that the terms of each of the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement are fair and reasonable to the Company and in the interests of the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the ordinary resolutions at the SGM to approve these transactions.

Your attention is also drawn to the letter from the Independent Board Committee set out on pages 21 and 22 of this circular and the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with the Disposal, the GDC Subscription and the GDC Tech Subscription and the principal factors and reasons considered by them in arriving at their advice.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the terms of each of the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement are fair and reasonable and in the interest of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve these transactions.

IX. ADDITIONAL INFORMATION

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

Yours faithfully,

By Order of the Board of

Shougang Concord Grand (Group) Limited Cao Zhong

Vice Chairman and Managing Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Disposal, the GDC Subscription and the GDC Tech Subscription:

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

27 December 2006

To the Independent Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

We refer to the circular (‘’Circular’’) issued by the Company to its shareholders dated 27 December 2006 of which this letter forms part. Capitalised terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to consider the terms of each of the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement. Ernst & Young Corporate Finance Limited has been appointed as the Independent Financial Adviser to advise us and the Independent Shareholders in this respect.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the Board and the letter from the Independent Financial Adviser set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, the Independent Financial Adviser set out in its letter of advice contained in the Circular, we consider that the terms of each of the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement are fair and reasonable in so far as the Independent Shareholders are concerned and that the Disposal, the GDC Subscription and the GDC Tech Subscription are entered into on normal commercial terms and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving the Disposal, the GDC Subscription and the GDC Tech Subscription at the SGM.

Yours faithfully, For and on behalf of The Independent Board Committee of Shougang Concord Grand (Group) Limited Tam King Ching, Kenny Zhou Jianhong Independent Non-executive Directors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders for the purpose of inclusion in this circular:

Ernst & Young Corporate Finance Limited 香港中環金融街8號 12th Floor 國際金融中心2期12樓 Two International Finance Centre 電話：(852) 2846 9888 8 Finance Street, Central 傳真：(852) 2501 0343 Hong Kong Phone: (852) 2846 9888 Fax: (852) 2501 0343

27 December 2006

The Independent Board Committee and the Independent Shareholders

Shougang Concord Grand (Group) Limited

Dear Sirs,

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders with respect to the terms of the Agreement, the GDC Tech Subscription Agreement and the GDC Subscription Agreement, details of which are set out in the circular of the Company dated 27 December 2006 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular, unless the context requires otherwise.

On 1 December 2006, Grand Award, a wholly-owned subsidiary of the Company, entered into the Agreement with the Purchasers, pursuant to which Grand Award agreed to dispose of the Transferred Interests for an aggregate consideration of RMB170 million (equivalent to approximately HK$164.36 million), representing Grand Award’s entire 44.0% equity interest in BDIA, the principal underlying asset of which is East Lake Villas, located in Dongcheng District, Beijing, the PRC. As the relevant percentage ratio as defined in the Listing Rules exceeds 75%, the Disposal constitutes a very substantial disposal for the Company under the Listing Rules. Strength Up, one of the Purchasers, is a wholly-owned subsidiary of Shougang Holding which holds an approximately 40.87% interest in the Company, and Shougang Hotel, another Purchaser, is wholly owned by Shougang Corporation which also wholly owns Shougang Holding. As both Strength Up and Shougang Hotel are connected persons of the Company, the Disposal also constitutes a connected transaction for the Company and is subject to approval of the Independent Shareholders by way of poll at the SGM. Shougang Holding and its associates are required to abstain from voting at the SGM to be held to approve the Disposal.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 1 December 2006, GDC Tech, an approximately 83.34% owned subsidiary of GDC, entered into the GDC Tech Subscription Agreement with the GDC Tech Subscriber under which the GDC Tech Subscriber has conditionally agreed to subscribe for 52,383,580 GDC Tech Subscription Shares at an aggregate consideration of approximately US$6.5 million (equivalent to approximately HK$50.57 million) payable in cash. On the same date, GDC, an approximately 74.98% owned subsidiary of the Company, entered into the GDC Subscription Agreement with the GDC Subscriber under which the GDC Subscriber has conditionally agreed to subscribe for 40,000,000 GDC Subscription Shares at an aggregate consideration of approximately HK$9.74 million payable in cash. The GDC Tech Subscriber and the GDC Subscriber are ultimately beneficially wholly-owned by Mr. Li Ka-shing who through his associates currently holds an approximately 11.70% shareholding interest in the Company. Accordingly, both the GDC Tech Subscriber and the GDC Subscriber are connected persons of the Company under the Listing Rules and both the GDC Tech Subscription and the GDC Subscription constitute non-exempt connected transactions for the Company under Chapter 14A of the Listing Rules. The GDC Tech Subscription also constitutes a material dilution of interest in a major subsidiary of the Company under Rule 13.36(1)(a)(ii) of the Listing Rules, and a discloseable transaction for the Company under Chapter 14 of the Listing Rules. As required by the Listing Rules, the GDC Tech Subscription and the GDC Subscription are subject to approval of the Independent Shareholders by way of poll at the SGM. Mr. Li Ka-shing and his associates are required to abstain from voting at the SGM to approve the GDC Tech Subscription Agreement and the GDC Subscription Agreement.

Completion of the Disposal is independent of and is not conditional upon completion of the GDC Tech Subscription and the GDC Subscription.

The Independent Board Committee comprising all of the independent non-executive Directors, namely Mr. Tam King Ching, Kenny and Ms. Zhou Jianhong, has been established to advise the Independent Shareholders in respect of the terms of the Agreement, the GDC Tech Subscription Agreement and the GDC Subscription Agreement. As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to whether the terms of the Agreement, the GDC Tech Subscription Agreement and the GDC Subscription Agreement are fair and reasonable so far as the Shareholders are concerned and whether the Disposal, the GDC Tech Subscription and the GDC Subscription are entered into on normal commercial terms for the purposes of the Listing Rules and are in the interests of the Company and the Shareholders as a whole.

In formulating our opinion, we have relied upon the information, facts and representations contained in the announcements relating to the Disposal, the GDC Tech Subscription and the GDC Subscription and the Circular and those supplied or made by the Directors and management of the Company and GDC to us. We have assumed that all such information, facts and representations were true and accurate in all respects at the time they were supplied or made and continue to be true and accurate at the date of the Circular and can be relied upon. We have no reason to doubt the truth, accuracy and completeness of such information and representations and have confirmed with the Directors and management of the Company and GDC that no material facts have been withheld or omitted from such information and representations.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have taken all reasonable and necessary steps to comply with the requirements set out in Rule 13.80 of the Listing Rules. We consider that we have been provided with sufficient information to enable us to reach an informed view. We have not, however, conducted any independent verification of the information or any independent in-depth investigation into the business, affairs, financial position or prospects of the Company, GDC, GDC Tech, Shougang Corporation and Shougang Holding and their respective subsidiaries, associated companies and jointly controlled entities.

THE DISPOSAL – PRINCIPAL REASONS AND FACTORS

In formulating our opinion in respect of the Disposal, we have taken into consideration, among other things, the following principal reasons and factors:

Information relating to BDIA

BDIA is principally engaged in the provision of serviced apartment services through its ownership of East Lake Villas located in Dongcheng District, Beijing, the PRC. East Lake Villas has a total site area of about 44,226 square metres, comprising mainly 36 units of 2-storey and 3-storey villas, four apartment buildings and one office building. Most of the villas and buildings were completed between 1989 and 1991 whilst some of the apartment buildings were completed in 2001. BDIA also operates restaurants and a mini-supermarket in East Lake Villas.

As at the date of the Agreement, BDIA is owned as to 44.0% by Grand Award, as to 51.0% by Shougang Hotel, and as to 5.0% by The East Asiatic Co. (China) Limited, an independent third party not connected with the Company or any connected person of the Company.

East Lake Villas is located in Dongzhimen Wai Avenue, Dongcheng District which is a prime location in the city of Beijing. East Lake Villas is a luxurious serviced apartment compound built in a traditional Suzhou garden style with a view to providing a peaceful and homely environment for its tenants. We understand from the Company and the management of BDIA that BDIA completed the Phase II development of East Lake Villas in 2001 and carried out a major renovation of Phase I of East Lake Villas in 2002 (which was completed in 2003) with a view to maintaining the competitiveness of East Lake Villas.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the letter from the Board, the unaudited net (losses)/profits (before and after taxation and extraordinary items) of BDIA prepared under Hong Kong GAAP for the two years ended 31 December 2005 and the six months ended 30 June 2006 were as follows:

			For the
	For the year ended 31 December		six months ended
	2004	2005	30 June 2006
	RMB’000/HK$’000	RMB’000/HK$’000	RMB’000/HK$’000
Net (loss)/profit before taxation
and extraordinary items	(8,780)/(8,488)	2,643/2,555	3,170/3,064
Net (loss)/profit attributable to
shareholders of BDIA	(11,764)/(11,373)	(2,107)/(2,037)	216/209

The unaudited net asset value of BDIA prepared under Hong Kong GAAP was approximately RMB236.86 million (equivalent to approximately HK$229.00 million) as at 30 June 2006.

BDIA is a jointly controlled entity of the Company and has been equity accounted for in the Group’s financial statements. According to the Company’s annual report for the year ended 31 December 2004, the Group’s share of the loss of BDIA prepared under Hong Kong GAAP for the year ended 31 December 2004 was approximately HK$70.20 million after adjusting for an impairment loss in respect of the Group’s share of net assets and goodwill of BDIA of approximately HK$67.53 million and approximately HK$22.47 million respectively. According to the Company’s annual report for the year ended 31 December 2005 (the “2005 Annual Report”), the Group’s share of the profit of BDIA prepared under Hong Kong GAAP for the year ended 31 December 2005 was approximately HK$0.43 million. Based on the Company’s interim report for the six months ended 30 June 2006 (the “2006 Interim Report”), the Group’s share of the profit of BDIA prepared under Hong Kong GAAP for the six months ended 30 June 2006 was approximately HK$0.72 million.

Based on the information provided by the Company, we understand that the Group received dividends (which were declared and paid based on BDIA’s financial statements prepared under accounting principles generally accepted in the PRC) from BDIA totalling approximately HK$31.5 million since it subscribed for a 44.0% interest in BDIA in 1998 at an aggregate subscription price of RMB234 million. Although BDIA’s profitability has started to improve recently, the Directors do not expect a significant improvement in the investment return of the Transferred Interests in the near future having regard to accelerating competition in the market and the operation model of East Lake Villas.

Background of and reasons for the Disposal

The Group is principally engaged in property investment and management, cultural mass media and provision of financial services.

As state in the letter from the Board in the Circular, the Company invested in BDIA since October 1998 as a long-term investment. In recent years, as stated in the financial reports of the Company, the Group has been reformulating its business strategies to diversify from property related activities to focus on the financial services and cultural mass media businesses. Furthermore, the Transferred Interests

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

represent a minority stake in BDIA whereby the Company does not have absolute control over BDIA and contribute relatively low return with regard to the book value of the Transferred Interests in recent years. Notwithstanding the potential sale and redevelopment value of East Lake Villas, both Shougang Hotel and Strength Up have represented to the Company that they intend to maintain East Lake Villas at its existing state and they have no plan to dispose of or redevelop East Lake Villas and/or the site (where East Lake Villas is located) within five years from the date of Completion. Having considered the stated present intention of the Purchasers as well as the recent renovation of East Lake Villas which was completed in 2003, the Directors believe that it is unlikely BDIA will dispose of or redevelop East Lake Villas and/or the site in the near future.

The remaining businesses of the Group comprise provision of financial services, cultural mass media and property investment. As stated in the letter from the Board, the Board considers that by effecting the Disposal, the Group can recoup capital for developing its other businesses, which the Board believes that given the past performance and industry prospects of these other businesses, these businesses would have a greater growth and earnings potential than those of the Transferred Interests. Furthermore, it is currently expected that the Group would realise a gain from the Disposal as discussed in the subsection headed “Financial effects of the Disposal” below.

The Disposal is a cash transaction. We understand from the Company that the net proceeds of approximately HK$160.43 generated from the Disposal will be utilised as to approximately HK$56.00 million for meeting the Group’s outstanding capital commitment arising from its financial leasing business, as to approximately HK$40.78 million for repaying certain loans of the Group and as to the remaining balance of approximately HK$63.65 million for use as working capital of the Group.

As stated in the letter from the Board, the terms of the Agreement were negotiated on an arm’s length basis. Having considered the terms of the Agreement and the above reasons and benefits, the Directors are of the view that the terms of the Agreement are fair and reasonable and that the Agreement is entered into on normal commercial terms and is in the interests of the Company and the Shareholders as a whole.

As stated in the 2006 Interim Report, the Group has been diversifying into businesses other than property investment and management, namely the provision of financial services and provision of cultural recreation content. We have discussed with the Company the general business outlook of its other businesses and their respective working capital requirements. As GDC and GDC Tech are raising additional equity capital for its business needs through the GDC Subscription and the GDC Tech Subscription respectively, the discussions regarding general business outlook of these subsidiaries are set out in the section headed “The GDC Tech Subscription and the GDC Subscription – principal reasons and factors” below.

Since 2004, the Group has diversified its investment portfolio to include investments in the financial leasing sector in the PRC, which is considered by the Directors as presenting a lot of opportunities due to the improved economy and which requires significant capital investment. The Group has committed to contribute to the increase in the capital base of an associated company, South China International Leasing Company Limited (“South China Leasing”). As stated in the Company’s circular dated 6 July 2006, South China Leasing is principally engaged in the financial leasing business in the PRC, including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and immovable properties.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the information provided by the Company, the deadline for honouring the Group’s obligation for its share of the capital increase is before 26 May 2007. We understand from the Company that, since the re-commencement of business after the investment by the Group, South China Leasing has reported encouraging growth in business revenue and has secured sizeable leasing contracts in 2006. The Directors believe that the capital contribution is required to continue to support the business expansion of South China Leasing in order to seize the opportunities presented in the financial leasing market.

Apart from the financial leasing business, the Company has also been actively developing its direct investment and financial consultancy business through a wholly-owned subsidiary, 首方投資管理（深圳）有限公司 (“Capital Steel”). As stated in the 2005 Annual Report and 2006 Interim Report, Capital Steel has successfully made a direct financial investment in a project and continued to look for investment opportunities. Capital Steel has also been negotiating and/or completing financial consultancy projects, including a project involving assisting a bank in the PRC to restructure the debts of the bank’s client.

As regards the business relating to cultural recreation content provision, it has been stated in the 2006 Interim Report that during the six months ended 30 June 2006, the Group had launched several television series and movies, among which a movie invested and produced jointly with independent third parties fetched one of the highest box office income among all movies released in the PRC in 2006. On the back of such encouraging development and having considered the potential upside offered by such business, the Directors believe that the cultural mass media business has considerable growth and earnings potential. As stated in the letter from the Board, the Remaining Group will focus on producing television series with a view to gaining relatively reliable return and will also invest in and produce quality movie projects.

Based on our discussions with the Company, we understand from the Company that it has evaluated the possibility of raising the necessary funds by way of alternative means such as debt financing. However, given that the Group’s new core businesses are still in the initial growth stage and given the relatively high gearing of the Group and the amount of cash required to fund the Group’s business development needs, we understand that the Company did not consider that further bank financing would be a feasible means in the circumstances.

Having considered the Group’s business development strategy and impending funding needs, the low historic investment return of the Transferred Interests, the Group’s lack of absolute control over the management of BDIA as well as the Company’s assessment of the likely investment return of the Transferred Interests in the foreseeable future, we concur with the Directors’ view that it is in the interests of the Company and the Shareholders as a whole to dispose of the Transferred Interests and recoup a substantial amount of cash for the development of the Group’s other businesses with growth potential and/or over which the Group has absolute control.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Principal terms of the Disposal

The consideration

The aggregate consideration for the Transferred Interests is RMB170 million (equivalent to approximately HK$164.36 million) which shall be paid in cash by:

Shougang Hotel for an amount of RMB92,727,273 (equivalent to approximately HK$89.65 million) for the 24% interest in the registered capital of BDIA; and
Strength Up for an amount of RMB77,272,727 (equivalent to approximately HK$74.71 million) for the 20% interest in the registered capital of BDIA.

The aggregate consideration shall be settled in cash in the following manner:

(i) upon Completion, a sum of RMB55,636,363.80 (equivalent to approximately HK$53.79 million) and a sum of RMB46,363,636.20 (equivalent to approximately HK$44.82 million) payable by Shougang Hotel and Strength Up respectively, being 60% of the consideration; and
(ii) within three months from the date of Completion, a sum of RMB37,090,909.20 (equivalent to approximately HK$35.86 million) and a sum of RMB30,909,090.80 (equivalent to approximately HK$29.88 million) payable by Shougang Hotel and Strength Up respectively, being the remaining 40% of the consideration.

As stated in the letter from the Board, the consideration was arrived at after arm’s length negotiations between Grand Award and the Purchasers with reference to (i) the carrying value of the Transferred Interests in the unaudited balance sheet of the Group as at 30 June 2006 of approximately HK$119.36 million; (ii) the minority interests of the Transferred Interests in BDIA and the relatively low investment return generating therefrom; (iii) the intention of Shougang Hotel and Strength Up to retain the existing use and existing operating model of East Lake Villas, with no disposal or redevelopment plan in the next five years from the date of Completion; and (iv) with such intention of Shougang Hotel and Strength Up, the capital worth to the investors of East Lake Villas as a whole as at 31 October 2006 (the “Capital Worth”) of approximately RMB366 million (equivalent to approximately HK$353.86 million).

Conditions to Completion

Completion will take place on the fifth business day after the following conditions are fulfilled:

(i) the Independent Shareholders having passed the resolution(s) at the SGM to approve the Disposal; and
(ii) all outstanding authorisations, consents and approvals from the relevant PRC authorities required for the Disposal having been obtained.

In the event that any of the above conditions precedent shall not have been fulfilled on or before 30 June 2007 (or such later date as the parties to the Agreement may agree in writing), the Agreement shall forthwith terminate.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Post completion event

If any of the Purchasers and/or BDIA effect substantial changes to the existing use and/or existing operating model of East Lake Villas or to directly or indirectly dispose of East Lake Villas and/or the site or to redevelop East Lake Villas and/or the site within five years from the date of Completion, Grand Award may, within three months from the date of occurrence of such changes, disposal and/or redevelopment, request the Purchasers to appoint a qualified valuer as approved by Grand Award and in accordance with the relevant requirements of the Listing Rules, to assess the new value of East Lake Villas and/or the site based on such changes and other principles as the parties may agree. The new valuation report of East Lake Villas and/or the site is to be issued within thirty days from the date of appointment of the valuer. The Purchasers shall base on their proportional interests underlying the Transferred Interests pay to Grand Award the difference between the consideration for the Transferred Interests and the 44.0% attributable interest in the new value of East Lake Villas and/or the site within three months from the date of the issuance of the new valuation report, if any.

Analysis

As the principal underlying asset of BDIA is East Lake Villas, the Company has instructed Sallmanns (Far East) Limited (“Sallmanns”), an independent professional valuer, to assess the value of East Lake Villas. The valuer’s report is set out in Appendix IV to the Circular. As stated in the valuer’s report, the Capital Worth was approximately RMB366 million (equivalent to approximately HK$353.86 million).

As set out in the valuer’s report, Sallmanns has assessed the capital worth of East Lake Villas on the basis of the existing use held for long term investment with no intention of disposal or redevelopment and on the assumption that the current strategies in relation to leasing, operation and management will remain unchanged. Capital worth to the investor is defined as the value of the property to a particular investor, or class of investors, for identified investment objectives. We understand that capital worth to the investor of a property does not represent the market value of the property.

We have sought advice from Sallmanns on the prevailing indicative market value of properties comparable to East Lake Villas and noted that the potential unrestricted market value of East Lake Villas based on recent market transactions involving comparable properties could be significantly higher than the Capital Worth on the basis of its existing use and BDIA’s existing operating model of East Lake Villas.

In evaluating whether capital worth is a more reasonable basis of assessment of value than unrestricted market value in the context of the Disposal, we have assessed whether the Company would be in a position to realise the potential unrestricted market value of East Lake Villas and thus a significantly higher value for the Transferred Interests in the near future. The Company does not own any property within East Lake Villas directly and only has an indirect interest in East Lake Villas via Grand Award’s

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

44.0% ownership in BDIA (represented by the Transferred Interests) which owns East Lake Villas. Based on our discussions with Sallmanns, BDIA may realise the potential unrestricted market value, or part thereof, of East Lake Villas by disposing of the property with no restriction. However, we understand from the Company that the Transferred Interests represent a minority stake in BDIA whereby the Company does not have absolute control over the strategic direction and management of East Lake Villas. As such, without the consent and cooperation of Shougang Hotel which holds a 51.0% interest in BDIA, the Company is not in a position to implement changes, such as changing the existing use or operating model or effecting disposal of the property (or part thereof), to realise the potential unrestricted market value (or part thereof) or improve the capital worth of East Lake Villas with a view to increasing the value of the Transferred Interests. Notwithstanding the potential sale and redevelopment value of East Lake Villas, both Shougang Hotel and Strength Up have represented to the Company that they presently intend to maintain East Lake Villas at its existing state and they have no current plan to dispose of or redevelop East Lake Villas and/or the site within five years from the date of Completion. Having considered the stated present intention of the Purchasers as well as the recent renovation of East Lake Villas which was completed in 2003, the Directors believe that it is unlikely BDIA will dispose of or redevelop East Lake Villas and/or the site in the near future.

We note from the Agreement that each of the Purchasers has represented to Grand Award that each of them presently has no intention to dispose of the Transferred Interests or to procure BDIA to dispose of or to redevelop East Lake Villas and/or the site and/or to effect substantial change to the existing use and/or BDIA’s existing operating model of East Lake Villas within five years from the date of Completion.

Apart from the above representation, the Agreement also contains a mechanism to adjust the consideration in the event that there is any change which contradicts the above stated present intention of the Purchasers and which may affect the value of East Lake Villas and thus the Transferred Interests. If any of the Purchasers and/or BDIA effect substantial changes to the existing use and/or existing operating model of East Lake Villas or to directly or indirectly dispose of East Lake Villas and/or the site or to redevelop East Lake Villas and/or the site within five years from the date of Completion, Grand Award may request the Purchasers to appoint a qualified valuer, as approved by Grand Award and in accordance with the relevant requirements of the Listing Rules, to assess the new value of East Lake Villas and/or the site based on such changes and other principles as the parties may agree. Grand Award shall receive from the Purchasers an aggregate sum equivalent to the difference between the consideration for the Transferred Interests and the 44.0% attributable interest in the new value of East Lake Villas and/or the site, if any.

We consider that the above-mentioned adjustment mechanism offers a reasonable level of protection to the Group, enabling the Group to enjoy a 44.0% share of any potential upside in the next five years should the realisation of a higher value of East Lake Villas and/or BDIA due to the specified changes materialise. We also consider that to a certain extent the adjustment mechanism also serves to signify the determination of the Purchasers to maintain the existing state of East Lake Villas in the near future. Given the circumstances and the presence of the adjustment mechanism, we consider it reasonable for the parties to determine the consideration for the Transferred Interests with reference to, among other things, the Capital Worth instead of the possible unrestricted market value of East Lake Villas when the chance of realisation of such unrestricted market value is remote in the near future.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have discussed with Sallmanns the basis and methodology adopted for the assessment of the capital worth to the investors of East Lake Villas as set out in the valuer’s report in Appendix IV to the Circular. We note that in assessing the Capital Worth, the valuer has adopted an investment approach which is a method which incorporates capitalisation of the historical net income derived from the business operation, having taken into account the estimated trading potential following consultation with the Company and the management of BDIA. We have also discussed with Sallmanns the assumptions made in the assessment of the Capital Worth and the capitalisation rate used for the capitalisation of the historical net income.

Based on the above analysis and discussions, we consider that capital worth is a reasonable basis for assessing the value of East Lake Villas in the context of the Disposal and that the methodology adopted in assessing the Capital Worth is reasonable in the context of East Lake Villas.

For the purpose of assessing the reasonableness of the consideration for the Transferred Interests, we have compared the consideration to the adjusted net asset value of BDIA attributable to the Group which is estimated to be approximately HK$93 million. The Company has estimated the above-mentioned adjusted net asset value of BDIA attributable to the Group based on the carrying value of the Transferred Interests in the unaudited balance sheet of the Group as at 30 June 2006 of approximately HK$119.36 million as adjusted to reflect the Group’s 44.0% share of the deficit of the Capital Worth of approximately RMB366 million (equivalent to approximately HK$353.86 million) as compared to the unaudited net book value of the capital expenditure (including property, plant & equipment, site removal costs and land use rights) relating to East Lake Villas prepared under Hong Kong GAAP as at 30 June 2006 of approximately HK$414 million (before exchange fluctuation reserve). The consideration of RMB170 million (equivalent to approximately HK$164.36 million) represents a premium of approximately HK$71 million or approximately 77% over the adjusted net asset value of BDIA attributable to the Group of approximately HK$93 million. The consideration also represents a multiple of approximately 382 times the Group’s share of the profit of BDIA for the year ended 31 December 2005 prepared under Hong Kong GAAP of approximately HK$0.43 million.

By agreeing to receive 40% of the consideration, amounting to RMB68 million (equivalent to approximately HK$65.74 million), within three months from the date of Completion, Grand Award is effectively forgoing interest of up to three months in respect of such amount. We understand that the Company may deposit any unused proceeds with banks. Assuming a three-month Hong Kong dollar deposit rate of 2.7% per annum, the Group would have foregone interest income of up to approximately HK$0.44 million by agreeing to receive 40% of the consideration within three months from the date of Completion. Given the size of the foregone interest as compared to the total amount of the cash consideration and the premium thereof over the Group’s 44.0% share of the adjusted net asset value of BDIA, we consider that the payment terms are acceptable in the circumstances.

Based on the above analysis, we consider that the terms of the Agreement are fair and reasonable so far as the Company and the Shareholders as a whole are concerned.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial effects of the Disposal

Earnings and net assets

As stated in the letter from the Board, based on (i) the consideration for the Transferred Interests of RMB170.00 million (equivalent to approximately HK$164.36 million); and (ii) the carrying value of the Transferred Interests in the unaudited balance sheet of the Group as at 30 June 2006 of approximately HK$119.36 million, it is currently expected that the Group would realise an estimated gain of approximately HK$45.00 million (before taxation, expenses and release of translation reserve) from the Disposal. The actual amount of gain on the Disposal will be finalised upon Completion in 2007 and accounted for in the consolidated financial statements of the Group for the year ending 31 December 2007.

Set out in Appendix III to the Circular is the unaudited pro forma financial information on the Remaining Group. Based on the unaudited pro forma income statement of the Remaining Group which has been prepared based on the audited consolidated income statement of the Company for the year ended 31 December 2005 after making pro forma adjustments relating to the Disposal as if the Disposal had been completed at the beginning of the year ended 31 December 2005, the unaudited pro forma consolidated net loss of the Remaining Group attributable to Shareholders would have decreased from approximately HK$316.80 million to approximately HK$278.43 million. Based on the unaudited pro forma balance sheet of the Remaining Group which has been prepared based on the audited consolidated balance sheet of the Company as at 30 June 2006 after making pro forma adjustments relating to the Disposal as if the Disposal had been completed on 30 June 2006, the unaudited pro forma consolidated net asset value of the Remaining Group attributable to Shareholders would have increased from approximately HK$222.41 million to approximately HK$264.12 million.

Working capital and gearing

We note from the Group’s financial statements that the Group had gearing (calculated as the ratio of total interest bearing liabilities net of bank and cash balances to shareholders’ equity) of approximately 63.5% as at 31 December 2005 and approximately 45.9% as at 30 June 2006. The cash consideration of RMB170 million (equivalent to approximately HK$164.36 million) will improve the Group’s working capital and gearing position.

THE GDC TECH SUBSCRIPTION AND THE GDC SUBSCRIPTION - PRINCIPAL REASONS AND FACTORS

In formulating our opinion in respect of the GDC Tech Subscription and the GDC Subscription, we have taken into consideration, among other things, the following principal reasons and factors:

Background of the GDC Tech Subscription

GDC Tech is an approximately 83.34% owned subsidiary of GDC, which in turn is an approximately 74.98% owned subsidiary of the Company.

GDC Tech and its subsidiaries (together, the “GDC Tech Group”) are principally engaged in the provision of computing solutions for digital content distribution and exhibitions on a worldwide basis.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We understand from the Company that the present principal activities of the GDC Tech Group comprise the sale of digital content distribution and exhibitions equipment, provision of related technical service and equipment leasing. The GDC Tech Group is currently carrying out research and development of its technology and products with a view to satisfying the worldwide industry recognised specifications. We further understand from the Company that it is the business plan of the GDC Tech Group to first satisfactorily achieve the worldwide industry recognised specifications for digital cinema and then provide its digital cinema equipment and related services to its business partners with a view to facilitating cinemas to transfer from analog projection to digital projection.

As stated in the prospectus of GDC dated 23 July 2003, the move from analog cinema to digital cinema was expected to benefit movie distributors, exhibitors and the audiences and there was a trend the film industry has embarked on replacing the current form of cinema with digital cinema. The Company believes that there exists a big potential market for digital cinema equipment. We understand from the Company that the GDC Tech Group will initially primarily focus on the Asia-Pacific market (in particular the PRC market) and then gradually penetrates into other regions around the world. However, it is essential for the GDC Tech Group to act as quickly as possible with a view to establishing cooperative relationships with movie distributors and cinema operators before they choose the services of other digital cinema equipment and service providers.

We refer to the announcement of GDC dated 31 October 2006, a wholly-owned subsidiary of GDC, Institute of Digital Media Technology (Shenzhen) Limited (“IDMT”), entered into a cooperation agreement with China Film Group Corporation (“CFGC”), which is the largest and most influential staterun film enterprise that is the sole importer of foreign films in the PRC. Under such cooperation, IDMT and CFGC target to jointly promote digital cinema equipment business in the PRC by two stages where CFGC will be responsible for promoting the installation of digital cinema equipment in the PRC whereas IDMT will supply the digital cinema equipment. In stage one, they aim at installing at least 700 units of digital cinema equipment at the top 100 cinemas in the PRC by 2007 and in stage two, they aim at installing at least 2,000 units of digital cinema equipment in the PRC by 2008. As stated in the same announcement, IDMT intends to purchase digital cinema equipment from the GDC Tech Group. However, we understand from the Company that before the GDC Tech Group would be chosen by CFGC and IDMT as a supplier for the digital cinema equipment, it is essential that the GDC Tech Group will first be able to provide digital cinema equipment which meets certain industry recognised specifications. Further research and development is still necessary and required by the GDC Tech Group to make its products fully satisfy the relevant industry specifications. We understand from the Company that the GDC Tech Group is currently negotiating with a number of other potential customers but no agreements have so far been signed. It is uncertain whether such other business opportunities will materialise in the near future.

As at 30 June 2006, the GDC Tech Group had an unaudited deficiency in net assets of approximately HK$36.67 million and a net current liability of approximately HK$38.0 million. We understand from the Company that without further working capital, the GDC Tech Group will not be able to complete its research and development work shortly and will have to delay the roll-out of its business plan. As set out in the letter from the Board, the net proceeds of approximately HK$50.07 million from the GDC Tech Subscription will be used for the business expansion of the GDC Tech Group in the PRC as well as other countries and will also be used for the enhancement of the GDC Tech Group’s research and development activities. The GDC Tech Subscription will provide the GDC Tech Group with the necessary funding to finish its research and development and to manufacture the necessary digital cinema equipment.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in the letter from the Board, the terms of the GDC Tech Subscription Agreement were negotiated on an arm’s length basis and the Directors consider that the terms of the GDC Tech Subscription Agreement are fair and reasonable and that the GDC Tech Subscription Agreement is entered into on normal commercial terms and is in the interests of the Company and the Shareholders as a whole.

Based on the background of the business development of the GDC Tech Group and the market situation, we agree with the Company that it is in the interests of the Company to carry out the GDC Tech Subscription in order to provide the necessary funding for the current business development of the GDC Tech Group in view of the present business market opportunity.

Terms of the GDC Tech Subscription

Under the GDC Tech Subscription, the GDC Tech Subscriber will subscribe for 52,383,580 GDC Tech Subscription Shares representing approximately 48.14% of the issued share capital of GDC Tech as at the date of the agreement and the Latest Practicable Date and approximately 32.49% of the issued share capital of GDC Tech as enlarged by the GDC Tech Subscription. The total consideration amounts to approximately US$6.5 million (equivalent to approximately HK$50.57 million). The subscription price gives the GDC Tech Group an implied post-subscription valuation of approximately US$20.0 million (approximately HK$155.6 million) (calculated by extrapolating the value of 100% of the GDC Tech Group using the value of approximately US$6.5 million being ascribed to an approximately 32.49% interest in the GDC Tech Group) and an implied pre-subscription valuation of approximately US$13.5 million (equivalent to approximately HK$105.0 million) (calculated by deducting the consideration of approximately US$6.5 million from the above-mentioned implied post-subscription valuation of approximately US$20.0 million) as compared to an unaudited consolidated deficiency in net assets of approximately HK$36.67 million of GDC Tech as at 30 June 2006. The implied post-subscription valuation of the GDC Tech Group also represents a significant premium of the consolidated net asset value of the GDC Tech Group even if the net proceeds of approximately HK$50.07 million from the GDC Tech Subscription had been injected into GDC Tech.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We understand from the Company that the GDC Tech Group is still in its technology development stage. Additional funding is required for the continuous research and development of the GDC Tech Group in order to realise the expected future potential value of the GDC Tech Group. The following table shows the unaudited consolidated financial information of GDC Tech for the two years ended 31 December 2005, the six months ended 30 June 2006 and the nine months ended 30 September 2006, which was prepared in accordance with Hong Kong GAAP:

			For the	For the
			six months	nine months
	For the	year ended	ended	ended
	31 December		30 June	30 September
	2004	2005	2006	2006
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	42,986	20,076	4,987	9,056
Gross profit	17,765	10,158	2,802	4,817
E(L)BITDA_(note 1)_	2,563	(8,797)	(4,322)	(5,198)
E(L)BITDA before
impairment losses	2,563	(6,447)	(4,322)	(5,198)
Profit/(loss) before taxation	229	(10,932)	(4,993)	(6,266)
Loss attributable to ordinary
equity holders of GDC Tech	(208)	(10,572)	(4,993)	(6,266)
Gross profit margin (%)	41.3	50.6	56.2	53.2

Note 1: earnings (losses) before interest, taxation, depreciation and amortisation

The GDC Tech Group is still loss making and the principal business model of which is yet to be rolled out. The revenue of the GDC Tech Group declined in the year ended 31 December 2005 as compared to the revenue amount in 2004. The Company explained that it was mainly because of the market competition and the reason that users in the market were waiting for equipment which comply with the new industry recognised specifications released in July 2005.

As set out in the letter from the Board, parties to the GDC Tech Subscription Agreement agreed the GDC Tech Subscription Price of the GDC Tech Subscription after arm’s length negotiations with reference to, among other things, the market valuation of a publicly traded comparable company in the United Stales (“Company A”), the shares of which are quoted on the National Association of Securities Dealers Automated Quotations System in the United States or NASDAQ. Based on the descriptions quoted by Bloomberg, Company A offers a fully managed storage and delivery service for owners and distributors of digital content to movie theatres and other venues. As at the date of the GDC Tech Subscription Agreement, the market capitalisation of Company A was approximately US$215.7 million (equivalent to approximately HK$1,678 million). We understand from the Company that Company A is one of the market leaders in digital content distribution related activities currently in the United States. The Company understands that Company A has already been able to provide commercialised digital cinema products which satisfy most of the industry recognised specifications. In 2005, Company A announced a plan to deploy 4,000 units of digital cinema equipment by 2007. For the two years ended 31

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

March 2005 and 2006, Company A’s media business recorded revenues of approximately US$4.0 million (equivalent to approximately HK$31.1 million) and US$9.9 million (equivalent to approximately HK$77.0 million) respectively. Revenue of Company A’s media business further increased to approximately US$12.6 million (equivalent to approximately HK$98.0 million) for the six months ended 30 September 2006.

We are also given to understand that the business model proposed to be adopted by the GDC Tech Group is not exactly the same as that of Company A. Whilst Company A charges its customers “virtual print fees”, the GDC Tech Group proposes to charge fees primarily based on sharing of the box office receipts and advertising income of the cinemas.

In addition, we understand from the annual report of Company A for the year ended 31 March 2006 that apart from the media business as described above, Company A was also engaged in the provision of data centre services. For the year ended 30 March 2006, the revenue contributed by the media business and the data centre business represented approximately 59% and 41% respectively of the total revenue of Company A in that financial year. The contribution of the media business in terms of revenue increased to approximately 82% for the six months ended 30 September 2006.

We note that the Company made reference to the market valuation of Company A when it was negotiating with the GDC Tech Subscriber in respect of the terms of the GDC Tech Subscription. However, as both the GDC Tech Group and Company A are still loss-making and more importantly due to the differences in the stage of development and primary target market as described above, we consider it not practicable to draw any conclusion on any numeric valuation of the GDC Tech Group based on the market capitalisation of Company A or make any analytical valuation comparison between the two companies. The Company is not aware of other listed companies which could be used as appropriate comparables for appraising the value of the GDC Tech Group as most other industry players are either private companies or a business division of other big corporations.

Because of the lack of comparable listed companies with suitable comparable parameters for valuation benchmarking, we consider it more appropriate to assess the fairness of the consideration of the GDC Tech Subscription (i.e. the implied valuation of the GDC Tech Group) by referring to the valuation of the GDC Group which the GDC Tech Group forms part. The digital cinema equipment business (described as the business segment of digital content distribution and exhibitions in the annual report of GDC for the year ended 31 December 2005) of the GDC Tech Group is one of the businesses of the GDC Group (being GDC and its subsidiaries, including members of the GDC Tech Group). Other business segments of the GDC Group include the provision or computer graphics training courses and the provision of computer graphics creation and production services.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			For the	For the
			six months	nine months
	For the year ended		ended	ended
	31 December		30 June	30 September
	2004	2005	2006	2006
	(audited)	(audited)	(unaudited)	(unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000
Revenue	47,987	32,195	18,323	34,206
Gross profit (loss)	(71,906)	(27,365)	6,950	14,210
LBITDA_(note 1)_	(113,990)	(60,736)	(9,669)	(8,336)
LBITDA before
impairment losses	(99,122)	(58,386)	(9,669)	(8,336)
Loss before taxation	(131,202)	(76,205)	(18,843)	(23,096)
Loss attributable to ordinary
equity holders of GDC	(131,227)	(76,356)	(18,843)	(23,096)

Note 1: losses before interest, taxation, depreciation and amortisation

The following table sets out the segment results of the GDC Group for the year ended 31 December 2005 as extracted from the annual report of GDC for the year ended 31 December 2005.

	Revenue	Segment result
	HK’000	HK’000
Digital content distribution and exhibitions
(the digital cinema equipment business of the GDC Tech Group)	20,077	(9,245)
Computer graphics training courses	7,212	3,621
Computer graphics creation and production	4,906	(49,487)
Total	32,195	(55,111)

Apart from the provision of computer graphics training courses, the other two business segments of the GDC Group (including the GDC Tech Group’s digital cinema equipment business) recorded segment losses for the year ended 31 December 2005.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following table sets out the segment revenue of the GDC Group for the nine months ended 30 September 2006.

Revenue HK’000 Digital content distribution and exhibitions (the digital cinema equipment business of the GDC Tech Group) 8,939 Computer graphics training courses 6,437 Computer graphics creation and production 18,830 Total 34,206	Percentage 26.1% 18.8% 55.1%
	100%

Based on the average traded price per GDC Share on the Stock Exchange from 19 October 2006 to 30 November 2006 (being the 30 consecutive trading days immediately prior to the date of the GDC Tech Subscription Agreement) and the number of GDC Shares in issue as at the date of the GDC Tech Subscription Agreement, the market capitalisation of GDC was approximately HK$181.5 million (the “GDC Market Value”). The implied pre-subscription valuation of the GDC Tech Group under the GDC Tech Subscription Agreement represents approximately 57.9% of the GDC Market Value whilst the revenue contributed by the digital cinema equipment business segment only represented approximately 26.1% of the consolidated revenue of GDC for the nine months ended 30 September 2006.

Based on the information presently available including the financial information of the GDC Tech Group, the needs for the proceeds from the GDC Tech Subscription for the rolling-out of the business plan of the GDC Tech Group and the financial information and market value of GDC, we concur with the view of the Company that the terms of the GDC Tech Subscription are fair and reasonable and in the interests of the Company and its Shareholders as a whole given the present situation being faced by the GDC Tech Group.

Background of the GDC Subscription

On 1 December 2006, GDC entered into the GDC Subscription Agreement with the GDC Subscriber under which GDC has conditionally agreed to issue and allot to the GDC Subscriber, and the GDC Subscriber has conditionally agreed to subscribe at the GDC Subscription Price for 40,000,000 GDC Subscription Shares for an aggregate consideration of approximately HK$9.74 million, representing approximately 4.99% of the issued share capital of GDC as at the date of the agreement and the Latest Practicable Date and approximately 4.75% of the issued share capital of GDC as enlarged by the GDC Subscription (based on the number of GDC Shares in issue as at the Latest Practicable Date).

It is stated in the letter from the Board that the Company considers that the GDC Subscription will enlarge the existing capital and investor base of GDC (where the GDC Subscriber is beneficially owned by Mr. Li Ka-shing, a respected businessman and investor in Hong Kong) and the net proceeds of approximately HK$9.23 million will be used as general working capital of the GDC Group. As stated in the letter from the Board, the terms of the GDC Subscription Agreement were negotiated on an arm’s length basis and the Directors consider that the terms of the GDC Subscription Agreement are fair and

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

reasonable and that the GDC Subscription Agreement is entered into on normal commercial terms and is in the interests of the Company and the Shareholders as a whole.

We believe that the strengthening of the working capital position of the GDC Group as a result of the GDC Subscription will help the further development of the various businesses of the GDC Group, including the rolling-out of the digital cinema equipment business of the GDC Tech Group. As mentioned above in this letter, IDMT, a wholly-owned subsidiary of GDC and a fellow subsidiary of GDC Tech, has entered into a cooperation agreement with CFGC in respect of the promotion of digital cinema in the PRC. We understand from the business of the GDC Group that IDMT will be responsible for promoting the installation of digital cinema equipment in the PRC. The enhanced working position of the GDC Tech Group will help support IDMT’s sourcing requirements in this regard.

Terms of the GDC Subscription

As set out in the letter from the Board, the subscription price is HK$0.2436 per GDC Subscription Share, which was determined after arm’s length negotiations between GDC and the GDC Subscriber. The GDC Subscription Price under the GDC Subscription Agreement (i) equals to the average closing price of GDC Shares as quoted on GEM for the last 30 trading days, up to and including 30 November 2006 (being the last trading day immediately before the date of the GDC Subscription Agreement); (ii) represents a discount of approximately 4.5% to the closing price of GDC Shares of HK$0.255 as quoted on GEM on 1 December 2006 (being the last trading day immediately before the date of the announcement of the GDC Subscription); and (iii) represents a discount of approximately 6.3% to the closing price of GDC Shares of HK$0.26 as quoted on GEM on the Latest Practicable Date. We note that the GDC Subscription Price, which equals to the 30-day average closing price of GDC Shares up to and including 30 November 2006 (being the last trading day immediately before the date of the GDC Subscription Agreement), represents (i) a discount of approximately 4.5% to the closing price of GDC Shares on 1 December 2006 (being the last trading day immediately before the date of the announcement of the GDC Subscription) and (ii) a discount of approximately 3.3% to the 10-day average closing price of GDC Shares of approximately HK$0.252 up to and including 1 December 2006. We have compared the GDC Subscription Price to the issue price of a number of recent placing and/or subscription of shares involving third party placees or investors. We note that the discount of the GDC Subscription Price to the above-mentioned closing price and 10-day average closing price of GDC Shares is within the range of discount for such market transactions.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The chart below shows the movement of the closing prices of GDC Shares from 3 January 2006 to the Latest Practicable Date.

==> picture [355 x 212] intentionally omitted <==

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

0.4
0.35
0.3
0.25
0.2
Issue price
per GDC
0.15 Subscription
Share of
HK$0.2436
0.1
0.05
0
Date
1/3/20061/17/20061/31/20062/14/20062/28/20063/14/20063/28/20064/11/20064/25/20065/9/20065/23/20066/6/20066/20/20067/4/20067/18/20068/1/20068/15/20068/29/20069/12/20069/26/200610/10/200610/24/200611/7/200611/21/200612/5/200612/19/2006
Closing price (HK$)
----- End of picture text -----

During the period from 20 October 2006 to 1 December 2006 (being the 30 consecutive trading days immediately before the date of announcement of the GDC Subscription), the total number of GDC Shares traded on the Stock Exchange amounted to approximately 3.4 million GDC Shares with an aggregate turnover of approximately HK$0.8 million. On 6 December 2006 (being the first day trading in the Shares has resumed after the entering into of the GDC Tech Subscription Agreement and the GDC Subscription Agreement), turnover of GDC Shares traded on the Stock Exchange increased to approximately HK$1.5 million. Price of GDC Shares closed at HK$0.350 per GDC Share (with the highest traded price being HK$0.6 per GDC Share) on the same day, representing an increase of approximately 37.3% as compared to the closing price per GDC Share on 1 December 2006 (being the last trading day immediately before the date of the announcement of the GDC Subscription). On 7 December 2006, trading volume of GDC Shares further increased to approximately HK$9.8 million and the closing price per GDC Share dropped slightly to HK$0.31 (with the highest traded price being HK$0.48) but still represented an increase of approximately 21.6% as compared to the closing price per GDC Share on 1 December 2006. Such increases in share price and trading volume may have reflected the positive market perception and interest in respect of the GDC Tech Subscription and the GDC Subscription. Since then, we saw downward adjustments to the share price and trading volume of GDC Shares to levels approximating those before the announcement of the GDC Tech Subscription and the GDC Subscription.

As set out above in this letter, the GDC Group has been recording losses for the past two years. As at 30 June 2006, the GDC Group recorded an unaudited deficiency in net assets of approximately HK$147.20 million. Given the basis of determining the subscription price and the financial position of the GDC Group, we agree with the Company that the GDC Subscription Price is fair and reasonable so far as the Company and its shareholders as a whole are concerned.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial effects of the GDC Tech Subscription and the GDC Subscription

The GDC Tech Subscription and the GDC Subscription are effectively inter-conditional. We agree with the Company that the financial effects of the two transactions should be analysed as one single transaction.

The Company expects to realise a combined gain on the deemed disposal of its interests in GDC Tech and GDC under the GDC Tech Subscription Agreement and the GDC Subscription Agreement of approximately HK$54.89 million. Shareholders of the Company should note that the actual combined gain on the deemed disposals of the Company’s interests in GDC Tech and GDC to be recorded by the Company depends on the respective net asset (or liability) positions of the GDC Tech Group and the GDC Group immediately after completion of the GDC Tech Subscription and the GDC Subscription.

Both the GDC Group and the GDC Tech Group were loss making in the year ended 31 December 2005 and the six months ended 30 June 2006. For the year ended 31 December 2005, the GDC Group recorded an audited consolidated loss of approximately HK$76.4 million and the GDC Tech Group recorded an unaudited consolidated loss of approximately HK$10.6 million. For the six months ended 30 June 2006, the GDC Group recorded an unaudited consolidated loss of approximately HK$18.8 million and the GDC Tech Group recorded an unaudited consolidated loss of approximately HK$5.0 million. We understand from the Company that the proceeds from the GDC Tech Subscription and the GDC Subscription are essential for the GDC Tech Group as well as the GDC Group to continue to carry out its research and development work and roll out its digital cinema equipment business plan and thus realise any potential value of the GDC Group’s investments in the project.

As at 30 June 2006, the GDC Group had an unaudited deficiency in net assets of approximately HK$147.20 million and the GDC Tech Group had an unaudited deficiency in net assets of approximately HK$36.67 million. The GDC Subscription and the GDC Tech Subscription will enhance the working capital and net asset position of the GDC Group as well as the GDC Tech Group.

Upon completion of the GDC Tech Subscription and the GDC Subscription, based on the shareholding structure of GDC as at the Latest Practicable Date, the Company’s shareholding interest in GDC will be diluted from approximately 74.98% to approximately 71.41%, GDC’s shareholding interest in GDC Tech will be diluted from approximately 83.34% to approximately 56.25% and the Company’s effective attributable interest in GDC Tech will be diluted from approximately 62.49% to approximately 40.17%. We understand from the Company that both GDC and GDC Tech will remain subsidiaries of the Company and their financial results and assets and liabilities will remain be consolidated into the consolidated financial statements of the Group.

Given the loss-making track record of the GDC Group as well as the GDC Tech Group, the position of the GDC Group and the GDC Tech Group of having a deficiency in net assets, the necessity of additional funding to the GDC Group as well as the GDC Tech Group, and the likely positive impacts of the GDC Subscription and the GDC Tech Subscription on the financial positions and prospects of the GDC Group and the GDG Tech Group which in turn would benefit all shareholders of GDC, including the Company, we concur with the Company that the dilution of the shareholding interests of the Company in GDC and GDC Tech justifiable and acceptable.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPINION AND ADVICE

Having considered the principal reasons and factors as set out above, we are of the view that the terms of the Agreement, the GDC Tech Subscription Agreement and the GDC Subscription Agreement are fair and reasonable so far as the Shareholders are concerned and that the Disposal, the GDC Tech Subscription and the GDC Subscription are entered into on normal commercial terms for the purposes of the Listing Rules and are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise that the Independent Board Committee should recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Agreement, the GDC Tech Subscription Agreement and the GDC Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully,

For and on behalf of

Ernst & Young Corporate Finance Limited Cecilia Ng Allen Tze Executive Director Director

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. ACCOUNTANTS’ REPORT

The following is a text of a report, prepared for the sole purpose of inclusion in this circular received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, the reporting accountants.

==> picture [76 x 58] intentionally omitted <==

27 December 2006

The Directors Shougang Concord Grand (Group) Limited 6/F, Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai, Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding Shougang Concord Grand (Group) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2006 (the “Relevant Periods”) for inclusion in the circular issued by the Company dated 27 December 2006 (the “Circular”) in connection with the very substantial disposal of 44% interest in the registered capital of a jointly controlled entity, 北京東直門國際公寓有限公司 Beijing Dongzhimen International Apartment Co., Limited (“Beijing Dongzhimen”), a sino-foreign equity joint venture established in the People’s Republic of China (the “PRC” which for the purpose of this report, does not include Hong Kong, Macau and Taiwan) that is mainly engaged in property holding and the provision of residential service apartments.

The Company was incorporated in Bermuda on 9 May 1991 and is an investment holding company.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at the date of this report, the Company has the following subsidiaries with limited liability:

			Proportion of
		Issued and	share capital/
	Place and date of	fully paid	contributed
	incorporation/	share capital/	capital held by
Name of subsidiary	operation	registered capital	the Company	Principal activities
Direct subsidiary
SCG Investment (BVI)	British Virgin	HK$100,000	100%	Investment holding
Limited_(Note 1)_	Islands (“BVI”)
	13.6.1991
Indirect subsidiaries
首方投資管理（深圳）	The PRC	HK$75,500,000	100%	Investment holding
有限公司	15.6.2004
（“首方投資”）(Note 3)
Concord Grand TV & Movie	BVI	US$1	100%	Investment holding
Investment Limited	5.5.2004
(Note 1)
Dunley Developments	BVI	US$1	100%	Investment holding
Limited_(Note 1)_	30.8.1994
Durali Developments	BVI	US$1	100%	Investment holding
Limited_(Note 1)_	16.5.1994
Ecko Limited_(Note 2)_	Hong Kong	HK$2	100%	Property management
	7.4.1993
Eldex Investment Company	Hong Kong	HK$541,000	100%	Property investment
Limited_(Note 2)_	12.6.1970	(ordinary)
		HK$1,459,000
		(non-voting
		deferred)
GDC Asset Management	BVI	US$1	74.98%	Investment holding
Limited_(Note 1)_	30.12.1999
GDC (BVI) Limited	BVI	US$5,214,181	74.98%	Investment holding
(Note 1)	14.11.2002
GDC Management Services	Hong Kong	HK$2	74.98%	Provision of and
Limited_(Note 2)_	19.9.2003			administration
				management services

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Proportion of
		Issued and	share capital/
	Place and date of	fully paid	contributed
	incorporation/	share capital/	capital held by
Name of subsidiary	operation	registered capital	the Company	Principal activities
Indirect subsidiaries
– continued
GDC China Limited	Hong Kong	HK$2	74.98%	Investment holding
(Note 2)	14.1.2000
GDC Entertainment	BVI	US$3,510	74.98%	Animation investment,
Limited_(Note 1)_	29.12.1999			licensing and
				merchandising
				distribution
GDC Holdings Limited	BVI	US$5,214,181	74.98%	Investment holding
(Note 1)	3.10.2002
GDC International	Samoa	US$1	74.98%	Provision of
Limited_(Note 1)_	2.12.2005			computer graphic
				(“CG”) animation
				creation and
				production services
GDC Technology Limited	BVI	HK$10,879,667	62.49%	Provision of
(“GDC Technology”)	29.12.1999			computing solutions
(Note 1)				for digital
				content distribution
				and exhibitions in
				a worldwide basis
GDC Technology China	BVI	US$1	62.49%	Investment holding
Limited_(Note 1)_	17.5.2006
GDC Technology Pte.	Singapore	S$900,000	62.49%	Provision of
Ltd.(Note 4)	7.9.2000			computing solutions
				for digital
				content distribution
				and exhibitions in
				a worldwide basis

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Proportion of
		Issued and	share capital/
	Place and date of	fully paid	contributed
	incorporation/	share capital/	capital held by
Name of subsidiary	operation	registered capital	the Company	Principal activities
Indirect subsidiaries
– continued
Global Digital Creations	Bermuda	HK$8,008,200	74.98%	Investment holding
Holdings Limited	10.10.2002
(“GDC”)(Note 2)
Gold Cosmos Development	Hong Kong	HK$10,000	100%	Inactive
Limited_(Note 2)_	6.6.1991
Grand Award Limited	BVI	US$1	100%	Investment holding
(Note 1)	23.1.1997
Grand Cheers Property	Hong Kong	HK$2	100%	Inactive
Limited_(Note 2)_	9.7.1996
Grand Park Investment	Hong Kong	HK$2	100%	Property investment
Limited_(Note 2)_	17.9.1996
Grand Perfect Investment	Hong Kong	HK$2	100%	Inactive
Limited_(Note 2)_	19.9.1996
Grand Phoenix Limited	BVI	US$1	100%	Investment holding
(Note 1)	23.1.1997
環球數碼媒體科技	The PRC	US$140,000	74.98%	Provision of CG and
（上海）有限公司	25.7.2003			animation training
（“環球數碼上海”）
(Note 3)
環球數碼媒體科技研究	The PRC	US$7,085,900	74.98%	Provision of CG and
（深圳）有限公司	17.8.2000			animation training,
（“環球數碼深圳”）				development of
(Note 3)				multimedia software
				and hardware, and
				provision of
				related technical
				consultancy services

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Proportion of
		Issued and	share capital/
	Place and date of	fully paid	registered capital
	incorporation/	share capital/	held by
Name of subsidiary	operation	contributed capital	the Company	Principal activities
Indirect subsidiaries
– continued
Linksky Limited_(Note 2)_	Hong Kong	HK$2	100%	Property holding
	27.7.1993
Long Cosmos Investment	Hong Kong	HK$2	100%	Provision of
Limited_(Note 2)_	21.4.1992			management services
Lyre Terrace Management	Hong Kong	HK$1,000,000	100%	Investment holding
Limited_(Note 2)_	25.2.1986			and property
				investment
On Hing Investment	Hong Kong	HK$1,000 (ordinary)	100%	Property investment
Company, Limited	15.6.1961	HK$2,000,000
(Note 2)		(non-voting deferred)
New Stamina Limited	BVI	US$1	100%	Inactive
(Note 1)	26.4.2004
SCG Capital Corporation	Hong Kong	HK$20	100%	Inactive
Limited_(Note 2)_	29.7.1993
SCG Finance Corporation	Hong Kong	HK$20	100%	Provision of
Limited	29.7.1993			financial services
SCG Financial Investment	BVI	US$1,000	100%	Investment holding
Limited_(Note 1)_	3.9.1992
SCG Leasing Corporation	Hong Kong	HK$2	100%	Property investment
Limited_(Note 2)_	4.6.1992
Strenbeech Limited	BVI	HK$147,000,078	100%	Property investment
(Note 2)	20.4.1993
Tin Fung Investment	Hong Kong	HK$975,000	100%	Property investment
Company, Limited	18.3.1963	(ordinary)
(Note 2)		HK$210,000
		(non-voting
		deferred)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Proportion of
		Issued and	share capital/
	Place and date of	fully paid	registered capital
	incorporation/	share capital/	held by
Name of subsidiary	operation	contributed capital	the Company	Principal activities
Indirect subsidiaries
– continued
Upper Nice Assets Ltd.	BVI	US$1	100%	Investment holding
(Note 1)	18.2.1993
Valuework Investment	BVI	US$1	100%	Investment holding
Holdings Limited	27.10.2004
(Note 1)
四方源創國際影視	The PRC	RMB20,000,000	80%	Production of films
文化傳播（北京）	9.10.2004			and television
有限公司				drama series
（“北方源創”）(Note 3)
廣東四方源創動畫制作	PRC	RMB10,000,000	64%	Provision of graphic
有限公司	17.11.2004			animation creation
(“廣東源創”)(Note 3)
東陽市四方源創影視制作	PRC	RMB1,000,000	80%	Production of film
有限公司(“東陽源創”)	1.4.2005			and television
(Note 3)				drama series
杭州四方源創動畫制作	PRC	RMB3,000,000	64%	Provision of graphic
有限公司(“杭州源創”)	29.12.2005			animation creation
(Note 5)
深圳市環球數碼科技	PRC	RMB1,770,000	62.49%	Provision of digital
有限公司	7.8.2006			cinema equipment’s
(“深圳數碼科技”)				technology
(Note 5)				development sales
				and related services
深圳市環球數碼影視	PRC	RMB2,480,000	74.98%	Provision of films
文化有限公司	14.9.2006			and animation’s
(“深圳影視文化”)				technology
(Note 5)				development and
				production of film
				cultural activities

Note 1: No audited financial statements have been prepared for these companies, which were incorporated in a country where there were no statutory audit requirements.

Note 2: We have acted as auditors of these companies for each of the Relevant Periods or since their respective date of incorporation or acquisition, where this is a shorter period. Audited financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong for these companies for each of the Relevant Periods, or from their respective date of incorporation, where this is a shorter period.

Note 3: The statutory financial statements of the following companies for each of the respective three years ended 31 December 2003, 2004 and 2005 were prepared in accordance with the relevant accounting principles and financial regulations applicable in the PRC and were audited by the PRC auditors stated below:

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Name of companies	Respective financial year	PRC auditors
首方投資	2004 and 2005	深圳長城會計師事務所有限公司
環球數碼上海	2003, 2004 and 2005	上海宏大信寧會計師事務所有限公司
環球數碼深圳	2003, 2004 and 2005	深圳廣深會計師事務所
北京源創	2005	中逸會計師事務所
廣東源創	2005	廣州沛豐會計師事務所有限公司
東陽源創	2005	中逸會計師事務所

Note 4: The statutory financial statements of GDC Technology Pte. Ltd. for each of the three years ended 31 December 2003, 2004 and 2005 were prepared in accordance with the relevant accounting principles and financial regulations applicable in Republic of Singapore and were audited by Deloitte & Touche Singapore, which is a member firm of Deloitte Touche Tohmatsu.

Note 5: No audited financial statements have been prepared for 杭州源創 , 深圳數碼科技 and深圳影視文化 since their respective dates of incorporation as they are newly incorporated and/or not yet subject to their respective statutory audit requirements.

We have acted as auditors of the Company for each of the Relevant Periods. Audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong for each of the three years ended 31 December 2003, 2004 and 2005. For the purpose of this report, we have carried out independent audit procedures in accordance with the Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) on the consolidated financial statements of the Group for the six months ended 30 June 2006, which were prepared in accordance with accounting principles generally accepted in Hong Kong.

We have examined the audited consolidated financial statements (the “Underlying Financial Statements”) of the Group for the Relevant Periods. Our examination was made in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The consolidated income statements and consolidated cash flow statements of the Group for each of the Relevant Periods and consolidated balance sheets as at 31 December 2003, 2004, 2005 and 30 June 2006 as set out in this report have been prepared based on the Underlying Financial Statements for the Relevant Periods for the purpose of preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the Directors of the Company who approve their issue. The Directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 2003, 2004 and 2005 and 30 June 2006 and of the consolidated results and cash flows of the Group for each of the three years ended 31 December 2005 and the six months ended 30 June 2006.

The comparative consolidated income statement, consolidated statement of changes in equity and consolidated cash flows of the Group for the six months ended 30 June 2005, together with the notes thereto, (the “30 June 2005 Financial Information”), were prepared by the Directors of the Company solely for the purpose of this report. We have reviewed the 30 June 2005 Financial Information in accordance with SAS 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consisted principally of making enquiries of management and applying analytical procedures to the 30 June 2005 Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 30 June 2005 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modification that should be made to the 30 June 2005 Financial Information.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION

CONSOLIDATED INCOME STATEMENT

Notes Continuing operations Revenue 7 Cost of sales Allowance for production work in progress Gross profit (loss) Other income 9 Distribution costs Administrative expenses Loss on disposal of investment properties (Decrease) increase in fair value of investment properties Unrealised holding gain on investment securities/ (decrease) increase in fair value of investments held for trading Gain (loss) on disposal of investments held for trading Finance costs 10 Share of result of a jointly controlled entity 24 Loss on disposal of partial interest in a subsidiary 46 Amortisation of goodwill arising on acquisition of a jointly controlled entity Share of result of an associate 25 Gain on deemed disposal of an associate 40 Gain on distribution of an associate 25 Impairment loss on goodwill of interest in a jointly controlled entity 24 Impairment loss on goodwill arising from acquisition of a subsidiary 11 Profit (loss) before taxation Taxation 12 Profit (loss) for the year/period from continuing operations 13 Discontinued operation (Loss) profit from discontinued operation 14 Profit (loss) for the period Attributable to: Equity holders of the parent Minority interests Dividends 16 & 25 Earnings (loss) per share 17 Basic From continuing and discontinued operations From continuing operations Diluted	2003 HK$’000 (restated) 15,470 – – 15,470 1,925 – (15,945) – – 190 – (2,907) (3,780) – (1,873) 8,235 28,273 – – – 29,588 (1,107) 28,481 – 28,481 28,481 – 28,481 – HK3.34 cents HK3.34 cents N/A	Year ended 31 December 2004 2005 HK$’000 HK$’000 (restated) (restated) 14,386 43,185 – (42,947) – (24,712) 14,386 (24,474) 774 3,724 – (2,535) (34,363) (95,063) (1,427) – (2,800) 14,400 75 (3,099) – 919 (2,115) (6,930) (70,197) 428 – (12,345) (937) – (5,853) (248) 115 – 189,210 – (22,471) – – (191,457) 64,397 (316,680) 3,259 (2,372) 67,656 (319,052) – (1,575) 67,656 (320,627) 67,720 (316,796) (64) (3,831) 67,656 (320,627) 374,740 – HK7.31 cents (HK28.57 cents) HK7.31 cents (HK28.43 cents) N/A N/A	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited and restated) 12,802 31,226 (13,124) (19,155) (17,114) (2,999) (17,436) 9,072 1,327 12,176 (1,175) (4,079) (37,118) (27,688) – – 10,400 5,800 228 686 – (3,792) (3,285) (5,059) 337 723 – – – – (248) (437) – – – – – – (129,950) – (176,920) (12,598) (501) (130) (177,421) (12,728) 127 20,352 (177,294) 7,624 (176,972) 8,553 (322) (929) (177,294) 7,624 – – (HK16.38 cents) HK0.75 cents (HK16.39 cents) (HK1.04 cents) N/A N/A

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED BALANCE SHEET

Notes Non-current assets Investment properties 18 Property, plant and equipment 19 Prepaid lease payments 20 Goodwill 21 Intangible asset 23 Interest in a jointly controlled entity 24 Interest in an associate 25 Advance to an associate 41(b) Available-for-sale investment 26 Finance lease receivables 27 Payment for acquisition of an associate 50 Current assets Inventories 28 Production work in progress 29 Finance lease receivables 27 Trade receivables 31 Prepayments, deposits and other receivables 32 Amount due from an associate 41(c) Prepaid lease payments 20 Investments held for trading 33 Investments in securities 34 Pledged bank deposits 35 Bank balances and cash 36 Interest in an associate held for sale 30 Current liabilities Trade payables 37 Other payables and accruals 38 Income received in advance 39 Rental and management fee deposits received Amount due to a fellow subsidiary 42 Amount due to a related party 43 Amounts due to shareholders 42 Amount due to an associate 41(c) Tax liabilities Borrowings 44 Obligations under finance leases 45 Net current assets (liabilities) Total assets less current liabilities	As at 31 December As at 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 (restated) (restated) 236,000 92,400 108,000 132,900 891 1,666 28,165 8,888 1,746 1,714 6,357 1,666 – – – – – – 21,866 – 211,582 118,022 120,113 119,360 249,394 – – 2,019 – – – 43,553 – – – – – – 34,195 – – 2,861 – – 699,613 216,663 318,696 308,386 – – 7,822 1,089 – 2,482 6,248 11,373 – – 33,513 – – – 7,089 3,009 1,823 30,011 16,446 40,734 – – – 21,970 32 32 136 32 – – 6,778 3,672 1,020 23,145 – – – 65,500 16,455 – 51,677 119,683 19,841 48,245 54,552 240,853 114,328 130,124 – – 28,816 – 54,552 240,853 143,144 130,124 – – 4,424 1,724 3,580 5,996 53,306 35,904 – – 6,714 16,030 3,281 1,451 851 1,043 – – 24,260 426 – – 1,098 2,380 – – 26,062 25,888 – – – 19 478 210 2,066 2,386 5,600 15,800 76,648 31,902 – – 2,761 2,749 12,939 23,457 198,190 120,451 41,613 217,396 (55,046) 9,673 741,226 434,059 263,650 318,059	As at 31 December As at 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 (restated) (restated) 236,000 92,400 108,000 132,900 891 1,666 28,165 8,888 1,746 1,714 6,357 1,666 – – – – – – 21,866 – 211,582 118,022 120,113 119,360 249,394 – – 2,019 – – – 43,553 – – – – – – 34,195 – – 2,861 – – 699,613 216,663 318,696 308,386 – – 7,822 1,089 – 2,482 6,248 11,373 – – 33,513 – – – 7,089 3,009 1,823 30,011 16,446 40,734 – – – 21,970 32 32 136 32 – – 6,778 3,672 1,020 23,145 – – – 65,500 16,455 – 51,677 119,683 19,841 48,245 54,552 240,853 114,328 130,124 – – 28,816 – 54,552 240,853 143,144 130,124 – – 4,424 1,724 3,580 5,996 53,306 35,904 – – 6,714 16,030 3,281 1,451 851 1,043 – – 24,260 426 – – 1,098 2,380 – – 26,062 25,888 – – – 19 478 210 2,066 2,386 5,600 15,800 76,648 31,902 – – 2,761 2,749 12,939 23,457 198,190 120,451 41,613 217,396 (55,046) 9,673 741,226 434,059 263,650 318,059
		308,386
		1,089 11,373 – 3,009 40,734 21,970 32 3,672 – – 48,245
		130,124 –
		130,124
		1,724 35,904 16,030 1,043 426 2,380 25,888 19 2,386 31,902 2,749
		120,451
		9,673
		318,059

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED BALANCE SHEET (Continued)

Notes Non-current liabilities Income received in advance 39 Amount due to former shareholder of a subsidiary 43 Amount due to a fellow subsidiary 42 Borrowings 44 Obligations under finance leases 45 Security deposits received Deferred tax liabilities 47 Net assets Capital and reserves Share capital 48 Reserves Equity attributable to equity holders of the parent Minority interests Total equity	As at 31 December As at 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 (restated) (restated) – – 1,194 – – – 1,495 805 – – – 40,000 105,800 90,000 43,174 50,000 – – 716 853 – – 1,948 – 3,471 281 572 382 109,271 90,281 49,099 92,040 631,955 343,778 214,551 226,019 8,579 9,393 11,369 11,369 623,376 332,951 199,174 211,039 631,955 342,344 210,543 222,408 – 1,434 4,008 3,611 631,955 343,778 214,551 226,019	As at 31 December As at 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 (restated) (restated) – – 1,194 – – – 1,495 805 – – – 40,000 105,800 90,000 43,174 50,000 – – 716 853 – – 1,948 – 3,471 281 572 382 109,271 90,281 49,099 92,040 631,955 343,778 214,551 226,019 8,579 9,393 11,369 11,369 623,376 332,951 199,174 211,039 631,955 342,344 210,543 222,408 – 1,434 4,008 3,611 631,955 343,778 214,551 226,019
		92,040
		226,019

		11,369 211,039
		222,408 3,611
		226,019

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 1 January 2003 – as originally stated – effect of change in accounting policy (note 3) – as restated Exchange differences arising on translation of a jointly controlled entity/subsidiaries representing expense recognised directly in equity Release on deemed disposal of an associate_(Note 40) Profit for the year Total income and expenses recognised for the year Shares issued at premium for acquisition of a subsidiary At 31 December 2003 and 1 January 2004 Exchange differences arising on translation of a jointly controlled entity representing income recognised directly in equity Release on deemed disposal of an associate(Note 40) Release on distribution of an associate(Note 25) Profit for the year Total recognised income and expenses for the year Transfer (Note 49) Establishment of a subsidiary Shares issued at premium Dividend(Note 16)_ Recognition of share-based payments At 31 December 2004 and 1 January 2005	Share capital HK$’000 8,279 – 8,279 – – – – 300 8,579 – – – – – – – 814 – – 9,393	Share premium HK$’000 192,744 – 192,744 – – – – 14,100 206,844 – – – – – – – 59,473 – – 266,317	Attributable to equity holders of the parent Capital Share Accumulated Negative contribution Contributed Translation options (losses) goodwill reserve surplus reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 49) 85,217 – 364,866 3,711 – (23,551) – – – – – (11,572) 85,217 – 364,866 3,711 – (35,123) – – – (1,842) – – (27,921) – – (857) – – – – – – – 28,481 (27,921) – – (2,699) – 28,481 – – – – – – 57,296 – 364,866 1,012 – (6,642) – – – 1,314 – – (202) – – (6) – – (57,094) – – (1,753) – – – – – – – 67,720 (57,296) – – (445) – 67,720 – – (362,731) – – 362,731 – – – – – – – – – – – – – – – – – (374,740) – – – – 14,863 – – – 2,135 567 14,863 49,069	Total HK$’000 631,266 (11,572) 619,694 (1,842) (28,778) 28,481 (2,139) 14,400 631,955 1,314 (208) (58,847) 67,720 9,979 – – 60,287 (374,740) 14,863 342,344	Minority interests HK$’000 – – – – – – – – – – – – (64) (64) – 1,498 – – – 1,434	Total HK$’000 631,266 (11,572)
						619,694 (1,842) (28,778) 28,481
						(2,139)
						14,400
						631,955 1,314 (208) (58,847) 67,656
						9,915
						– 1,498 60,287 (374,740) 14,863
						343,778

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued)

Exchange differences arising on translation of a jointly controlled entity/subsidiaries representing expense recognised directly in equity Loss for the period Total expenses recognised for the period Shares issued at premium for acquisition of a subsidiary Recognition of share-based payments At 30 June 2005 Exchange differences arising on translation of a jointly controlled entity/subsidiaries representing income recognised directly in equity Loss for the period Total income (expenses) recognised for the period Additional contribution from minority shareholders Deemed contribution from a former shareholder of a subsidiary Recognition of share-based payments Transfer upon cancellation of share options At 31 December 2005 and 1 January 2005 Exchange differences arising on translation of a jointly controlled entity/subsidiaries representing income recognised directly in equity Profit for the period Total income and expenses recognised for the period Additional contribution from minority shareholders At 30 June 2006	Share capital HK$’000 – – – 1,976 – 11,369 – – – – – – – 11,369 – – – – 11,369	Share premium HK$’000 – – – 151,373 – 417,690 – – – – – – – 417,690 – – – – 417,690	Attributable to equity holders of the parent Capital Share Accumulated Negative contribution Contributed Translation options (losses) goodwill reserve surplus reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 43) – – – (795) – – – – – – – (176,972) – – – (795) – (176,972) – – – – – – – – – – 11,980 – – – 2,135 (228) 26,843 (127,903) – – – 6,540 – – – – – – – (139,824) – – – 6,540 – (139,824) – – – – – – – 445 – – – – – – – – 13,476 – – – – – (40,319) 40,319 – 445 2,135 6,312 – (227,408) – – – 3,312 – – – – – – – 8,553 – – – 3,312 – 8,553 – – – – – – – 445 2,135 9,624 – (218,855)	Total HK$’000 (795) (176,972) (177,767) 153,349 11,980 329,906 6,540 (139,824) (133,284) – 445 13,476 – 210,543 3,312 8,553 11,865 – 222,408	Minority interests HK$’000 – (322) (322) 2,722 – 3,834 84 (3,509) (3,425) 3,599 – – – 4,008 32 (929) (897) 500 3,611	Total HK$’000 (795) (177,294)
						(178,089)
						156,071 11,980
						333,740 6,624 (143,333)
						(136,709)
						3,599 445 13,476 –
						214,551 3,344 7,624
						10,968 500
						226,019

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED CASH FLOW STATEMENTS

OPERATING ACTIVITIES Profit (loss) before taxation from continuing and discontinued operations Adjustments for: Impairment loss on goodwill arising from acquisition of a subsidiary Share-based payment expenses Allowance for production work in progress Depreciation of property, plant and equipment Amortisation of intangible asset Finance costs Allowance for bad and doubtful debts Allowance for finance lease receivables Allowance for inventories Impairment loss of property, plant and equipment Loss (gain) on disposal of property, plant and equipment Loss (gain) on disposal of partial interest in a subsidiary Decrease (increase) in fair value of investment properties Amortisation of prepaid lease payments Interest income Dividend income from an associate held for sale Dividend income from equity investments Share of result of a jointly controlled entity Share of result of an associate Impairment loss on goodwill of interest in a jointly controlled entity Loss on disposal of investment properties Amortisation of goodwill arising on acquisition of a jointly controlled entity Gain on distribution of an associate Gain on deemed disposal of an associate Increase in fair value of land lease payment upon transfer Unrealised holding gain on investments in securities Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in production work in progress Increase in finance lease receivables Increase in trade receivables Decrease (increase) in prepayments, deposits and other receivables Decrease (increase) in investments held for trading Increase (decrease) in trade payables Increase (decrease) increase in other payables and accruals Increase in income received in advance (Decrease) increase in rental and management fee deposits received Increase in security deposits received Cash from (used in) operations Hong Kong Profits Tax paid Tax refunded Interest paid Bank facility arrangement fee paid NET CASH USED IN OPERATING ACTIVITIES	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 (restated) (restated) (restated) 29,588 64,397 (318,255) – – 191,457 – 14,863 25,456 – – 24,712 110 164 2,840 – – 545 2,907 2,115 7,007 – – 521 – – – – – 2,645 – – 2,350 – 1 (36) – – 12,345 – 2,800 (14,767) 32 32 134 (202) (320) (976) – – (1,800) (54) (50) (162) 3,780 70,197 (428) (8,235) 5,853 248 – 22,471 – – 1,427 – 1,873 937 – – (189,210) – (28,273) (115) – – – – (190) (75) – 1,336 (4,513) (66,164) – – (5,234) – (2,482) 1,787 – – (67,708) – – (86) 31 (17,345) 23,702 – – 6,998 – – 993 1,313 2,252 (49,349) – – 2,504 (176) (1,830) (600) – – 1,948 2,504 (23,918) (151,209) (1,749) (206) (143) 257 7 69 (2,833) (1,700) (1,746) (250) (251) (528) (2,071) (26,068) (153,557)	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited) (176,793) 7,754 129,950 – 11,980 – 17,114 2,999 1,539 4,067 – 428 3,285 5,059 – – – 4,649 – – – – (36) – – (24,711) (10,767) (5,800) 67 64 (914) (126) – (5,434) (41) – (337) (723) 248 437 – – – – – – – – – – – (146) – – (24,705) (11,483) (2,183) 6,733 (9,938) (8,059) – (772,164) (1,482) 4,080 26,562 (2,700) (1,354) (1,609) 269 (2,700) (61,174) (1,112) – 17,268 (490) 192 – 29,118 (74,495) (742,436) – – 58 – (725) (1,099) (125) – (75,287) (743,535)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED CASH FLOW STATEMENTS (Continued)

Notes INVESTING ACTIVITIES Increase (decrease) in pledged bank deposits Proceeds from disposal of partial interest in a subsidiary Proceeds from disposal of held-to-maturity investment Acquisition of subsidiaries 50 Dividend received from an associate held for sale Dividend received from a jointly controlled entity Interest received Proceed from disposal of property, plant and equipment Proceeds from disposal of other non-current asset Dividends received from equity investments Acquisition of an associate held for sale Purchase of property, plant and equipment Acquisition of prepaid lease payments Proceeds from disposal of investment properties Purchase of investments in securities Loan to GDC Payment for acquisition of an associate Disposal of partial interest in a subsidiary 14 Advance to an associate Proceeds from disposal of an associate held for trading NET CASH FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Advance from shareholders Advance from a fellow subsidiary New loans raised Capital contribution from minority shareholders Advance from a related party Repayment of borrowings Repayment of obligations under finance leases Expense incurred for the distribution of shares in an associate Proceeds from issue of shares NET CASH FROM (USED IN ) FINANCING ACTIVITIES	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – (65,500) 49,045 – – 12,760 – – 9,369 – – 8,778 – – 7,204 3,290 1,269 2,375 202 320 976 – – 434 – – 410 54 50 162 – – (28,816) (68) (940) (14,667) – – (4,881) – 139,373 – – (22,050) – – (10,843) – – (2,861) – – – – – – – – – – 3,478 38,818 43,149 – – 26,062 – – 24,260 100,000 – 21,196 – 1,498 3,599 – – 3,038 (70,600) (5,600) (65,800) – – (5,517) – (929) – 14,400 60,287 – 43,800 55,256 6,838	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited) 61,551 16,606 – – 9,369 – 8,778 (1,395) – – 2,375 3,898 914 126 40 – 410 – 41 5,434 – – (5,034) (2,424) (4,881) – – – – – – – – – – (19,016) – (2,497) – 2,912 73,563 3,644 21,257 (174) – 12,243 12,011 857,290 – 500 1,422 555 (81,539) (98,550) (3,818) (1,485) – – – – (50,667) 770,379

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

I. FINANCIAL INFORMATION (Continued)

CONSOLIDATED CASH FLOW STATEMENTS (Continued)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Bank overdrafts	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 45,207 68,006 (103,570) 6,470 51,677 119,683 – – 1,478 51,677 119,683 17,591 51,677 119,683 19,841 – – (2,250) 51,677 119,683 17,591	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited) (52,391) 30,488 119,683 17,591 – 166 67,292 48,245 70,024 48,245 (2,732) – 67,292 48,245	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (Unaudited) (52,391) 30,488 119,683 17,591 – 166 67,292 48,245 70,024 48,245 (2,732) – 67,292 48,245
			48,245

			48,245 –
			48,245

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the financial information

1. GENERAL

The Company was incorporated in Bermuda on 9 May 1991 as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its controlling shareholder is Shougang Holding (Hong Kong) Limited (“Shougang Holding”) and its ultimate holding company is Shougang Corporation, a company established in the PRC. The addresses of the registered office and principal place of business of the Company is Canon’s Court 22 Victoria Street, Hamilton HM 12, Bermuda and 6th floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, respectively.

During the Relevant Periods, the Group was principally engaged in the provision of computer graphics and animation training, development of multimedia software and hardware, and provision of related technical consultancy services and properties investment and management services.

The financial statements are presented in Hong Kong dollars, which is the same as the functional currency of the Company.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

In 2005, the Group incurred significant losses of approximately HK$320,627,000 for the year ended 31 December 2005 and the Group had net current liabilities of approximately HK$55,046,000 as at 31 December 2005. Notwithstanding, the Directors are of the opinion that the preparation of these financial statements under the going concern basis is appropriate due to the following considerations:

(1) New bank borrowing

Up to the date of this report, the Group obtained a new bank loan of HK$50,000,000 from a bank with maturity by 2010.

(2) Availability of facility

Up to the date of this report, the Group obtained a new bank facility of HK$25,000,000 from a bank with maturity by 2009.

(3) Financial support from a controlling shareholder

Shougang Holding has committed to provide financial support until April 2008 to enable the Group to meet in full its financial obligations as and when they arise and to continue its operations in the foreseeable future.

At 30 June 2006, the Group had net current assets of approximately HK$9,673,000.

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES

In 2003, the Group has adopted, for the first time, the Statement of Standard Accounting Practice (“SSAP”) 12 Income Tax (“SSAP 12 (Revised)”) issued by the HKICPA. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary 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, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively.

The adoption of SSAP 12 (Revised) has given rise to goodwill of approximately HK$33,710,000 attributable to the acquisition of the jointly controlled entity during the year ended 31 December 1998 and a corresponding reduction in share of net asset value in a jointly controlled entity. The goodwill has been capitalised as an asset and included in the interest in a jointly controlled entity and amortised on the straight-line basis over its estimated useful life. As at 1 January 2003, accumulated amortisation of goodwill amounted to HK$8,429,000.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES (Continued)

Further, the adoption of SSAP 12 (Revised) has also given rise to accumulated deferred tax liabilities for investment properties and has resulted in an increase in accumulated losses as at 1 January 2003 of approximately HK$2,662,000. In addition, an increase in accumulated losses as at 1 January 2003 of approximately HK$1,277,000 and a decrease in accumulated losses as at 1 January 2003 of approximately HK$796,000 were the Group’s share of adjustment on adoption of SSAP 12 (Revised) in an associate and a jointly controlled entity respectively.

From 1 January 2005 onwards, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the HKICPA that are effective for accounting periods beginning on or after 1 January 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. In particular, the presentation of minority interests and share of tax of associates and jointly controlled entities have been changed. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current and prior accounting years are prepared and presented:

(a) Business Combinations

From 1 January 2005 onwards, the Group has applied HKFRS 3 Business Combinations (“HKFRS 3”) which is effective for business combination for which the agreement date is on or after 1 January 2005. Goodwill arising on acquisitions after 1 January 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition and as a result of this change in accounting policy, no amortisation of goodwill has been charged in the income statement starting from 1 January 2005. Comparative figures have not been restated (see Note 3A for the financial impact).

(b) Share-based Payments

From 1 January 2005 onwards, the Group has applied HKFRS 2 Share-based Payment (“HKFRS 2”) which requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of share options granted to Directors and employees of the Company, determined at the date of grant of the share options, over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised. The Group has applied HKFRS 2 to share options granted on or after 1 January 2005. In relation to share options granted before 1 January 2005, the Group chooses not to apply HKFRS 2 with respect to share options granted on or before 7 November 2002 and vested before 1 January 2005. However, the Group is still required to apply HKFRS 2 retrospectively to share options that were granted after 7 November 2002 and had not yet vested on 1 January 2005. Comparative figures have been restated (see Note 3A for the financial impact).

(c) Financial Instruments

In 2005, the Group has applied HKAS 32 Financial Instruments: Disclosure and Presentation (“HKAS 23”) and HKAS 39 Financial Instruments: Recognition and Measurement (“HKAS 39”) . HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1 January 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The application of HKAS 32 has had no material impact on how financial instruments of the Group are presented for current and prior accounting periods. The principal effects resulting from the implementation of HKAS 39 are summarised below:

Classification and measurement of financial assets and financial liabilities

The Group has applied the relevant transitional provisions in HKAS 39 with respect to the classification and measurement of financial assets and financial liabilities that are within the scope of HKAS 39.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES (Continued)

(c) Financial Instruments (Continued)

Classification and measurement of financial assets and financial liabilities (Continued)

By 31 December 2003 and 2004, the Group classified and measured its investments in debt and equity securities in accordance with the benchmark treatment of the SSAP 24 Accounting for investments in securities (“SSAP 24”). Under SSAP 24, investments in debt or equity securities are classified as “investment securities”, “other investments” or “held-to-maturity investments” as appropriate. “Investment securities” are carried at cost less impairment losses (if any) while “other investments” are measured at fair value, with unrealised gains or losses included in profit or loss. Held-to-maturity investments are carried at amortised cost less impairment losses (if any). From 1 January 2005 onwards, the Group has classified and measured its investments in debt and equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as “financial assets at fair value through profit or loss”, “availablefor-sale financial assets”, “loans and receivables”, or “held-to-maturity financial assets”. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in profit or loss and equity respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost less impairment after initial recognition. “Loans and receivables” and “held-to-maturity financial assets” are measured at amortised cost using the effective interest method after initial recognition.

On 1 January 2005, the Group classified and measured its investments in debt and equity securities in accordance with the transitional provisions of HKAS 39. As a result, investments in securities amounting to HK$13,776,000 were classified as investments held for trading and HK$9,369,000 were classified as held-to-maturity investment on 1 January 2005 with no financial impact on the consolidated income statement (see Note 3A).

Financial assets and financial liabilities other than investments in debt and equity securities

From 1 January 2005 onwards, the Group has classified and measured its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. As mentioned above, financial assets under HKAS 39 are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables” or “held-to-maturity financial assets”. Financial liabilities are generally classified as “financial liabilities at fair value through profit or loss” or “other financial liabilities”. Financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss directly. Other financial liabilities are carried at amortised cost using the effective interest method after initial recognition. The Group has applied the relevant transitional provisions in HKAS 39. This change in accounting policy has had no material effect on how the results for the current accounting period are prepared and presented.

Derivatives and hedging

From 1 January 2005 onwards, all derivatives that are within the scope of HKAS 39 are required to be carried at fair value at each balance sheet date regardless of whether they are deemed as held for trading or designated as effective hedging instruments. Under HKAS 39, derivatives (including embedded derivatives separately accounted for from the non-derivative host contracts) are deemed as held-fortrading financial assets or financial liabilities, unless they qualify and are designated as effective hedging instruments. The corresponding adjustments on changes in fair values would depend on whether the derivatives are designated as effective hedging instruments, and if so, the nature of the item being hedged. For derivatives that are deemed as held for trading, changes in fair values of such derivatives are recognised in profit or loss for the period in which they arise. The Group has applied the relevant transitional provisions in HKAS 39. For derivatives that do not meet the requirements of hedge accounting in accordance with HKAS 39, the Group has, from 1 January 2005 onwards, deemed such derivatives as held for trading.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. ADOPTION OF HONG KONG FINANCIAL REPORTING STANDARDS/CHANGES IN ACCOUNTING POLICIES (Continued)

(d) Owner-occupied Leasehold Interest in Land

In previous years, owner-occupied leasehold land and buildings were included in property, plant and equipment and measured using the cost model. In 2005, the Group has applied HKAS 17 Leases (“HKAS 17”). Under HKAS 17, the land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interests in land are reclassified to prepaid lease payments under operating leases, which are carried at cost and amortised over the lease term on a straight line basis. This change in accounting policy has been applied retrospectively (see Note 3A for the financial impact).

(e) Investment properties

From 1 January 2005 onwards, the Group has, for the first time, applied HKAS 40 Investment Property (“HKAS 40”). The Group has elected to use the fair value model to account for its investment properties which requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in the profit or loss for the year in which they arise. Prior to 2005, investment properties under the predecessor Standard were measured at open market values, with revaluation surplus or deficits credited or charged to investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the income statement. Where a decrease had previously been charged to the income statement and a revaluation surplus subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged. The Group has applied the relevant transitional provisions in HKAS 40 and elected to apply HKAS 40 from 1 January 2005 onwards. This change in accounting policy has had no effect on the Group’s accumulated profits as at 1 January 2005 or the result for the year.

(f) Deferred taxes related to investment properties

Prior to 2005, deferred tax consequences in respect of revalued investment properties were assessed on the basis of the tax consequence that would follow from recovery of the carrying amount of the properties through sale in accordance with the predecessor Interpretation. From 1 January 2005 onwards, the Group has applied HK(SIC) Interpretation 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets (“HK(SIC) INT 21”) which removes the presumption that the carrying amount of investment properties are to be recovered through sale. Therefore, the deferred tax consequences of the investment properties are now assessed on the basis that reflect the tax consequences that would follow from the manner in which the Group expects to recover the property at each balance sheet date. This change in accounting policy has had no effect on the Group’s accumulated profits as at 1 January 2005.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES

The effects of the changes in the accounting policies described in Note 3 on the results for the Relevant Periods are as follows:

(i) On results

For the year ended 31 December 2003 Increase in amortisation of goodwill arising on acquisition of a jointly controlled entity Increase in share of result of a jointly controlled entity for recognition of deferred tax asset Increase in deferred tax changes on temporary differences Increase in share of result of an associate for recognition of deferred tax asset Decrease in share of result of a jointly controlled entity Decrease in income tax expenses Decrease in share of result of an associate Increase in profit for the year Attributable to: Equity holders of the parent Minority interests	SSAP 12 (Revised) HK$’000 (Note 3) 1,873 (2,440) 809 (1,925) – – – (1,683) (1,683) – (1,683)	HKAS 1 HK$’000 (Note 3) – – – – 1,803 (2,989) 1,186 – – – –	Total HK$’000 1,873 (2,440) 809 (1,925) 1,803 (2,989) 1,186 (1,683) (1,683) – (1,683)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)

(i) On results (Continued)

SSAP 12 (Revised) HKAS 1 HKFRS 2 HK$’000 HK$’000 HK$’000 (Note 3) (Note 3) (Note 3(b)) For the year ended 31 December 2004 Increase in amortisation of goodwill arising on acquisition of a jointly controlled entity 937 – – Increase in share of result of a jointly controlled entity for recognition of deferred tax asset (1,220) – – Increase in deferred tax credit on temporary differences (3,190) – – Increase in share of result of an associate for recognition of deferred tax asset (195) – – Increase in share of result of a jointly controlled entity – (1,200) – Increase in income tax expenses – 1,182 – Decrease in share of result of an associate – 18 – Expenses in relation to share options granted to employees – – 14,863 (Increase) decrease in profit for the year (3,668) – 14,863 Attributable to: Equity holders of the parent (3,668) – 14,863 Minority interests – – – (3,668) – 14,863 HK(SIC) HKAS 1 HKFRS 3 HKFRS 2 HKAS 39 INT 21 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 3) (Note 3(a)) (Note 3(b)) (Note 3(c)) (Note 3(f)) For the year ended 31 December 2005 Decrease in amortisation of goodwill – (8,440) – – – Increase in impairment loss on goodwill arising from acquisition of a subsidiary – 8,440 – – – Decrease in share of result of a jointly controlled entity 362 – – – – Decrease in income tax expenses (362) – – – – Expenses in relation to share options granted to employees – – 25,456 – – Increase in deferred tax charge on revaluation of investment properties – – – – 291 Increase in loss on disposal of partial interest in a subsidiary – – – 6,612 – Increase in loss for the year – – 25,456 6,612 291 Attributable to: Equity holders of the parent – – 25,456 6,612 291 Minority interests – – – – – – – 25,456 6,612 291	Total effect HK$’000 937 (1,220) (3,190) (195) (1,200) 1,182 18 14,863 11,195 11,195 – 11,195 Total effect HK$’000 (8,440) 8,440 362 (362) 25,456 291 6,612 32,359 32,359 – 32,359

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)

(i) On results (Continued)

For the six months ended 30 June 2006 Decrease in share of result of a jointly controlled entity Decrease in income tax expenses Increase in deferred tax credit on temporary differences Increase in profit for the period Attributable to: Equity holders of the parent Minority interests For the six months ended 30 June 2005 (unaudited) Decrease in amortisation of goodwill Increase in impairment loss on goodwill arising from acquisition of a subsidiary Decrease in share of result of a jointly controlled entity Decrease in income tax expenses Expenses in relation to share options granted to employees (Decrease) increase in loss for the period (ii) On income statement line items For the year ended 31 December 2003 Increase in amortisation of goodwill arising on acquisition of a jointly controlled entity (Increase) decrease in share of result of a jointly controlled entity Increase (decrease) in income tax expenses (Increase) decrease in share of result of an associate Increase in profit for the year	SSAP 12 HKAS 1 HK$’000 (Note 3) – – 245 (245) – –	SSAP 12 (Revised) HK$’000 (Note 3) – – (190) (190) (190) – (190) HKFRS 3 HK$’000 (Note 3(a)) (3,499) 3,499 – – – – SSAP 12 (Revised) HK$’000 (Note 3) 1,873 (2,440) 809 (1,925) (1,683)	HKAS 1 HK$’000 (Note 3) 445 (445) – – – – – HKFRS 2 HK$’000 (Note 3(b)) – – – – 11,980 11,980 HKAS 1 HK$’000 (Note 3) – 1,803 (2,989) 1,186 –	Total effect HK$’000 445 (445) (190) (190) (190) – (190) Total effect HK$’000 (3,499) 3,499 245 (245) 11,980 11,980 Total HK$’000 1,873 (637) (2,180) (739) (1,683)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)
(ii) On income statement line items (Continued)

SSAP 12 (Revised) HKAS 1 HKFRS 2 HK$’000 HK$’000 HK$’000 (Note 3) (Note 3) (Note 3(b)) For the year ended 31 December 2004 Increase in amortisation of goodwill arising on acquisition of a jointly controlled entity 937 – – Increase in administrative expenses – – 14,863 Increase in share of result of a jointly controlled entity (1,220) (1,200) – (Decrease) increase in income tax expenses (3,190) 1,182 – (Increase) decrease in share of result of an associate (195) 18 – (Increase) decrease in profit for the year (3,668) – 14,863 HK(SIC) HKAS 1 HKFRS 3 HKFRS 2 HKAS 39 INT 21 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note 3) (Note 3(a)) (Note 3(b)) (Note 3(c)) (Note 3(f)) For the year ended 31 December 2005 Increase in impairment loss on goodwill arising from acquisition of a subsidiary – 8,440 – – – Increase in administrative expenses – – 25,456 – – Decrease in amortisation of goodwill – (8,440) – – – Decrease in share of result of a jointly controlled entity 362 – – – – (Decrease) increase in income tax expenses (362) – – – 291 Increase in loss on disposal of partial interest of a subsidiary – – – 6,612 – Increase in loss for the year – – 25,456 6,612 291	Total effect HK$’000 937 14,863 (2,420) (2,008) (177) 11,195 Total effect HK$’000 8,440 25,456 (8,440) 362 (71) 6,612 32,359

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)

(ii) On income statement line items (Continued)

For the six months ended 30 June 2006 Decrease in share of result of a jointly controlled entity Decrease in income tax expenses Increase in profit for the period Attributable to: Equity holders of the parent Minority interests For the six months ended 30 June 2005 (unaudited) Increase in administrative expenses Decrease in amortisation of goodwill Increase in impairment loss on goodwill arising from acquisition of a subsidiary Decrease in share of result of a jointly controlled entity Decrease in income tax expenses (Decrease) increase in loss for the period	HKAS 1 HK$’000 (Note 3) – – – 245 (245) –	SSAP 12 (Revised) HK$’000 (Note 3) – (190) (190) (190) – (190) HKAS 3 HK$’000 (Note 3(a)) – (3,499) 3,499 – – –	HKAS 1 HK$’000 (Note 3) 445 (445) – – – – HKFRS 2 HK$’000 (Note 3(b)) 11,980 – – – – 11,980	Total effect HK$’000 445 (635) (190) (190) – (190) Total effect HK$’000 11,980 (3,499) 3,499 245 (245) 11,980

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)

(ii) On income statement line items (Continued)

The cumulative effects of the new HKFRSs as at the respective balance sheet dates are summarised below:

As As at 31 December 2003 Property, plant and equipment Prepaid lease payments Other assets and liabilities Share capital Share premium Negative goodwill Contributed surplus Translation reserve Accumulated losses Equity attributable to equity holders of the parent Minority interests	Retrospective originally adjustment stated HKAS 17 HK$’000 HK$’000 (Note 3(d)) 2,669 (1,778) – 1,778 629,286 – 631,955 – 8,579 – 206,844 – 57,296 – 364,866 – 1,012 – (6,642) – 631,955 – – – 631,955 –	As restated HK$’000 891 1,778 629,286 631,955 8,579 206,844 57,296 364,866 1,012 (6,642) 631,955 – 631,955

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)

As at 31 December 2004 Investment properties Property, plant and equipment Prepaid lease payments Interest in a jointly controlled entity Payment for acquisition of an associate Investments in securities Investments held for trading Held-to-maturity investment Deferred tax liabilities Other assets and liabilities Share capital Share premium Contributed surplus Translation reserve Shares option reserve Accumulated profits Equity holders of the parent Minority interests	As originally Retrospective adjustments stated HKAS 17 HKFRS 2 HK$’000 HK$’000 HK$’000 (Note 3(d)) (Note 3(b)) 92,400 – – 3,412 (1,746) – – 1,746 – 118,022 – – 2,861 – – 23,145 – – – – – – – – (281) – – 104,219 – – 343,778 – – 9,393 – – 266,317 – – 2,135 – – 567 – – – – 14,863 63,932 – (14,863) 342,344 – – 1,434 – – 343,778 – –	Adjustment As at on 1 January 1 January As 2005 2005 restated HKAS 39 (Restated) HK$’000 HK$’000 HK$’000 (Note 3(c)) 92,400 – 92,400 1,666 – 1,666 1,746 – 1,746 118,022 – 118,022 2,861 – 2,861 23,145 (23,145) – – 13,776 13,776 – 9,369 9,369 (281) – (281) 104,219 – 104,219 343,778 – 343,778 9,393 – 9,393 266,317 – 266,317 2,135 – 2,135 567 – 567 14,863 – 14,863 49,069 – 49,069 342,344 – 342,344 1,434 – 1,434 343,778 – 343,778	Adjustment As at on 1 January 1 January As 2005 2005 restated HKAS 39 (Restated) HK$’000 HK$’000 HK$’000 (Note 3(c)) 92,400 – 92,400 1,666 – 1,666 1,746 – 1,746 118,022 – 118,022 2,861 – 2,861 23,145 (23,145) – – 13,776 13,776 – 9,369 9,369 (281) – (281) 104,219 – 104,219 343,778 – 343,778 9,393 – 9,393 266,317 – 266,317 2,135 – 2,135 567 – 567 14,863 – 14,863 49,069 – 49,069 342,344 – 342,344 1,434 – 1,434 343,778 – 343,778
			343,778

			9,393 266,317 2,135 567 14,863 49,069 342,344 1,434
			343,778

The financial effects of the application of new HKFRSs to the Group’s equity as at 1 January 2003 are summarised below:

Share capital Share premium Negative goodwill Contributed surplus Translation reserve Accumulated losses Total effects on equity	As originally stated HK$’000 8,279 192,744 85,217 364,866 3,711 (23,551) 631,266	SSAP 12 (Revised) HK$’000 – – – – – (11,572) (11,572)	As restated HK$’000 8,279 192,744 85,217 364,866 3,711 (35,123)
			619,694

From 1 January 2006, the Group has applied new HKFRSs issued by the HKICPA which are effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HFKRSs had no material effect on how the results for the current or prior accounting periods have been prepared and presented.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3A. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES (Continued)

The Group has not early applied the following new standards, amendments and interpretations that have been issued but are not yet effective. The Directors of the Company anticipate that the application of these new standards, amendments or interpretations will have no material impact on the financial statements of the Group.

HKAS 1 (Amendment) Capital disclosure[1] HKFRS 7 Financial instruments: Disclosures[1] HK (IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC) – INT 8 Scope of HKFRS 2[3] HK(IFRIC) – INT 9 Reassessment of embedded derivatives[4] HK(IFRIC) – INT 10 Interim financial reporting and impairment[5]

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

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

3 Effective for annual periods beginning on or after 1 May 2006.
4 Effective for annual periods beginning on or after 1 June 2006.
5 Effective for annual periods beginning on or after 1 November 2006.

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments, which are measured at revalued amounts or fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with the principal accounting policies set out below which conform to HKFRSs and HKASs. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”).

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.

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

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Goodwill

Goodwill arising on an acquisition of a subsidiary, an associate or a jointly controlled entity for which the agreement date is before 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the relevant subsidiary, associate or jointly controlled entity at the date of acquisition and is stated at cost less accumulated amortisation and accumulated impairment losses.

From 1 January 2005, no goodwill arising from acquisition of a subsidiary, an associate or a jointly controlled entity for which the agreement dated before 1 January 2005 is subject to amortisation but, impairment reviews are required.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill (Continued)

Goodwill arising on an acquisition of a subsidiary, an associate or a jointly controlled entity for which the agreement date is on or after 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary, associate or jointly controlled entity at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses and no amortisation of goodwill was charged in the income statement.

Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the balance sheet. Capitalised goodwill arising on an acquisition of a jointly controlled entity (which is accounted for using the equity method) is included in the cost of the investment of the relevant jointly controlled entity.

For impairment testing purpose, the entire carrying amount of capitalised goodwill arising on an acquisition of an associate or a jointly controlled entity is tested for impairment by comparing the carrying amount with its recoverable amount irrespective of whether there is any indication that it may be impaired.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units (“CGU”), or groups of CGU, that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the CGU to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary, an associate or a jointly controlled entity, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Excess of an acquirer’s interest in the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over cost (“discount on acquisitions” or previously known as “negative goodwill”)

Before 1 January 2005, negative goodwill represented the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, an associate or a jointly controlled entity at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisition prior to 1 January 2001 was held in reserves and was credited to income at the time of disposal of the relevant associate.

A discount on acquisition arising on an acquisition of a subsidiary, an associate or a jointly controlled entity for which an agreement date is on or after 1 January 2005 represents the excess of the net fair value of an acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination. Discount on acquisition is recognised immediately in profit or loss. A discount on acquisition arising on an acquisition of an associate or a jointly controlled entity (which is accounted for using the equity method) is included as income in the determination of the investor’s share of results of the associate or jointly controlled entity in the period in which the investment is acquired.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Interests in associates

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

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Interest in an associate held for sale

Interest in an associate is classified held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.

Interest in an associate held for sale is measured at the lower of the asset’s previous carrying amount and fair value less costs to sell.

Jointly controlled entity

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the jointly controlled entities, less any identified impairment loss. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

Where a group entity transacts with a jointly controlled entity of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the jointly controlled entity, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred, in which case, the full amount of losses is recognised.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition

Revenue, representing fair value of amount received and receivable from sale of goods in the ordinary course of business, is recognised when all of the following criteria are met:

the significant risks and rewards of ownership of goods are transferred to buyers;
neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods are retained;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Group; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Service income is recognised when services are provided.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Dividend income from investments is recognised when the Group’s rights to receive payment have been established.

Rental income from property and equipment leasing and management fee income is recognised on a straight-line basis over the relevant lease terms.

Training fee income is amortised over the period of the training course.

CG creation and production income is recognised when the film production service is provided.

Production and distribution income of films and television drama is recognised when the production is completed and the films and/or television drama are delivered to the customers.

Subcontracting revenue from CG creation and production

Subcontracting revenue from CG creation and production (applicable to the six months ended 30 June 2006)

Revenue and costs from a subcontracting contract are recognised by reference to the stage of completion of the contract activity at the balance sheet date, as measured by the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

Property, plant and equipment

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

Assets held under finance leases are depreciated over their estimated useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in fair value of investment property are included in income statement for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year in which the item is derecognised.

Leasing

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

The Group as lessor

Amounts due from lessees under finance leases are recorded as receivables at the amount of the Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognised in the income statement on a straight line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Group as lessee

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

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

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (“foreign currencies”) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Group’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financials statements. Exchange differences arising on the re-translation of non-monetary items carried at fair value are included in income statement for the period except for differences arising on the re-translation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currencies (Continued)

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in income statement in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

Borrowing costs

All borrowing costs are recognised as and included in finance costs in the income statement in the year/period in which they are incurred.

Retirement benefits costs

Payments to the defined contribution retirement benefit schemes are charged as expenses as they fall due.

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 differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated 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 differences can be utilised. Such asset and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition 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 investments in subsidiaries and associate, and interest in a jointly controlled entity, 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 profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to 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.

Intangible assets

On initial recognition, intangible assets acquired separately and from business combination are recognised at cost and at fair value respectively. After initial recognition, intangible assets with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Intangible assets with finite useful lives are tested for impairment when there is an indication that an asset may be impaired.

Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in income statement when the asset is derecognised.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventories

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

Production work in progress

Production work in progress is stated at cost less any impairment losses. Costs include all direct costs associated with the production of films or television drama series. Costs are transferred to film costs upon completion.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a Group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in income statement.

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition. At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in income statement in the period in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including advance to an associate, trade receivables, deposits and other receivables, amount due from an associate, pledged bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

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. At each balance sheet date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed on initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial instruments (Continued)

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories of financial assets under HKAS 39. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in subsequent periods. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

The Group’s financial liabilities including trade payables, other payables, amount due to a fellow subsidiary, amount due to a related party, amounts due to shareholders, amount due to an associate and borrowings are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received or receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in income statement.

For financial liabilities, they are removed from the Group’s balance sheet when the obligation specified in the relevant contract is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in income statement.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date and are discounted to present value where the effect is material.

Equity settled share-based payment transactions

For share options granted on or before 7 November 2002 and share options granted after 7 November 2002 but vested before 1 January 2005, the Group did not recognise any financial effect of these share options as the recognition of such share options is exempted under HKFRS 2.

Share options granted to employees of the Company

For share options granted after 7 November 2002 but not vested before 1 January 2005, the fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period with a corresponding increase in equity as share options reserve.

At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to accumulated profits or losses.

Impairment losses (other than goodwill)

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

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

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Group’s accounting policies which are described in Note 4, management has made the following key sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The key sources of estimation uncertainty are discussed below.

Impairment of goodwill arising from acquisition of a subsidiary

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. For the year ended 31 December 2005 and for the six months ended 30 June 2005 an impairment loss of HK$191,457,000 and HK$129,950,000 respectively was identified and recognised in the consolidated income statement. Details are disclosed in Notes 21 and 22.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued)

Allowance for production work in progress

The policy for allowance for production work in progress of the Group is based on the evaluation of the certainty in finalising the distribution/license agreements in the potential markets and on management’s judgement. The management estimates the net realisable value for such production work in progress was approximately HK$2,482,000, HK$6,248,000 and HK$11,373,000 as at 31 December 2004 and 2005 and 30 June 2006 respectively. Allowance for production work in progress of approximately HK$24,712,000 and HK$2,999,000 was made for the year ended 31 December 2005 and for the six months ended 30 June 2006 respectively.

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include advance to an associate, trade receivables, deposits and other receivables, amount due from (to) an associate, investments held for trading, derivative financial instruments, pledged bank deposits, bank balances, trade and other payables, borrowings, amount due to a fellow subsidiary, amount due to a related party and amounts due to shareholders. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Currency risk

Several subsidiaries of the Company have sales, trade receivables and borrowings denominated in currencies other than the functional currencies of the respective group entities which expose the Group to foreign currency risk. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Interest rate risk

The Group’s fair value interest rate risks and cash flow interest rate risks through the impact of rate changes on interest-bearing pledged bank deposits, bank balances and borrowings. The interest rate and terms of repayment of pledged bank deposits, bank balances and borrowings are disclosed in Notes 35, 36 and 44 respectively. The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate change exposure and will consider hedging significant interest rate change exposure should the need arises.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at 31 December 2003, 2004 and 2005 and 30 June 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt, amount due from associate and finance lease receivables at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors of the Company consider that the Group’s credit risk is significantly reduced.

The Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. REVENUE

Revenue represents the amounts received and receivable for goods sold by the Group to outside customers, less returns and trade discounts, revenue arising on CG creation and films and television drama production income, training fee, property leasing and management fee income, technical service income and equipment leasing income during the Relevant Periods and for the six months ended 30 June 2005.

An analysis of the Group’s revenue
is as follows:
Continuing operation
Sale of goods
CG creation and films and
television drama production
income
Training fee
Property leasing and management
fee income
Technical service income
Equipment leasing income
Discontinued operation
Finance lease income

Six months ended
Year ended 31 December
30 June
2003
2004
2005
2005
2006
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
–
–
17,024
4,490
4,421
–
–
13,866
3,751
19,686
–
–
6,078
1,822
3,887
15,470
14,386
5,411
2,739
2,785
–
–
724
–
225
–
–
82
–
222
15,470
14,386
43,185
12,802
31,226
Six months ended
Year ended 31 December
30 June
2003
2004
2005
2005
2006
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
–
–
2,626
–
13,638

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

(a) Business segments

For the two years ended 31 December 2003 and 2004, the Group was engaged in a single business - property leasing and building management services. Accordingly, no business segment information is presented.

For the year ended 31 December 2005, for management purposes, the Group was organised into four operating divisions - property leasing and building management services, digital content distribution and exhibitions, CG creation and films and television drama production and CG training courses. These divisions are the basis on which the Group reports its primary segment information.

The Group was also involved in the finance leasing business for the year ended 31 December 2005. That operation was discontinued in June 2006 in accordance with HKFRS 5 as it was carried out by an associate of the Group thereafter. Details of which are set out in Note 14.

Segment information about these divisions is presented below:

For the year ended 31 December 2005

Continuing operations CG creation Property Digital and films leasing and content and building distribution television CG management and drama training services exhibitions production courses HK$’000 HK$’000 HK$’000 HK$’000 REVENUE 5,411 17,830 13,866 6,078 RESULT Segment result 17,713 (9,148) (243,895) 89 Unallocated corporate income Unallocated corporate expenses Finance costs Share of result of a jointly controlled entity 428 – – – Share of result of an associate Loss on disposal of partial interest in a subsidiary Loss before taxation Taxation Loss for the year	Continuing operations	Continuing operations	Total HK$’000 43,185 (235,241) 2,975 (65,319) (6,930) 428 (248) (12,345) (316,680) (2,372) (319,052)		Discontinued operation Finance leasing Consolidated HK$’000 HK$’000 2,626 45,811 (1,498) (236,739) – 2,975 – (65,319) (77) (7,007) – 428 – (248) – (12,345) (1,575) (318,255) – (2,372) (1,575) (320,627)
		CG training courses HK$’000 6,078 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

(a) Business segments (Continued)

At 31 December 2005

Continuing operations CG creation Property Digital and films leasing and content and building distribution television CG management and drama training services exhibitions production courses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 BALANCE SHEET Assets Segment assets 109,089 7,981 28,276 6,211 151,557 Interest in a jointly controlled entity Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 12,323 3,273 35,735 2,455 53,786 Unallocated corporate liabilities Consolidated total liabilities	Discontinued operation	Discontinued operation
	Finance leasing Consolidated HK$’000 HK$’000 99,009 250,566 120,113 91,161 461,840 29,031 82,817 164,472 247,289
		461,840

		82,817 164,472
		247,289

For the year ended 31 December 2005

Continuing operations CG creation Property Digital and films leasing and content and building distribution television CG management and drama training services exhibitions production courses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 OTHER INFORMATION Capital addition 15,913 355 4,162 191 20,621 Amortisation of intangible assets – – – – – Depreciation of property, plant and equipment 815 1,662 4,848 373 7,698 Allowance for bad and doubtful debts – 521 – – 521 Allowance of inventories – 2,645 – – 2,645 Allowance of production work in progress – – 24,712 – 24,712 Amortisation of prepaid lease payments 134 – – – 134 Impairment loss on goodwill arising from acquisition of a subsidiary – – 191,457 – 191,457 Impairment loss on property, plant and equipment – – – – 2,350	Discontinued operation
	Finance leasing Consolidated HK$’000 HK$’000 25,451 46,072 545 545 642 8,340 – 521 – 2,645 – 24,712 – 134 – 191,457 – 2,350

Continuing operations
CG creation
Property
Digital
and films
leasing and
content
and
building
distribution
television
CG
management
and
drama
training
services
exhibitions
production
courses
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
OTHER INFORMATION
Capital addition
15,913
355
4,162
191
20,621
Amortisation of intangible
assets
–
–
–
–
–
Depreciation of property,
plant and equipment
815
1,662
4,848
373
7,698
Allowance for bad and
doubtful debts
–
521
–
–
521
Allowance of inventories
–
2,645
–
–
2,645
Allowance of production
work in progress
–
–
24,712
–
24,712
Amortisation of prepaid
lease payments
134
–
–
–
134
Impairment loss on goodwill
arising from acquisition of
a subsidiary
–
–
191,457
–
191,457
Impairment loss on property,
plant and equipment
–
–
–
–
2,350

Discontinued operation

Finance
leasing Consolidated
HK$’000
HK$’000
25,451
46,072
545
545
642
8,340
–
521
–
2,645
–
24,712
–
134
–
191,457
–
2,350

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

(a) Business segments (Continued)

For the six months ended 30 June 2005 (unaudited)

Continuing operations	Discontinued operation	Discontinued operation
CG training courses HK$’000 1,822 (85) –	Finance leasing Consolidated HK$’000 HK$’000 – 12,802 127 (150,587 – 1,041 – (24,051 – (3,285 – 337 – (248 127 (176,793 – (501 127 (177,294

		(150,587 1,041 (24,051 (3,285 337 (248
		(176,793 (501
		(177,294

For the six months ended 30 June 2005 (unaudited)

Continuing operations CG creation Property Digital and films leasing and content and building distribution television CG management and drama training services exhibitions production courses Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 OTHER INFORMATION Capital addition 15,805 208 682 39 16,734 Amortisation of prepaid lease payments 67 – – – 67 Depreciation of property, plant and equipment 2,385 994 94 66 3,539 Allowance of production work in progress – – 17,114 – 17,114 Impairment loss on goodwill arising from acquisition of a subsidiary – – 129,950 – 129,950	Discontinued operation
	Finance leasing Consolidated HK$’000 HK$’000 22,411 39,145 – 67 – 3,539 – 17,114 – 129,950

Continuing operations
CG creation
Property
Digital
and films
leasing and
content
and
building
distribution
television
CG
management
and
drama
training
services
exhibitions
production
courses
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
OTHER INFORMATION
Capital addition
15,805
208
682
39
16,734
Amortisation of prepaid
lease payments
67
–
–
–
67
Depreciation of property,
plant and equipment
2,385
994
94
66
3,539
Allowance of production
work in progress
–
–
17,114
–
17,114
Impairment loss on goodwill
arising from acquisition of
a subsidiary
–
–
129,950
–
129,950

Discontinued operation

Finance
leasing Consolidated
HK$’000
HK$’000
22,411
39,145
–
67
–
3,539
–
17,114
–
129,950

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

(a) Business segments (Continued)

For the six months ended 30 June 2006

Continuing operations CG creation Property Digital and films leasing and content and building distribution television CG management and drama training services exhibitions production courses HK$’000 HK$’000 HK$’000 HK$’000 REVENUE 2,785 4,868 19,686 3,887 RESULT Segment result 8,110 (6,330) (7,368) (34) Unallocated corporate income Unallocated corporate expenses Finance costs Share of result of a jointly controlled entity 723 – – – Share of results of associates Gain on disposal of partial interest in a subsidiary (Loss) profit before taxation Taxation (Loss) profit for the period	Continuing operations	Continuing operations	Total HK$’000 31,226 (5,622) 12,460 (14,663) (5,059) 723 (437) – (12,598) (130) (12,728)		Discontinued operation Finance leasing Consolidated HK$’000 HK$’000 13,638 44,864 (4,359) (9,981) – 12,460 – (14,663) – (5,059) – 723 – (437) 24,711 24,711 20,352 7,754 – (130) 20,352 7,624
		CG training courses HK$’000 3,887 (34) –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

(a) Business segments (Continued)

At 30 June 2006

			Continuing operations	Continuing operations
				CG creation
	Property		Digital	and films
	leasing and		content	and
		building	distribution	television		CG
	management		and	drama		training
		services	exhibitions	production		courses	Consolidated
	HK$’000		HK$’000	HK$’000	HK$’000			HK$’000
BALANCE SHEET
Assets
Segment assets		114,323	11,229	54,204		15,313		195,069
Interest in an associate								2,019
Interest in a jointly
controlled entity								119,360
Unallocated corporate
assets								122,062
Consolidated total assets								438,510

Liabilities
Segment liabilities		3,221	11,083	29,758		12,279		56,341
Unallocated corporate
liabilities								156,150
								212,491

		Continuing operations				Discontinued operation
			CG creation
	Property	Digital	and films
	leasing and	content	and
	building	distribution	television	CG
	management	and	drama	training		Finance
	services	exhibitions	production	courses	Total	leasing Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
OTHER INFORMATION
Capital addition	53	243	1,596	35	1,927		–	1,927
Amortisation of intangible
assets	–	–	–	–	–		428	428
Depreciation of property,
plant and equipment	1,248	94	2,016	72	3,430		637	4,067
Allowance of finance lease
receivables	–	–	–	–	–	4,649		4,649
Allowance of production
work in progress	–	–	2,999	–	2,999		–	2,999

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. BUSINESS AND GEOGRAPHICAL SEGMENTS (Continued)

(b) Geographical segments

No segment information is presented for the year ended 31 December 2003 and 31 December 2004 as over 90% of the Group’s segment revenue and assets are derived from operations carried out in Hong Kong.

For the year ended 31 December 2005 and for the six months ended 30 June 2005 and 2006, the Group’s five business segments operate in five main geographical areas, namely the PRC, Hong Kong, the United States of America (“USA”), India and Singapore and other regions. The head office of the Group is located in Hong Kong. The Group’s CG creation and production centre and the CG training facilities are located in the PRC. Customers of the Group’s CG creation and production are mainly located in the PRC and USA and customers of the Group’s digital content distribution and exhibitions business are located in the PRC, India, Singapore and other regions.

The following table provides an analysis of the Group’s revenue by geographical market, irrespective of the origin of the goods/services:

	Year ended	Six months	Six months
	31 December	ended 30 June
	2005	2005	2006
	HK$’000	HK$’000	HK$’000
		(Unaudited)
Continuing operations
The PRC	19,348	4,407	14,776
Hong Kong	5,411	2,739	2,785
USA	2,183	424	8,873
India	2,123	892	92
Singapore	2,439	85	1,429
Other regions	11,681	4,255	3,271
	43,185	12,802	31,226
Discontinued operation
The PRC, excluding Hong Kong	2,626	–	13,638

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment, analysed by the geographical area in which the assets are located:

	Carrying amount	Carrying amount		Additions to property,	Additions to property,
	of segment assets			plant and equipment
	As at		As at	As at	As	at
	31 December	30	June	31 December	30 June
	2005		2006	2005	2006
	HK$’000	HK$’000		HK$’000	HK$’000
The PRC	120,035	62,959		22,948	1,853
Hong Kong	124,157	131,296		671		44
USA	–		–	–		–
India	196		–	–		–
Singapore	1,717		778	42		30
Other regions	4,461		36	–		–
Total	250,566	195,069		23,661	1,927

During the year ended 31 December 2005, intangible asset of approximately HK$22,411,000 was acquired and it was located in the PRC. As at 31 December 2005, the carrying amount of this intangible asset was amounted to HK$21,866,000.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. OTHER INCOME

Continuing operations Interest income from bank deposits Interest income from investments in securities Dividend income from equity investments Dividend income from an associate held for sale Gain on disposal of property, plant and equipment License fee income Others Discontinued operation Interest income from bank deposits Increase in fair value of investment properties Others	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 202 283 905 914 125 – 37 – – – 54 50 162 41 – – – 1,800 – 5,434 – – 36 36 – 497 349 – – – 1,172 55 821 336 6,617 1,925 774 3,724 1,327 12,176 – – 71 – 1 – – 367 367 – – – 402 141 459 – – 840 508 460	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 202 283 905 914 125 – 37 – – – 54 50 162 41 – – – 1,800 – 5,434 – – 36 36 – 497 349 – – – 1,172 55 821 336 6,617 1,925 774 3,724 1,327 12,176 – – 71 – 1 – – 367 367 – – – 402 141 459 – – 840 508 460
		12,176

		1 – 459
		460

10. FINANCE COSTS

Continuing operations Interest on bank and other borrowings wholly repayable within five years Other finance costs Discontinued operation Interest on bank and other borrowings wholly repayable within five years	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 2,530 1,860 6,529 3,057 5,029 377 255 401 228 30 2,907 2,115 6,930 3,285 5,059 – – 77 – –	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 2,530 1,860 6,529 3,057 5,029 377 255 401 228 30 2,907 2,115 6,930 3,285 5,059 – – 77 – –
		5,059

		–

11. IMPAIRMENT LOSS ON GOODWILL ARISING FROM ACQUISITION OF A SUBSIDIARY

During the six months ended 30 June 2005 and the year ended 31 December 2005, the Group acquired 658,466,023 shares, representing an 82.2% of the issued share capital, of GDC. GDC is incorporated in Bermuda and its shares are listed on the Growth Enterprise Market (“GEM”) of the Stock Exchange. The principal activities of GDC’s subsidiaries are engaged in production of CG films and television drama, films digital content distribution and exhibition, and provision of CG training courses. Details of this are set out in Note 50.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. IMPAIRMENT LOSS ON GOODWILL ARISING FROM ACQUISITION OF A SUBSIDIARY (Continued)

The Directors reviewed the business valuation, the anticipated profitability and the anticipated future operating cash flows of GDC. With reference to the financial results and business operated by GDC, the Directors of the Company identified an impairment loss in respect of goodwill of approximately HK$129,950,000 and HK$191,457,000 for the six months ended 30 June 2005 and for the year ended 31 December 2005 respectively. These amounts were dealt with in the income statement for the six months ended 30 June 2005 and for the year ended 31 December 2005 respectively.

12. TAXATION

For continuing operations Current tax: Hong Kong Provision for the year/period (Over)underprovision in prior years Deferred taxation_(Note 47)_: Current year/period Attributable to a change in tax rate	Six months ended Year ended 31 December 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 303 276 138 90 320 (5) (345) 1,792 – – 298 (69) 1,930 90 320 559 (3,190) 442 411 (190) 250 – – – – 1,107 (3,259) 2,372 501 130

Hong Kong Profits Tax is calculated at 17.5% of the estimated assessable profit for the Relevant Periods.

No provision for the Enterprise Income Tax of the PRC was made in the financial statements as the Group’s subsidiaries operating in the PRC either have no assessable profit for the year ended 31 December 2005 and for the six months ended 30 June 2005 and 2006 or, pursuant to the relevant income tax regulations for productive enterprises with foreign investment established in the PRC and being approved by the relevant PRC tax authority, are eligible for an exemption from PRC Enterprise Income Tax for two years starting from the first profit-making year after offsetting all tax losses carried forward from the previous five years, followed by a 50% reduction of the tax rate in the next three years. The Group did not have any subsidiaries operating in the PRC for the year ended 31 December 2003 and 2004.

No provision for the Enterprise Income Tax of the PRC was made in the financial statements for the discontinued operation in the PRC as it has no assessable profit for the year ended 31 December 2005 and for the six months ended 30 June 2005 and 2006.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

12. TAXATION (Continued)

The tax charge (credit) for the year/period can be reconciled to the profit (loss) before taxation in the income statement as follows:

Profit (loss) before taxation
Continuing operations
Discontinued operation
Tax at Hong Kong Profits Tax rate of 17.5%
Tax effect on share of result of a jointly
controlled entity
Tax effect on share of result of an associate
Tax effect of expenses not deductible for
tax purpose
Tax effect of income not taxable for tax
purpose
(Over)underprovision in prior years
Tax effect of deferred tax asset/
tax losses not recognised
Increase in opening deferred tax liabilities
resulting from an increase in Hong Kong
Profit Tax rate
Effect of tax exemptions granted to PRC
subsidiaries
Effect of different tax rates of subsidiaries
operating in other jurisdictions
Tax expenses (credit) for the year/period

Six months ended
Year ended 31 December
30 June
2003
2004
2005
2005
2006
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(restated)
(restated)
(restated)
(unaudited
and restated)
29,588
64,397
(316,680)
(176,920)
(12,598)
–
–
(1,575)
127
20,352
29,588
64,397
(318,255)
(176,793)
7,754
5,178
11,269
(55,695)
(30,939)
1,357
662
12,285
(75)
(59)
(126)
(1,441)
1,024
43
44
77
1,124
3,992
55,616
30,878
3,492
(5,158)
(37,790)
(5,393)
(2,679)
(7,492)
(5)
(345)
1,792
–
–
497
6,306
3,799
3,256
2,568
250
–
–
–
–
–
–
320
–
142
–
–
1,965
–
112
1,107
(3,259)
2,372
501
130

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. PROFIT (LOSS) FOR THE YEAR/PERIOD

Discontinued operation	Discontinued operation	Discontinued operation	Consolidated	Consolidated	Consolidated
Year ended 31 December 2005 HK$’000 1,274 – 1,274 – – – – 545 – – 642 – 642 – – – – – –	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (unaudited) 109 1,912 – – 109 1,912 – – – – – 4,649 – – – – – – – – – 637 – – – 637 – – – – – – – – – – – –		Year ended 31 December 2005 HK$’000 51,536 689 52,225 1,947 521 – 2,645 545 134 1,400 8,340 (5,500) 2,840 2,350 – – 5,411 (581) 4,830	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (unaudited) 10,005 17,427 364 579 10,369 18,006 785 1,414 – – – 4,649 – – – 428 67 64 480 500 3,539 4,067 – – 3,539 4,067 – – – – – – 2,739 2,785 (751) (820) 1,988 1,965
		1,912			18,006
		– – 4,649 – – – – 637 –			1,414 – 4,649 – 428 64 500 4,067 –
		637 – – – – –			4,067 – – – 2,785 (820)
		–			1,965

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. DISCONTINUED OPERATION

Discontinued operation

In June 2006, the Group entered into a sale and purchase agreement in respect of a disposal of the Group’s 30% effective interest in South China International Leasing Company Limited (“South China Leasing”), which is established in the PRC with principal activities in the provision of finance leasing including the leasing of machinery, equipment, electrical equipment, meters, motor vehicles and the leasing of immovable properties in the PRC, at a consideration of HK$25,000,000 (the “Disposal”). South China Leasing is a sino-foreign equity joint venture established in the PRC on 20 May 1989 with an operation term of 40 years expiring in 2029. Upon the completion of the Disposal, the Group’s effective interest in South China Leasing decreased from 80% to 50% and South China Leasing became an associate of the Group. Accordingly, the finance leasing business was carried out by the associate of the Group and became a discontinued operation. Details of the Disposal are set out in the circular of the Company dated 6 July 2006.

The profit for the year/period from the discontinued operation is analysed as follows:

	Year ended		Six months	Six months
	31 December		ended 30 June
	2005		2005	2006
	HK$’000		HK$’000	HK$’000
		(Unaudited)
(Loss) profit of finance leasing business	(1,575)		127	(4,359)
Gain on disposal of partial interest in a subsidiary	–		–	24,711
	(1,575)		127	20,352

The results of the finance leasing business for the year ended 31 December 2005 and the six months ended 30 June 2005 and 2006, were as follows:

	Year ended		Six months	Six months
	31 December		ended 30 June
	2005		2005	2006
	HK$’000		HK$’000	HK$’000
		(Unaudited)
Interest income	2,263		–	12,721
Handling fee income	363		–	917
	2,626		–	13,638
Cost of sales	(719)		–	(9,750)
Gross profit	1,907		–	3,888
Other income	840		508	460
Administrative expenses	(4,245)		(381)	(8,707)
Finance costs	(77)		–	–
(Loss) profit for the year/period	(1,575)		127	(4,359)

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. DISCONTINUED OPERATION (Continued)

Discontinued operation (Continued)

The net assets of the finance leasing business at the date of disposal at 15 June 2006 were as follows:

Net assets disposed of
Investment property
Property, plant and equipment
Intangible assets
Finance lease receivables
Other receivables
Bank balances and cash
Borrowings
Trade and other payables
Income received in advance
Security deposit
Attributable goodwill
Gain on disposal
Amount due to a group company previously eliminated on consolidation
Interests in associates
Total cash consideration
Satisfied by:
Cash
Direct transaction costs
Net cash outflow arising on disposal:
Net cash consideration
Bank balances and cash disposed of

HK$’000
1,200
2,261
21,438
837,507
119
43,491
(794,672)
(11,707)
(9,229)
(31,086)
59,322
1,087
60,409
24,711
(58,189)
(2,456)
24,475
25,000
(525)
24,475
24,475
(43,491)
(19,016)

During the year ended 31 December 2005, the finance leasing business contributed cash outflow of approximately HK$62,847,000 (30.6.2005: unaudited cash inflow of approximately HK$12,438,000; 30.6.2006: cash outflow of approximately HK$755,340,000) to the Group’s net operating cash flows, paid approximately HK$3,014,000 in respect of investing activities and paid approximately HK$6,040,000 (30.6.2005: unaudited payments of approximately HK$19,871,000; 30.6.2006: receipts of approximately HK$770,659,000) in respect of financing activities.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ emoluments

The emoluments paid or payable to each of the 12 (31 December 2003: 8; 31 December 2004: 10; 31 December 2005: 11; 30 June 2005: 10) Directors were as follows:

For the year ended 31 December 2003

Fees Other emoluments Salaries and other benefits Retirement benefit scheme contributions Total emoluments	Wang Qinghai HK$’000 – – – –	Cao Zhong HK$’000 – – – –	Li Shao Feng HK$’000 – 1,800 – 1,800	Luo Zhen Yu HK$’000 – 520 – 520	Yuan Leung Choy Hok Tam King Wen Shun Sang, Man, Ching, Xin Tony Constance Kenny HK$’000 HK$’000 HK$’000 HK$’000 – 66 60 60 315 – – – 5 – – – 320 66 60 60	Total HK$’000 186 2,635 5
						2,826

For the year ended 31 December 2004

Fees Other emoluments Salaries and other benefits Retirement benefit scheme contributions Total emoluments	Wang Qinghai HK$’000 – – – –	Cao Zhong HK$’000 – – – –	Chen Zheng HK$’000 – 1,550 11 1,561	Wang Tian HK$’000 – 1,183 10 1,193	Leung Cheng Shun Sang, Xiaoyu Tony HK$’000 HK$’000 – 66 80 6 – – 80 72	Choy Hok Man, Constance HK$’000 61 6 – 67	Tam King Ching, Hui Hung, Kenny Stephen HK$’000 HK$’000 60 10 5 5 – – 65 15	Tam King Ching, Hui Hung, Kenny Stephen HK$’000 HK$’000 60 10 5 5 – – 65 15	Zhou Jianhong HK$’000 10 5 – 15	Total HK$’000 207 2,840 21
								15		3,068

For the year ended 31 December 2005

								Leung	Choy Hok	Tam King
			Wang	Cao	Chen	Wang	Cheng	Shun Sang,	Man,	Ching,	Hui Hung,	Zhou	Yuan
			Qinghai	Zhong	Zheng	Tian	Xiaoyu	Tony	Constance	Kenny	Stephen	Jianhong	Wenxin	Total
			HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Fees			120	–	–	–	–	120	120	150	150	150	–	810
Other		emoluments
Salaries and other benefits			–	250	1,800	1,400	1,400	–	–	–	–	–	750	5,600
Retirement benefit scheme
	contributions		–	–	12	12	12	–	–	–	–	–	6	42
Total		emoluments	120	250	1,812	1,412	1,412	120	120	150	150	150	756	6,452

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS (Continued)

(a) Directors’ emoluments (Continued)

For the six months ended 30 June 2005

==> picture [371 x 133] intentionally omitted <==

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

Leung Choy Hok Tam King
Wang Cao Chen Wang Cheng Shun Sang, Man, Ching, Hui Hung, Zhou
Qinghai Zhong Zheng Tian Xiaoyu Tony Constance Kenny Stephen Jianhong Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Fees 60 – – – – 60 60 75 75 75 405
Other emoluments
Salaries and other
benefits – 125 770 650 650 – – – – – 2,195
Retirement benefit
scheme contributions – – 6 6 6 – – – – – 18
Total emoluments 60 125 776 656 656 60 60 75 75 75 2,618
----- End of picture text -----

For the six months ended 30 June 2006

==> picture [371 x 143] intentionally omitted <==

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

Leung Choy Hok Tam King
Wang Cao Chen Wang Cheng Shun Sang, Man, Ching, Hui Hung, Zhou Yuan Liu
Qinghai Zhong Zheng Tian Xiaoyu Tony Constance Kenny Stephen Jianhong Wenxin Wei Total
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Fees 60 – – – – 60 48 75 24 75 – 50 392
Other emoluments
Salaries and
other benefits – – 750 624 624 – – – – – 624 – 2,622
Retirement benefit
scheme
contributions – – 6 6 6 – – – – – 6 – 24
Total emoluments 60 – 756 630 630 60 48 75 24 75 630 50 3,038
----- End of picture text -----

No director waived any emoluments in the Relevant Periods.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

15. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS (Continued)

(b) Employees’ Emoluments

The emoluments of the five highest paid individuals of the Group included two Directors of the Company for the years ended 31 December 2003 and 2004, three Directors for the year ended 31 December, 2005, three and four Directors for six months ended 30 June 2005 and 2006 respectively whose emoluments are set out above. The emoluments of the remaining individuals were as follows:

Salaries and other benefits Retirement benefits schemes contributions	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 1,764 2,142 3,270 36 35 18 1,800 2,177 3,288	Six months ended 30 June 2005 2006 HK$’000 HK$’000 485 365 10 6 495 371	Six months ended 30 June 2005 2006 HK$’000 HK$’000 485 365 10 6 495 371
			371

Their emoluments were within the following bands:

				Six months ended	Six months ended
	Year ended 31 December			30	June
	2003	2004	2005	2005	2006
	No. of	No. of	No. of	No. of	No. of
	employee(s)	employees	employee(s)	employees	employees
Nil to HK$1,000,000	3	3	–	2	1
HK1,000,001 to HK$1,500,000	–	–	1	–	–
HK$2,000,001 to HK$2,500,000	–	–	1	–	–
DIVIDENDS
				Six months ended
	Year ended 31 December			30	June
	2003	2004	2005	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Ordinary shares:
Interim – HK39.9 cents per share,
by way of distribution in specie	–	374,740	–	–	–

16. DIVIDENDS

For the year ended 31 December 2004, the Directors of the Company declared to distribute a special dividend to be satisfied by the distribution in specie of the Group’s entire shareholding of approximately 31.02%, representing 371,029,995 shares in an associate, Shougang Concord Technology Holdings Limited (“Shougang Technology”), to the Company’s shareholders on a pro-rata basis (the “Distribution”). The Distribution was completed on 23 March 2004 and the market price of Shougang Technology’s share at that date was HK$1.01 per share. Total dividend paid during 2004 amounted to approximately HK$374,740,000.

No other dividend was paid or proposed during year ended 31 December 2003, 2004 and 2005 and for the six months ended 30 June 2005 and 2006, nor has any dividend been proposed since the balance sheet date.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. EARNINGS (LOSS) PER SHARE

For continuing and discontinued operations

For the three years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2005 and 2006, the calculation of the basic earnings (loss) per share is based on the profit (loss) for the year/period attributable to equity holders of the parent of approximately HK$28,481,000, profit of HK$67,720,000, loss of HK$316,796,000, loss of HK$176,972,000 (unaudited) and, profit of HK$8,553,000, respectively, and on the weighted average number of shares in issue during the three years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2005 and 2006 of approximately 852,690,000 shares, 926,043,000 shares, 1,108,749,000 shares, 1,080,176,000 shares and 1,136,856,000 shares respectively.

No diluted loss per share has been presented for the year ended 31 December 2005 because the Company does not have any dilutive potential option for the year ended 31 December 2005.

No diluted earnings per share has been presented for the year ended in 31 December 2003 and 2004 and for the six months ended 30 June 2006 because the exercise price of the Company’s options during these periods was higher than the average market price of the shares.

No diluted loss per share has been presented for the six months ended 30 June 2005 because the exercise of the Company’s share options would result in a decrease in the loss per share.

The following table summarises the impact on basic earnings (loss) per share from continuing and discontinued operations as a result of the application of the new accounting standards or interpretations in the Relevant Periods:

Reported figures before adjustments Adjustments arising from changes in accounting policies Restated	Year ended 31 December 2003 2004 2005 HKcents HKcents HKcents 3.14 8.52 (25.65) 0.20 (1.21) (2.92) 3.34 7.31 (28.57)	Six months ended 30 June 2005 2006 HKcents HKcents (15.27) 0.73 (1.11) 0.02 (16.38) 0.75	Six months ended 30 June 2005 2006 HKcents HKcents (15.27) 0.73 (1.11) 0.02 (16.38) 0.75
			0.75

From continuing operations

The calculation of the basic earnings (loss) per share from continuing operations attributable to equity holders of the parent is based on the following data:

Profit (loss) for the period attributable to equity holders of the parent Less: Loss (profit) from discontinued operations Profit (loss) for the purpose of basic profit (loss) per share from continuing operations	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 28,481 67,720 (316,796) – – 1,575 28,481 67,720 (315,221)	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (176,972) 8,553 (127) (20,352) (177,099) (11,799)	Six months ended 30 June 2005 2006 HK$’000 HK$’000 (176,972) 8,553 (127) (20,352) (177,099) (11,799)
			(11,799)

The denominators used are the same as those detailed above for basic earnings (loss) per share for continuing and discontinued operations.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. EARNINGS (LOSS) PER SHARE (Continued)

From discontinued operation

Basic loss per share for the discontinued operation is HK0.14 cents per share for the year ended 31 December 2005 (30 June 2005: basic earnings of HK0.01 cent per share; 30 June 2006: basic earnings of HK1.79 cent per share), based on the loss for the year ended 31 December 2005 from the discontinued operation of approximately HK$1,575,000 (30 June 2005: profit of HK$127,000; 30 June 2006: profit of HK$20,352,000). The denominators used are the same as those detailed above for basic earnings (loss) per share for continuing and discontinued operations.

18. INVESTMENT PROPERTIES

FAIR VALUE
At 1 January 2003, 31 December 2003 and 1 January 2004
Decrease in fair value recognised in the consolidated income statement
Disposals
At 31 December 2004 and 1 January 2005
Acquired on acquisition a of subsidiary
Net increase in fair value recognised in the consolidated income statement
At 31 December 2005 and 1 January 2006
Net increase in fair value recognised in the consolidated income statement
Net increase in fair value of prepaid lease payment upon transfer_(Note)
Transfer from property, plant and equipment(Note)_
Disposals
At 30 June 2006

HK$’000
236,000
(2,800)
(140,800)
92,400
833
14,767
108,000
5,800
146
20,154
(1,200)
132,900

The fair value of the Group’s investment properties at 31 December 2003, 2004 and 2005 and 30 June 2006 have been arrived at on the basis of a valuation carried out on that date by AA Property Services Limited, independent qualified professional valuers not connected with the Group. AA Property Services Limited is a registered firm of the Hong Kong Institute of Surveyors (the “HKIS”), and has appropriate qualifications. The valuation, which conforms to the HKIS Valuation Standards, was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Group’s property interests held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment properties. The carrying amount of such property interests amounted to HK$236,000,000, HK$92,400,000, HK$108,000,000 and HK$132,900,000 respectively as at 31 December 2003, 2004 and 2005 and as at 30 June 2006.

All of the Group’s investment properties are held under long leases in Hong Kong and PRC and investment properties with carrying amount of HK$236,000,000, HK$92,400,000, HK$85,500,000 and HK$68,600,000 have been pledged to banks to secure general banking facilities granted to the Group as at 31 December, 2003, 2004 and 2005 and 30 June 2006 respectively.

Note: During the six months ended 30 June 2006, a building with a carrying amount of approximately HK$15,373,000 and the corresponding prepaid lease payments with a carrying amount of approximately HK$4,781,000 were transferred to an investment property. This property was leased by the Group to South China Leasing during the six months ended 30 June 2006 and for the year ended 31 December 2005. Upon the completion of the Disposal as disclosed in Note 14, South China Leasing became an associate of the Group during the six months ended 30 June 2006, and this property was considered as leased out for rental income and therefore transferred to as an investment property. Upon the transfer, the building and prepaid lease payments have been valued by AA Property Services Limited. The valuation, which conforms to the HKIS Valuation Standards, was arrived at by reference to market evidence of transaction price for a similar property.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2003 – As originally stated – Reclassified to prepaid lease payments – As restated Additions At 31 December 2003 and 1 January 2004 Additions Disposals At 31 December 2004 and 1 January 2005 Exchange realignment Additions Acquired on acquisition of subsidiaries Disposals At 31 December 2005 and 1 January 2006 Additions Disposals Transfer to investment properties (Note 18) At 30 June 2006 DEPRECIATION AND IMPAIRMENT At 1 January 2003 – As originally stated – Reclassified to prepaid lease payments – As restated Provided for the year Eliminated on disposals At 31 December 2003 and 1 January 2004 Provided for the year Eliminated on disposals At 31 December 2004 and 1 January 2005 Exchange realignment Provided for the year Eliminated on disposals Impairment losses At 31 December 2005 and 1 January 2006 Provided for the period Eliminated on disposals Transfer to investment properties (Note 18) At 30 June 2006 CARRYING VALUES At 30 June 2006 At 31 December 2005 At 31 December 2004 At 31 December 2003	Land HK$’000 2,100 (2,100) – – – – – – – – – – – – – – – 290 (290) – – – – – – – – – – – – – – – – – – – –	Digital film Other Leasehold encoders Computer Buildings improvements and servers equipment HK$’000 HK$’000 HK$’000 HK$’000 1,043 101 – – – – – – 1,043 101 – – – 25 – – 1,043 126 – – – 247 – – – – – – 1,043 373 – – 349 409 – 240 15,347 2,036 – 2,147 – 368 1,499 10,172 – – – (397) 16,739 3,186 1,499 12,162 – 675 – 1,618 – (2,036) – – (15,696) – – – 1,043 1,825 1,499 13,780 191 101 – – – – – – 191 101 – – 38 25 – – – – – – 229 126 – – 24 47 – – – – – – 253 173 – – – 390 – – 351 755 191 5,987 – – – (261) – – 1,308 1,042 604 1,318 1,499 6,768 2 912 – 2,466 – (851) – – (323) – – – 283 1,379 1,499 9,234 760 446 – 4,546 16,135 1,868 – 5,394 790 200 – – 814 – – –	fixed assets HK$’000 3,526 – 3,526 43 3,569 693 (76) 4,186 3 4,131 1,285 (731) 8,874 131 (1,252) – 7,753 3,445 – 3,445 47 – 3,492 93 (75) 3,510 9 1,056 (469) – 4,106 687 (176) – 4,617 3,136 4,768 676 77	Total HK$’000 6,770 (2,100) 4,670 68 4,738 940 (76) 5,602 1,001 23,661 13,324 (1,128) 42,460 2,424 (3,288) (15,696) 25,900 4,027 (290) 3,737 110 – 3,847 164 (75) 3,936 399 8,340 (730) 2,350 14,295 4,067 (1,027) (323) 17,012 8,888 28,165 1,666 891

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

19. PROPERTY, PLANT AND EQUIPMENT (Continued)

Depreciation is provided 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, using the straight line method, at the following rates per annum:

Buildings 2% Leasehold improvements Over the lease term Digital film encoders and servers 10% Computer equipment 331/3% Other fixed assets 20% – 30%

At 31 December 2005 and 30 June 2006, the net book value of computer equipment of approximately HK$5,394,000 and HK$4,578,000 includes an amount of approximately HK$2,329,000 and HK$2,520,000 respectively in respect of assets held under finance leases.

At 31 December 2004 and 2005 and at 30 June 2006, the Group has pledged buildings with a net book value of approximately HK$790,000, HK$766,000 and HK$760,000 respectively to secure general banking facilities granted to the Group.

During the year ended 31 December 2005, the Directors conducted a review of the Group’s computer equipment and digital film encoders and servers and determined that a number of those assets were impaired, due to physical damage and technical obsolescence. Accordingly, the carrying amount of computer equipment of approximately HK$1,042,000 and the carrying amount of the Group’s digital film encoders and servers of approximately HK$1,308,000 have been fully impaired.

During the six months ended 30 June 2006, the Directors also conducted an impairment review of the Group’s property, plant and equipment and no further impairment losses were identified.

20. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise: Long-term leasehold land in Hong Kong Medium-term leasehold land in the PRC Analysed for reporting purposes as: Current asset Non-current asset	As 2003 HK$’000 1,778 – 1,778 32 1,746 1,778	at 31 December As at 30 June 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,746 1,714 1,698 – 4,779 – 1,746 6,493 1,698 32 136 32 1,714 6,357 1,666 1,746 6,493 1,698	at 31 December As at 30 June 2004 2005 2006 HK$’000 HK$’000 HK$’000 1,746 1,714 1,698 – 4,779 – 1,746 6,493 1,698 32 136 32 1,714 6,357 1,666 1,746 6,493 1,698
			1,698

			32 1,666
			1,698

As disclosed in Note 18, prepaid lease payments with carrying amount of approximately HK$4,781,000 was transferred to investment properties during the six months ended 30 June 2006 upon the Transfer.

The Group has pledged land with a net book value of approximately HK$1,778,000, HK$1,746,000, HK$1,714,000 and HK$1,698,000 to secure general banking facilities granted to the Group as at 31 December 2003, 2004 and 2005 and as at 30 June 2006 respectively.

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. GOODWILL

COST Arising on acquisition of a subsidiary during the year ended 31 December 2005_(see Note 50)_ Eliminated on disposal of partial interest in a subsidiary At 31 December 2005 IMPAIRMENT Impairment loss recognised for the year ended 31 December, 2005 CARRYING VALUES At 30 June 2006, 31 December 2005, 31 December 2004 and 31 December 2003	HK$’000 209,950 (18,493) 191,457 (191,457) –

Particulars regarding impairment testing on goodwill are disclosed in Note 22.

22. IMPAIRMENT TESTING ON GOODWILL

As explained in Note 11, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill with indefinite useful life set out in Note 21 has been allocated to individual CGU mainly represented by CG creation and production segment.

The recoverable amounts of the above CGU have been determined on the basis of value in use calculations. The recoverable amount is based on certain key assumptions. The value in use calculations use cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 15%. Cash flow projections during the budget period for the CGU are based on the expected revenue and gross margins during the budget period. Budgeted revenue and gross margins have been determined based on past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the carrying amount of the above CGU to exceed the recoverable amount of the above CGU.

As disclosed in Note 11, an impairment loss in respect of goodwill of approximately HK$129,950,000 and HK$191,457,000 was identified and recognised in the consolidated income statement for the period ended 30 June 2005 and year ended 31 December 2005 respectively.

100

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

23. INTANGIBLE ASSET

	Finance lease
	license
	HK$’000
COST
Acquired from acquisition of a subsidiary during 2005 and
balance at 31 December 2005 and 1 January 2006	22,411
Disposal	(22,411)
At 30 June 2006	–
AMORTISATION
Charge for the year ended 31 December 2005 and
balance at 31 December 2005 and 1 January 2006	545
Charge for the period	428
Eliminated on disposal	(973)
At 30 June 2006	–
CARRYING VALUES
At 30 June 2006	–
At 31 December 2005	21,866
At 31 December 2004	–
At 31 December 2003	–

The Group’s finance lease license was purchased as part of a business combination during the year ended 31 December 2005.

The Directors amortised the cost on a straight line basis over 24 years which is the remaining valid period of the business license of that subsidiary.

24. INTEREST IN A JOINTLY CONTROLLED ENTITY

At 31 December 2003, 2004 and 2005 and at 30 June 2006, the Group had interest in the following jointly controlled entity:

			Proportion of
			nominal value of
	Form of	Place of	registered capital
	business	establishment	indirectly held by
Name of entity	structure	and operation	the Company	Principal activities
Beijing Dongzhimen	Sino-foreign	The PRC	44%	Property holding and
	equity joint			provision of
	venture			residential
				service apartments

Beijing Dongzhimen is a sino-foreign equity joint venture which was established in the PRC on 18 December 1986 with a tenure of 14 years and 8 months to 17 August 2001 (the “initial JV term”). The extension of the initial JV term for a further period of 15 years from the date of expiry of the initial JV term to 17 August 2016 has been approved by the relevant authorities.

Beijing Dongzhimen has obtained approval from relevant authorities to further extend the land use right of the residential service apartments for 30 years following the expiry of the initial JV term.

101

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. INTEREST IN A JOINTLY CONTROLLED ENTITY (Continued)

During the Relevant Periods, the Directors reviewed the carrying amount of the net assets of Beijing Dongzhimen, in the light of current market condition and with reference to the financial results and business operated by Beijing Dongzhimen. For the year ended 31 December 2004, the Directors identified an impairment loss in respect of its share of net assets and goodwill of approximately HK$67,529,000 (included in share of result of a jointly controlled entity in the income statement) and HK$22,471,000 respectively with reference to the valuation report of the underlying properties of Beijing Dongzhimen. The amounts were dealt with in the consolidated income statement.

The summarised financial information in respect of Beijing Dongzhimen which is accounted for using the equity method is set out below:

As
2003
HK$’000
Non-current assets
712,158
Current assets
11,498
Current liabilities
(100,443)
Non-current liabilities
(195,545)
Net assets
427,668
Group’s share of net assets of a jointly
controlled entity
188,174
Goodwill_(Note)
23,408
211,582
Income
87,250
Expenses
(95,841)
Group’s share of result of a jointly controlled entity
(3,780)
_Note:
GOODWILL
COST
At 1 January 2003, 31 December 2003 and 31 December 2004
AMORTISATION
1 January 2003
Charge for the year
At 31 December 2003 and 1 January 2004
Charge for the year
Impairment loss for the year
At 31 December 2004
NET BOOK VALUE
At 31 December 2004
At 31 December 2003

at 31 December
As at 30 June
2004
2005
2006
HK$’000
HK$’000
HK$’000
473,475
453,273
442,909
15,848
11,277
10,201
(98,601)
(102,236)
(103,218)
(122,491)
(89,329)
(78,618)
268,231
272,985
271,274
118,022
120,113
119,360
–
–
–
118,022
120,113
119,360
98,765
106,836
52,947
(258,303)
(105,864)
(51,304)
(70,197)
428
723
HK$’000
33,710
8,429
1,873
10,302
937
22,471
33,710
–
23,408

Goodwill was amortised over a period of 18 years and was fully impaired during the year ended 31 December 2004.

102

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. INTEREST IN AN ASSOCIATE

Cost of investment in listed associate Cost of investment in unlisted associate Share of post-acquisition results Less: Impairment loss recognised Market value of listed shares	As 2003 HK$’000 249,394 780 – (780) 249,394 393,948	at 31 December As at 30 June 2004 2005 2006 HK$’000 HK$’000 HK$’000 – – – 780 780 3,236 – – (437) (780) (780) (780) – – 2,019 – – –

Details of the Group’s principal associates at the respective balance sheet dates are as follows:

Place of
Form of
incorporation/
business
registration
Name of entity
structure
and operation
Shougang Technology
Incorporated
Hong Kong
(Note 16) (Note (i))
Top Pearl International
Incorporated
BVI/
Development Limited
The PRC
(“Top Pearl”)(Note (ii))
Jeckman Holdings Limited
Incorporated
BVI
(“Jeckman”)(Note (iv))
South China Leasing
Incorporated
The PRC
(Note 14) (Notes (iii)
and (iv))

Proportion of nominal
of value issued/registered
share capital held by the Group
Principal activities
31.12.2003
31.12.2004
31.12.2005
30.6.2006
31.13%
–
–
–
Investment holding
50%
50%
50%
50%
Property development
–
–
–
50%
Investment holding
–
–
–
50%
Leasing of property,
plant and equipment

103

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. INTEREST IN AN ASSOCIATE (Continued)

The summarised financial information in respect of the Group’s associates is set out below:

As
2003
HK$’000
Total assets
1,163,533
Total liabilities
(362,565)
Net assets
800,968
Group’s share of net assets of
an associate
249,394
Goodwill_(Note)
–
249,394
Revenue
387,744
Profit (loss) for the year/period
26,454
Group’s share of result of associates
for the year/period (note (iv))
8,235
_Note:
GOODWILL
Arising from acquisition during the six months ended 30 June 2006
Release upon disposal of partial interest in an associate
As at 30 June 2006

at 31 December
As at 30 June
2004
2005
2006
HK$’000
HK$’000
HK$’000
–
–
891,658
–
–
(887,620)
–
–
4,038
–
–
1,232
–
–
787
–
–
2,019
36,532
–
16,638
(19,917)
(620)
(874)
(5,853)
(248)
(437)
HK$’000
1,087
(300)
787

(i) Shougang Technology was an associate of the Group as at 31 December 2003. Pursuant to the completion of the Distribution as disclosed in Note 16, the Group’s entire interest in Shougang Technology was considered as disposed of and it was no longer an associate of the Group with effect from March 2004. Total net gain on distribution of an associate of HK$189,210,000, after expenses incurred of approximately HK$929,000 on the Distribution and the release of negative goodwill of HK$57,094,000 and translation reserve of HK$1,753,000, has been recognised in the income statement for the year ended 31 December 2004.
(ii) Top Pearl is an associate of the Group during the Relevant Periods.
(iii) In January 2005, the Group acquired a 40% equity interest of South China Leasing and recognised share of post-acquisition loss of South China Leasing of HK$248,000 in the consolidated income statement. South China Leasing subsequently became a subsidiary of the Company upon further acquisition of a 20% equity interest by the Group in May 2005. Particulars regarding the acquisition of this entity are disclosed in Note 50. In June 2006, the Group has disposed 50% equity interest of Jeckman and South China Leasing. Particulars regarding the disposal of this entity are disclosed in Note 14.
(iv) Jeckman is the immediate holding company of South China Leasing which holds 60% equity interest of South China Leasing.

In June 2006, the Group has disposed of 50% equity interest of Jeckman, which represented 30% effective interest in South China Leasing held by the Group was also considered as disposed of at the same time. Upon the completion of the Disposal, the Group’s effective interest in South China Leasing decreased from 80% to 50% and the Group’s equity interest of Jeckman decreased from 100% to 50%. Accordingly, Jeckman and South China Leasing became associates of the Group since June 2006. Particulars regarding the Disposal of South China Leasing are disclosed in Note 14.

104

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. AVAILABLE-FOR-SALE INVESTMENT

As at 31 December 2005 and 30 June 2006 HK$’000 – Unlisted equity securities

The above investment represents an unlisted investment in a 25% equity interest in Production and Partners Multimedia, SAS (“P&PM”), a company incorporated in France. Since the Group did not have any significant influence to the investee, the investment is accounted for in accordance with the Group’s accounting policy for financial assets – available-for-sale investment in accordance with HKAS 39. The investment was acquired on acquisition of a subsidiary during the year ended 31 December 2005 with a fair value of nil.

105

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. FINANCE LEASE RECEIVABLES

During the year ended 31 December 2005, the Group started finance leasing business upon acquisition of South China Leasing as disclosed in Note 50. All interest rates inherent in the leases are fixed at the contract date over the lease terms. The business was discontinued during 2006. Particulars of the discontinued operation are disclosed in Note 14.

		Present value	Present value
	Minimum	of	minimum
	lease receipts	lease receipts
	As at		As at
	31 December	31 December
	2005		2005
	HK$’000		HK$’000
Finance lease receivables comprise:
Within one year	37,364		33,513
In more than one year but not more than two years	27,333		25,594
In more than two years but not more than three years	4,738		3,981
In more than three years but not more than four years	3,401		3,009
In more than four years but not more than five years	1,687		1,611
	74,523		67,708
Less: Unearned finance income	(6,815)		N/A
Present value of minimum lease receipts	67,708		67,708
Analysed as:
Current finance lease receivables
(receivable within 12 months)			33,513
Non-current finance lease receivables
(receivable after 12 months)			34,195
			67,708

Effective interest rates of the above finance leases range from 5% to 6%.

Finance lease receivables that are denominated in currencies other than the functional currencies of the relevant group entities are set out below:

				RMB
				’000
As at	31	December	2005	70,491

Unguaranteed residual values of assets leased under finance leases at 31 December 2005 are estimated at approximately HK$9,000.

As at 31 December 2005, finance lease receivables of approximately HK$37,193,000 has been pledged against general banking facilities granted to the Group.

The fair values of the Group’s finance lease receivables approximate to the corresponding carrying amounts.

106

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

28. INVENTORIES

Raw materials, net of allowance Finished goods, net of allowance	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 448 – – 7,374 – – 7,822	As at 30 June 2006 HK$’000 – 1,089
		1,089

Note: Net allowance of approximately HK$475,000 and HK$2,170,000 incurred for the year ended 31 December 2005 for raw materials and finished goods respectively.

29. PRODUCTION WORK IN PROGRESS

PRODUCTION WORK IN PROGRESS
					As at
	As at	31 December			30 June
	2003		2004	2005	2006
	HK$’000	HK$’000		HK$’000	HK$’000
Movie and television series_(Note)_	–		2,482	6,248	11,373

Note: Allowance of approximately HK$24,712,000 and HK$2,999,000 were recognised in the consolidated income statement for the year ended 31 December 2005 and six months ended 30 June 2006 respectively for production costs incurred for several television series.

30. INTEREST IN AN ASSOCIATE HELD FOR SALE

					As at
		As at	31 December		30 June
		2003	2004	2005	2006
		HK$’000	HK$’000	HK$’000	HK$’000
Unlisted equity	security	–	–	28,816	–

The above unlisted investment represents an investment of 30% interest in an associate, which is a private entity established in the PRC and is engaged in the business of property development, acquired during the year ended 31 December 2005, at consideration of RMB30,000,000 (equivalent to approximately HK$28,816,000). This investment is accounted for in accordance with the Group’s accounting policy for investment in an associate held for sale in accordance with HKFRS 5.

During the six months ended 30 June 2006, this investment was disposed of at a consideration of RMB30,000,000 (equivalent to approximately HK$28,816,000).

107

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

31. TRADE RECEIVABLES

				As at
	As at	31 December		30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Trade receivables, net of allowance	–	–	7,089	3,009

The Group allows an average credit periods of 90 days to its trade customers. The following is an aged analysis of the trade receivables at the report date.

0 – 90 days 91 – 180 days > 180 days	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 5,283 – – 1,455 – – 351 – – 7,089	As at 30 June 2006 HK$’000 840 2,169 –
		3,009

The fair values of the Group’s trade receivables approximate to the corresponding carrying amounts.

32. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The fair values of the Group’s deposits and other receivables at respective balance sheet dates approximate to the corresponding carrying amounts.

As at 31 December 2004, included in other receivables was an amount of approximately HK$10,843,000 due from GDC. The amount was unsecured, interest bearing at prevailing market rate and repayable on demand. GDC has subsequently become a subsidiary of the Company since February 2005. Details of acquisition of GDC are set out in Note 50.

33. INVESTMENTS HELD FOR TRADING

Investments held for trading as at 31 December 2005 and 30 June 2006 represent equity securities listed in Hong Kong.

The fair values of the investments held for trading are determined based on the quoted market bid prices available on the relevant exchanges.

34. INVESTMENTS IN SECURITIES

Investments in securities as at 31 December 2003 and 2004 are set out as below:

Investments in securities Equity securities listed in Hong Kong, at market value Held-to-maturity investment Unlisted debt securities in the PRC, at cost	As at 31 December 2003 2004 HK$’000 HK$’000 1,020 13,776 – 9,369 1,020 23,145	As at 31 December 2003 2004 HK$’000 HK$’000 1,020 13,776 – 9,369 1,020 23,145
		23,145

Upon the application of HKAS 39 on 1 January 2005, investments in securities were reclassified to investments held for trading and held-to-maturity investment under HKAS 39 (see Note 3A for details).

108

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. PLEDGED BANK DEPOSITS

For the year ended 31 December 2004 and 2005, the amounts represented deposits pledged to banks to secure short-term banking facilities granted to the Group and were therefore classified as current assets.

The deposits carried floating interest rate of prevailing bank saving deposits rate (“prime rate”) plus 1%. The pledged bank deposits will be released upon the settlement of relevant bank borrowings. The fair values of bank deposits approximate to the corresponding carrying amounts.

36. BANK BALANCES AND CASH

The Group’s deposits carry interest rate at prevailing bank saving deposits rate with maturity of less than 3 months. The Directors of the Company consider that the carrying amounts of the Group’s bank balances and cash approximates to their fair values.

37. TRADE PAYABLES

The following is an aged analysis of trade payables at respective balance sheet dates:

0 – 90 days 91 – 180 days >180 days	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 4,368 – – 16 – – 40 – – 4,424	As at 30 June 2006 HK$’000 1,165 559 –
		1,724

The fair values of the Group’s trade payables approximate to the corresponding carrying amounts.

38. OTHER PAYABLES AND ACCRUALS

The fair values of the Group’s other payables at respective balance sheet dates approximate to the corresponding carrying amounts.

39. INCOME RECEIVED IN ADVANCE

As at 31 December 2005, the income received in advance represented handling fee income received from finance lease receivables for administrative services provided over the relevant lease term and advance payment received from an investee.

As at 30 June 2006, the income received in advance represented training fee income received in advance before the training courses are completed and production and distribution income of films and television drama received before completion of production and distribution of films and television drama to the customers.

Current Non-current	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 6,714 – – 1,194 – – 7,908	As at 30 June 2006 HK$’000 16,030 –
		16,030

109

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

40. GAIN ON DEEMED DISPOSAL OF AN ASSOCIATE

(i) During the year ended 31 December 2003, an associate of the Group issued new shares upon conversion of its convertible bonds and new placement of shares. The Group’s effective interest in this associate was deemed as disposed of and was diluted from approximately 46.67% to 31.13%. Accordingly, a gain on deemed disposal of an associate of approximately HK$28,273,000, representing the release of negative goodwill of approximately HK$27,921,000 and the release of translation reserve of approximately HK$857,000 attributable to this associate less dilution of net assets of approximately HK$505,000, was recognised in the consolidated income statement.
(ii) During the year ended 31 December 2004, an associate of the Group issued new shares upon a share option exercise. The Group’s effective interest in this associate is deemed as disposed of and was further diluted from 31.13% to 31.02%. Accordingly, a gain on deemed disposal of an associate of approximately HK$115,000, representing the release of negative goodwill of approximately HK$202,000 and the release of translation reserve of approximately HK$6,000 attributable to this associate less dilution of net assets of approximately HK$93,000, was recognised in the consolidated income statement.

41. LOAN/ADVANCE TO/AMOUNT DUE TO ASSOCIATES

(a) Loan to Top Pearl

Loan to Top Pearl Due from Top Pearl Less: Allowance for bad and doubtful debt	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 27,900 27,900 27,900 3,589 3,589 3,589 31,489 31,489 31,489 (31,489) (31,489) (31,489) – – –	As at 30 June 2006 HK$’000 27,900 3,589 31,489 (31,489) –

The loan of HK$27,900,000 as at 31 December 2003, 2004 and 2005 and as at 30 June 2006 to Top Pearl is unsecured, interest-bearing at 15% per annum and has no fixed terms of repayment. The amount “Due from an associate” is unsecured, interest-free and has no fixed terms of repayment. All of these amounts have been fully provided at the respective balance sheet dates.

(b) Advance to an associate

The amount is secured, non-interest bearing and has no fixed terms of repayment. In the opinion of the Directors, the Company will not demand repayment within one year from the balance sheet date and is therefore considered as non-current. Such non-interest bearing advance is measured at amortised cost determined using the effective interest method at subsequent balance sheet dates. The effective interest rate used was 6%, being approximates to the prevailing market borrowing rate of interest for a similar instrument.

The fair values of the advance to an associate approximate to the corresponding carrying amounts.

(c) Amount due from (to) an associate

The amount is unsecured and is repayable on demand. Except for an amount due from an associate of HK$1,970,000 which is non-interest bearing, the remaining amount is bearing interest at prevailing market rate per annum.

The fair values of the amount due from (to) an associate approximate to the corresponding carrying amounts.

110

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

42. AMOUNT DUE TO A FELLOW SUBSIDIARY/AMOUNTS DUE TO SHAREHOLDERS/AMOUNT DUE TO A FELLOW SUBSIDIARY – NON-CURRENT

Notes Amount due to a fellow subsidiary – due within one year: Shougang (Hong Kong) Finance Company Limited (“Shougang Finance”) (a) Amounts due to shareholders – due within one year: Mr. Anthony Francis Neoh (b) Bright Oceans Corporation (HK) Limited (c) Amount due to a fellow subsidiary – due after one year: Shougang Finance (d)	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 24,260 – – 22,403 – – 3,659 – – 26,062 – – –	As at 30 June 2006 HK$’000 426

		22,608 3,280
		25,888

		40,000

Notes:

(a) The loan is unsecured, interest bearing at a fixed rate of 5% per annum and repayable on demand. The fair values of the balance at respective balance sheet dates approximate to the corresponding carrying amounts.
(b) The loan is unsecured and is repayable on demand. Except for an amount of HK$4,147,000 which is noninterest bearing, the remaining amount is interest bearing at the best lending rate as quoted by the Hong Kong and Shanghai Banking Corporation Limited (“Best Lending Rate”) from time to time plus 3% per annum. The fair values of the balance at respective balance sheet dates approximate to the corresponding carrying amounts.
(c) The loan is unsecured and is repayable on demand. Except for an amount of HK$458,000 which is noninterest bearing, the remaining amount is interest bearing at the Best Lending Rate plus 3% per annum. The fair values of the balance at respective balance sheet dates approximate to the corresponding carrying amounts.
(d) The amount is unsecured, bearing interest at prevailing market rate per annum and is repayable on 31 March 2008.

111

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

43. AMOUNT DUE TO A RELATED PARTY/AMOUNT DUE TO FORMER SHAREHOLDER OF A SUBSIDIARY

Notes Amounts due to a related party – due within one year: Madam Chan Wing Yee, Betty (a) Amount due to a former shareholder of a subsidiary – due after one year (b)	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 1,098 – – 1,495	As at 30 June 2006 HK$’000 2,380

		805

Notes:

(a) The amount due to Madam Chan Wing Yee, Betty, the spouse of Mr. Anthony Francis Neoh, who is a shareholder of the Company, is unsecured and repayable on demand. Except for an amount of HK$98,000 which is non-interest bearing, the remaining amount is interest bearing at the Best Lending Rate plus 3% per annum. The fair values of the balance as at respective balance sheet dates approximate to the corresponding carrying amounts.
(b) The amount is unsecured, non-interest bearing and is stated at amortised cost at effective interest rate of 9.8%.

44. BORROWINGS

Bank overdrafts Bank loans Other loans Secured Unsecured Carrying amount repayable: On demand or within one year More than one year, but not exceeding two years More than two years, but not more than five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 2,250 111,400 105,800 88,972 111,400 105,800 91,222 – – 28,600 111,400 105,800 119,822 109,520 105,040 66,263 1,880 760 53,559 111,400 105,800 119,822 5,600 15,800 76,648 15,800 20,000 30,354 90,000 70,000 12,820 111,400 105,800 119,822 (5,600) (15,800) (76,648) 105,800 90,000 43,174	As at 30 June 2006 HK$’000 – 61,162
		61,162 20,740
		81,902

		50,000 31,902
		81,902

		31,902 10,000 40,000
		81,902 (31,902)
		50,000

112

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

44. BORROWINGS (Continued)

The exposure of the Group’s fixed-rate borrowings and the contractual maturity dates are as follows:

Fixed-rate borrowings which due within one year more than one year, but not exceeding two years more than two years, but not more than five years	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 55,759 – – 13,570 – – 69,329	As at 30 June 2006 HK$’000 31,902 –
		31,902

In addition, the Group had variable-rate borrowings which carry interest at HIBOR plus a premium.

The ranges of effective interest rates (which are equal to contractual interest rates) on the Group’s borrowings as follows:

				As at
		As at 31 December		30 June
	2003	2004	2005	2006
Effective interest rate:
Fixed-rate borrowings	N/A	N/A	6% to 15%	7%
Variable-rate borrowings	HIBOR plus	HIBOR plus	HIBOR plus	HIBOR plus
	1.35% to 74.98%	1.35% to 74.98%	1.35% to 3%	74.98% to 3%

The Group’s borrowings that are denominated in currencies other than the functional currencies of the respective entities of the Group are set out below:

As at 30 June 2006 As at 31 December 2005	USD $’000 – 2,500	RMB $’000 11,000

		30,000

The Directors consider that the fair values of borrowings at respective balance sheet dates approximate to the corresponding carrying amounts.

113

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

45. OBLIGATIONS UNDER FINANCE LEASES

Amounts payable under finance leases Within one year In more than one year but not more than two years Less: future finance charges Present value of lease obligations Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months	Minimum lease payments As at As at 31 December 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 – – 3,135 2,929 – – 738 886 – – 3,873 3,815 – – (396) (213) – – 3,477 3,602	Present value of minimum lease payments As at As at 31 December 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 – – 2,761 2,749 – – 716 853 – – 3,477 3,602 N/A N/A N/A N/A – – 3,477 3,602 – – (2,761) (2,749) – – 716 853	Present value of minimum lease payments As at As at 31 December 30 June 2003 2004 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 – – 2,761 2,749 – – 716 853 – – 3,477 3,602 N/A N/A N/A N/A – – 3,477 3,602 – – (2,761) (2,749) – – 716 853
			3,602 N/A
			3,602 (2,749)
			853

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.

All finance lease obligations are denominated in Hong Kong dollars, the functional currency of the subsidiary entered into these arrangements.

The lease term ranges from two to three years. For the year ended 31 December 2005 and six months ended 30 June 2006, the average effective borrowing rate was 5.7% and 5.7% per annum, respectively. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Directors consider that the fair values of the obligations under finance leases at respective balance sheet dates approximate to the corresponding carrying amount.

46. LOSS ON DISPOSAL OF PARTIAL INTEREST IN A SUBSIDIARY

On 7 September 2005, the Group has placed 58,000,000 shares of GDC, representing approximately a 7.24% of the issued share capital of GDC to eight independent third parties at an aggregate consideration of approximately HK$12,760,000. This placement resulted a loss on disposal of partial interest in a subsidiary of approximately HK$12,345,000 and was recognised in the consolidated income statement for the year ended 31 December 2005.

114

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

47. DEFERRED TAX LIABILITIES

The following are the major deferred tax (asset) liabilities recognised and movements thereon during the current and prior years:

		Accelerated	Accelerated
Investment			tax		Tax
properties		depreciation			losses		Other		Total
HK$’000		HK$’000		HK$’000		HK$’000		HK$’000
At 1 January 2003
– as originally stated	–		–		–		–		–
– effect on change in
accounting policy	2,628		34		–		–		2,662
– as restated	2,628		34		–		–		2,662
Charge to consolidated income statements	557		2		–		–		559
Effect of a change in tax rate
– charge to consolidated income statement	247		3		–		–		250
At 31 December 2003 and
1 January 2004	3,432		39		–		–		3,471
(Credit) charge to consolidated
income statement	(2,753)		5		(442)		–		(3,190)
At 31 December 2004 and
1 January 2005	679		44		(442)		–		281
Arising on acquisition of a subsidiary	–		(118)		–		(33)		(151)
On adoption of HK(SIC) INT 21	291		–		–		–		291
Charge (credit) to consolidated
income statement	2,293		(2,050)		(125)		33		151
At 31 December 2005
and 1 January 2006	3,263		(2,124)		(567)		–		572
Credit to consolidated income statement	(190)		–		–		–		(190)
At 30 June 2006	3,073		(2,124)		(567)		–		382

For the purpose of balance sheet presentation, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

				As at
	As at	31 December		30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Deferred tax liabilities	3,471	281	572	382

115

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

47. DEFERRED TAX LIABILITIES (Continued)

The Group has unused tax losses of approximately HK$67,511,000, HK$79,873,000, HK$97,309,000 and HK$111,986,000 at 31 December 2003, 2004 and 2005 and 30 June 2006 respectively available for offset against future profits. A deferred tax asset has been recognised in respect of approximately HK$Nil, HK$2,527,000, HK$3,240,000 and HK$3,240,000 at 31 December 2003, 2004 and 2005 and 30 June 2006 respectively of such losses. No deferred tax asset has been recognised in respect of the remaining HK$67,511,000, HK$77,346,000, HK$94,069,000 and HK$108,746,000 at 31 December 2003, 2004 and 2005 and 30 June 2006 respectively due to unpredictability of future profit streams. Included in unrecognised tax losses are losses of HK$Nil, HK$3,645,000, HK$2,955,000 and HK$2,955,000 at 31 December 2003, 2004 and 2005 and 30 June 2006 respectively that will expire in 2008. Other losses may be carried forward indefinitely.

At the balance sheet date, the Group has deductible temporary differences of approximately HK$1,384,000, HK$27,586,000, HK$32,583,000 and HK$32,583,000 at 31 December 2003, 2004 and 2005 and 30 June 2006 respectively attributable to the difference between tax allowances and depreciation. No deferred tax asset has been recognised in relation to such deductible temporary difference as it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

48. SHARE CAPITAL

Nominal value HK$’000 20,000	Nominal value HK$’000 20,000	2005 Number Nominal of shares value HK$’000 2,000,000,000 20,000 939,316,667 9,393 – – – – – 1,136,856,469 11,369	2006 Number Nominal of shares value HK$’000 2,000,000,000 20,000 1,136,856,469 11,369 197,539,802 1,976 – – 1,136,856,469 11,369

8,279 – 300	8,579 814	9,393 – –	11,369 1,976 –
8,579	9,393	11,369	11,369

During the year ended 31 December 2003, 30,000,000 shares of HK$0.01 each were issued for cash at a subscription price of HK$0.48 per share.

During the year ended 31 December 2004, 81,448,753 shares of HK$0.01 each were issued upon the exercise of 53,811,339 and 27,637,414 share options at subscription prices of HK$0.73 and HK$0.76 per share respectively. The shares issued during the year rank pari passu with the then existing shares at all respects.

49. TRANSFER OF CONTRIBUTED SURPLUS

The contributed surplus represented the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group reorganisation in 1991 over the nominal value of the Company’s shares issued in exchange. On 4 March 2004, a resolution was passed by the Directors to transfer HK$362,731,000 from contributed surplus to accumulated losses for the purpose of the Distribution as disclosed in Note 16.

116

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

50. ACQUISITION OF SUBSIDIARIES

For the year ended 31 December 2005

(1) In September, 2004, the Group paid HK$2,861,000 as payment for acquisition of a 40% equity interest of South China Leasing. The relevant approval from the PRC authority of the change in shareholder was obtained in January 2005. Accordingly, the payment for acquisition of an associate recognised in 2004 was transferred as investment cost of an associate in the year of 2005. In May 2005, the Group has further acquired an additional 20% equity interest of South China Leasing at a consideration of HK$1,471,000 and it became a subsidiary of the Company since 26 May 2005. As at 31 December 2005, the Group held a 60% equity interest of South China Leasing.

The net assets acquired in the above purchase transactions accounted for using the step acquisition method, are as follows:

	Acquiree’s
	carrying
	amount before	Fair value			Fair
	combination	adjustment			value
	HK$’000		HK$’000		HK$’000
Net assets acquired:
Property, plant and equipment	231		–		231
Investment property	833		–		833
Intangible asset in respect of a
finance lease licence	–		22,411		22,411
Bank balances and cash	7,137		–		7,137
Trade and other receivables	6,219		–		6,219
Trade and other payables	(49)		–		(49)
Borrowings	(29,976)		–		(29,976)
	(15,605)		22,411		6,806
Minority interests	–		–		(2,722)
	(15,605)		22,411		4,084

				Fair value
					HK$’000
Total consideration satisfied by:
Interest in an associate					2,613
Cash consideration paid					1,471
					4,084

Net cash inflow arising on acquisition:
Cash consideration paid					(1,471)
Bank balances and cash					7,137
					5,666

If the acquisition had been completed on 1 January 2005, the revenue for the Group for 2005 would have been HK$45,378,000 and loss for the year would have been HK$317,275,000. The pro forma information is for illustrative purpose only and is not necessary an indicative revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2005, nor it is intended to be a projection of future results.

117

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

50. ACQUISITION OF SUBSIDIARIES (Continued)

For the year ended 31 December 2005 (Continued)

(2) In February 2005, the Group acquired 461,833,761 shares of GDC, representing approximately a 57.7% of the then issued share capital of GDC through share exchange of 138,550,125 shares of the Company. Subsequently in February and March 2005, the Group further acquired in aggregate of 196,632,262 shares of GDC, representing approximately a 24.5% of the issued share capital of GDC through share exchange of 58,989,677 shares of the Company.

On 7 September 2005, the Group placed 58,000,000 shares of GDC, representing approximately a 7.24% of the issued share capital of GDC to the placees. As at 31 December 2005, the Group held an aggregate of 600,466,023 shares of GDC, representing approximately 74.9% of the issued share capital of GDC.

The net assets acquired in the above purchase transactions accounted for using the purchase method, and the goodwill arising, are as follows:

	Acquiree’s carrying	Acquiree’s carrying
	amount before
	combination
	and fair value
		HK$’000
Net assets acquired:
Property, plant and equipment		13,093
Other non-current assets		410
Deferred tax assets		151
Production work in progress		24,765
Inventories		5,233
Trade and other receivables		11,442
Bank balances and cash		4,926
Trade and other payables		(88,407)
Bank borrowings		(26,400)
Bank overdrafts		(1,223)
		(56,010)
Goodwill		209,950
		153,940

	Fair value
		HK$’000
Total consideration, satisfied by:
– share exchange_(Note)_		153,349
– cash		591
		153,940

Net cash inflow arising on acquisition:
Cash consideration paid		(591)
Bank balances and cash acquired		4,926
Bank overdrafts acquired		(1,223)
		3,112

118

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

50. ACQUISITION OF SUBSIDIARIES (Continued)

For the year ended 31 December 2005 (Continued)

Note: The consideration of HK$153,349,000 of share exchange was determined by the Directors of the Company with reference to the fair value of shares of the Company issued upon share exchange during February and March 2005 based on a valuation performed by Sallmanns (Far East) Limited, an independent qualified professional valuer.

The goodwill arising on the acquisition of GDC is attributable to the anticipated profitability and the anticipated future operating cash flows of GDC. For the year ended 31 December 2005, the Directors of the Company reviewed the business valuation, the anticipated profitability and the anticipated future operating cash flows of GDC. With reference to the financial results and business operated by GDC, the Directors of the Company identified an impairment loss in respect of goodwill of approximately HK$191,457,000, such amount is dealt with in the consolidated income statement for the year ended 31 December 2005.

GDC contributed HK$28,814,000 to the revenue and incurred loss of HK$66,296,000 to the Group’s loss before taxation for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on 1 January 2005, total revenue for the Group for the year would have been HK$49,303,000 and loss for the year would have been HK$330,236,000. The proforma information is for illustrative purpose only and is not necessarily an indicative revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2005, nor it is intended to be a projection of future results.

For the six months ended 30 June 2006

(1) In July 2005, the Group entered into an agreement to acquire the entire interest in Valuework Investment Holdings Limited (“Valuework”), which holds a 20% equity interest in South China Leasing at a consideration of approximately HK$1,460,000 (the “Acquisition”). The consideration of the Acquisition has been fully settled by the Group to the vendor in January 2006 and since then the Group’s effective interest in South China Leasing has increased from 60% to 80%.

The net assets acquired in the transaction, and the goodwill arising, are as follows:

	Acquiree’s
	carrying
	amount before	Fair value
	combination	adjustment	Fair value
	HK$’000	HK$’000	HK$’000
Net assets acquired:
Interest in South China Leasing	4,818	–	4,818
Bank balances and cash	65	–	65
Other payables and accruals	(4,510)	–	(4,510)
	373	–	373
Goodwill			1,087
Total consideration, satisfied by cash			1,460
Net cash outflow arising on acquisition:
Cash consideration paid			(1,460)
Cash and cash equivalents acquired			65
			(1,395)

The goodwill arising on the acquisition of Valuework is attributable to the anticipated profitability and the anticipated future operating cash flows from the equity interest in South China Leasing.

Valuework did not contribute any revenue and loss before taxation to the Group for the period between the date of acquisition and the balance sheet date.

119

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

51. LITIGATION

On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), a subsidiary of the Group, entered into a co-production agreement (the “Co-production Agreement”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and P&PM, in which the Group has a 25% equity interest, in relation to an animated television series.

Since November 2004, P&PM and WAMC issued a summary summons and then modified their claims against GDC Entertainment in the Court of Commerce of Angouleme (France) for the breach of the Co-production Agreement. In June 2005, GDC Entertainment filed an appeal to the Court of Appeals of Bordeaux against the decision of the President of the Court of Commerce of Angouleme (France) from appointing an expert to audit the implementation of the Co-production Agreement. In February 2006, both P&PM and WAMC modified their claims to provisional amount from an aggregate of Euro 5 million to approximately Euro 2,281,000 and Euro 269,000, respectively, as damages, plus reimbursement of their entire expenses for the proceedings and compensation of Euro 100,000 for each use of any property or reference in relation to this animated television series and Euro 15,000 for each day of delay for transmission of possession of this animated television series after the conclusion of the judgment.

At the balance sheet date, both proceedings on the merits before the Court of Commerce of Angouleme (France) and summary proceedings before the Court of Appeals of Bordeaux are not yet concluded. In relation to the claims made by P&PM and WAMC, the Group’s French legal adviser, DLA Piper Rudnick Gray Cary is of the opinion that the judgment may not be favourable to GDC Entertainment but that the enforcement of the claims made by P&PM and WAMC should only be limited to the assets of GDC Entertainment. In the opinion of the Directors, as the proceedings may last for a long period of time before final conclusion and enforcement and no reliable estimate can be made to determine the possible outcomes from the proceeding judgements, and in view of the fact that GDC Entertainment did not hold material assets as at 30 June 2006 such that the claims made by P&PM and WAMC would not result in any significant outflow of resources from the Group upon the settlement of damages, if any, no provision for this litigation is considered necessary.

On the other hand, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of notice of arbitration dated 16 June 2005. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Co-production Agreement which entitled GDC Entertainment to terminate the same claim of damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration. P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether she has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006. The arbitrator has issued her decision and concluded that she has jurisdiction to determine the disputes referred to her in GDC Entertainment’s Notice of Arbitration. The arbitrator has further awarded costs in relation to the application in favour of GDC Entertainment. Since then, none of the parties have taken any steps to further advance the arbitration.

52. MAJOR NON CASH TRANSACTIONS

For the year ended 31 December 2005, the major non cash transactions were as follow:

(i) Part of the consideration of the acquisition of a subsidiary during the year was through share exchange at approximately HK$153,349,000. Further details of the acquisition are set out in Note 50.
(ii) The Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the leases of approximately HK$8,994,000.

For the year ended 31 December 2003 and 2004 and six months ended 30 June 2005 and 2006, there were no major non cash transactions.

120

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

53. OPERATING LEASES

The Group as lessor

Property rental income earned during the three years ended 31 December 2003, 2004 and 2005 and for the six months ended 30 June 2005 and 2006 was HK$13,910,000, HK$12,736,000, HK$5,411,000, HK$2,739,000 and HK$2,785,000. All of the properties held have committed tenants for the next one to three years.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth years inclusive	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 7,119 2,934 3,108 1,782 1,240 678 8,901 4,174 3,786	As at 30 June 2006 HK$’000 3,897 1,787
		5,684

The Group as lessee

Minimum lease payments paid under operating lease in respect of office premises during the Relevant Periods was HK$594,000, HK$841,000, HK$1,947,000, HK$785,000 and HK$1,414,000 respectively.

The Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth years inclusive	As at 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 – – 1,917 – – 4,936 – – 6,853	As at 30 June 2006 HK$’000 357 327
		684

Operating lease payments represent rentals payable by the Group for certain of its office premises, production studio, training centers, warehouse and staff quarters. Leases for properties are negotiated for a term ranging from one to five years with fixed rentals.

54. CAPITAL COMMITMENTS

				As at
	As at 31 December			30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
The Group’s share of the capital commitments
of its jointly controlled entity contracted but
not provided for	11,814	7,066	1,653	–

121

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

55. OTHER COMMITMENTS

				As at
	As at 31 December			30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Expenditure contracted for but not provided in
the financial statements in respect of film
production costs and advertising expenditure	–	11,207	1,690	–

56. SHARE OPTIONS SCHEMES

On 7 June 2002, the share option scheme (the “Old Scheme”) of the Company adopted on 8 September 1993 ceased to operate and a new share option scheme (the “New Scheme”) has been adopted to comply with the new requirements of Chapter 17 of the Listing Rules regarding share option schemes of a company. No share options under the Old Scheme were outstanding as at 1 January 2002 and no share option was granted by virtue of the Old Scheme for the period from 1 January 2002 and up to 7 June 2002, being the date of termination of the Old Scheme.

The Company operates the New Scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations and/or its associated companies. Eligible participants of the New Scheme included Directors (including executive and non-executive Directors), executives, officers, employees or shareholders of the Company or any of its subsidiaries or any of its associated companies and any suppliers, customers, consultants, advisers, agents, partners or business associates. The New Scheme became effective on 7 June 2002, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of unexercised share options currently permitted to be granted under the New Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at the date of the passing of such resolution. At 8 June 2004, the total number of shares available for issue under the New Scheme was 93,931,666, which represented approximately 10% of the Company’s shares in issue as at that date. The maximum number of shares issuable under share options to each eligible participant in the New Scheme within any 12month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Share options granted to a Director, executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive Directors. In addition, any share options granted to a substantial shareholder or an independent non-executive Director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of the grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 60 days from the date of the offer, upon payment of a nominal consideration of HK$1 in total by the grantee. An option may be exercised under the New Scheme at any time within 10 years from the date of the options granted.

The exercise price of the share options is determinable by the Directors, but may not be less than the higher of (i) the Stock Exchange’s closing price of the Company’s shares on the date of the offer of the share options; (ii) the average Stock Exchange’s closing price of the Company’s shares for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Company’s ordinary shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meeting.

Share options of the New Scheme were vested in three years from the date of grant and all these options were cancelled during the year ended 31 December 2005.

122

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

56. SHARE OPTIONS SCHEMES (Continued)

The following table discloses the details of the share options and movements in such holdings during each of three years ended 31 December 2003, 2004 and 2005:

There were no new share option scheme adopted nor movement of share options during the six months ended 30 June 2006.

2005 Exercise price Grantees Date of grant Exercisable period per share HK$ Directors 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 8.6.2004 (Note (b)) 0.82 Employees 6.3.2003 6.3.2003 – 5.3.2013 0.76 8.6.2004 (Note (b)) 0.82 Others 8.6.2004 (Note (b)) 0.82 2004 Exercisable Grantees Date of grant period Directors 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013 8.6.2004 (Note (b)) Former Directors 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013 Employees 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013 8.6.2004 (Note (b)) Others 23.8.2002 23.8.2002 – 6.6.2012 6.3.2003 6.3.2003 – 5.3.2013	At 1.1.2005 75 604 71,202,000 1,330,000 14,584,000 – 87,116,679 Exercise price per share HK$ 0.733 0.761 0.82 0.73 0.76 0.73 0.76 0.82 0.73 0.76	Transferred during the year (Note (a)) – – – – (14,584,000) 14,584,000 – At 1.1.2004 31,431,112 10,762,283 – 16,557,358 – 4,000,000 5,120,000 – 1,822,944 13,085,735 82,779,432	Number of share options Granted Exercised during during the year the year – – – – – – – – – – – – – – Number of share options Transferred Granted during during the year the year (Note (a)) (6,455,735) – (1,822,944) – – 71,202,000 8,278,679 – 8,278,679 – (4,000,000) – (3,460,000) – – 14,584,000 2,177,056 – (2,995,735) – – 85,786,000	Cancelled during the year – – (71,202,000) – – (14,584,000) (85,786,000) Exercised during the year (24,975,302) (8,938,735) – (24,836,037) (8,278,679) – (330,000) – (4,000,000) (10,090,000) (81,448,753)	At 31.12.2005 75 604 – 1,330,000 – –
					1,330,679

					At 31.12.2004 75 604 71,202,000 – – – 1,330,000 14,584,000 – –
					87,116,679

123

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

56. SHARE OPTIONS SCHEMES (Continued)

2003

Exercise Exercisable price Grantees Date of grant period per share HK$ Directors 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 Former Directors 23.8.2002 23.8.2002 – 6.6.2012 0.73 Employees 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76 Others 23.8.2002 23.8.2002 – 6.6.2012 0.73 6.3.2003 6.3.2003 – 5.3.2013 0.76	Number of share options Granted At during 1.1.2003 the year 31,431,112 – – 10,762,283 16,557,358 – 4,000,000 – – 5,120,000 1,822,944 – – 13,085,735 53,811,414 28,968,018	Exercised during the year – – – – – – – –	At 31.12.2003 31,431,112 10,762,283 16,557,358 4,000,000 5,120,000 1,822,944 13,085,735
			82,779,432

Notes:

(a) Transfer of share options upon the termination of services of certain Directors and employees during the year.
(b) The options granted in 2004 may be exercised in accordance with the terms of the relevant scheme as to:
(i) The first tranche of 34,314,400 options will be exercisable after the expiry of 12 months from the date of grant;
(ii) The second tranche of 25,735,800 options will be exercisable after the expiry of 24 months from the date of grant;
(iii) The third tranche of 25,735,800 options will be exercisable after the expiry of 36 months from the date of grant; and
(iv) The options will expire after ten years from date of grant i.e. 7 June 2014.

Consideration of HK$7 and HK$5 was received during the years 31 December 2003 and 2004 respectively from employees for taking up the options granted.

During the year ended 31 December 2004, options were granted on 8 June 2004. The estimated fair value of the options granted on the date is HK$40,319,000.

These fair values were calculated using the Black-Scholes pricing model. The inputs into the model were as follows:

	2004
Weighted average share price	HK$0.55
Exercise price	HK$0.82
Expected volatility	74%
Expected life	10 years
Risk-free rate	4.67%
Expected dividend yield	Nil

Expected volatility was determined by using the historical volatility of the Company’s share price over the previous 5 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioral considerations.

Pursuant to a board resolution passed on 30 December 2005, all share options granted under the New Scheme were cancelled and accordingly, the Group immediately recognised expenses of approximately HK$13,013,000.

For the year ended 31 December 2005, the Group recognised the total expenses of HK$25,456,000 (included approximately HK$13,013,000 recognised upon cancellation of the share options on 30 December 2005) (2004: HK$14,863,000) in relation to share options of the Company.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

57. RETIREMENT BENEFIT SCHEMES

The Group contributes to defined contribution retirement schemes which are available to all employees in Hong Kong and Singapore. The assets of the schemes are held separately from those of the Group in independently administered funds.

Pursuant to the relevant regulations of the government in the PRC, the subsidiaries in the PRC participate in the municipal government contribution scheme whereby the subsidiaries are required to contribute to the scheme for the retirement benefit of eligible employees. The municipal government of the PRC is responsible for the entire benefit obligations payable to the retired employees. The only obligation of the Group with respect to the scheme is to pay the ongoing contributions required by the scheme.

The retirement benefit costs represent gross contributions paid and payable by the Group to the schemes operated in Hong Kong, the PRC and Singapore (collectively the “Retirement Schemes”). Contributions totalling HK$95,000 and HK$91,000 payable to the Retirement Schemes at 31 December 2004 and 2005 respectively are included in other payables and accrued charges. There was no forfeited contribution throughout the Relevant Periods.

58. RELATED PARTY TRANSACTIONS

During the Relevant Periods and the six months ended 30 June 2005, the Group entered into the following transactions with Shougang Holding and with Shougang Holding’s subsidiaries:

Rental expenses charged by Winluck Properties Limited, a subsidiary of Shougang Holding Rental expenses charged by Gold Regal Limited, a subsidiary of Shougang Holding Consultancy expense charged by Shougang Holding Management fee charged by Shougang Concord International Enterprises Company Limited, a subsidiary of Shougang Holding Interest expense charged by Shougang Finance, a fellow subsidiary of the Company Interest expense charged by Bright Oceans Corporation (HK) Limited, a shareholder of the Company Interest expense charged by Mr. Anthony Francis Neoh, a shareholder of the Company Interest expense charged by Madam Chan Wing Yee, Betty, spouse of Mr. Anthony Francis Neoh	Year ended 31 December 2003 2004 2005 HK$’000 HK$’000 HK$’000 594 594 1,154 – 132 108 960 960 960 – – 300 – – 247 – – 261 – – 1,592 – – 69	Six months ended 30 June 2005 2006 HK$’000 HK$’000 577 692 – – 480 480 – 300 – 907 – – 552 1,159 25 49	Six months ended 30 June 2005 2006 HK$’000 HK$’000 577 692 – – 480 480 – 300 – 907 – – 552 1,159 25 49

			–

			480

			300

			907

			–

			1,159

			49

The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-controlled entities”). In addition, the Group itself is a part of a larger group of companies under Shougang Corporation which is controlled by the PRC government. The Directors are of the opinion that transactions with other state-controlled entities are not significant to the Group’s operations.

The Group has entered into various transactions, including deposits placements, borrowings and other general banking facilities, with certain banks and financial institutions which are state-controlled entities in its ordinary course of business. In view of the nature of those banking transactions, the Directors are of the opinion that separate disclosure would not be meaningful. The Directors are of the opinion that transactions with other statecontrolled entities are not significant to the Group’s operations.

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APPENDIX I

58. RELATED PARTY TRANSACTIONS (Continued)

Details of balances with related parties as at the balance sheet dates are set out in the consolidated balance sheet and in Notes 25, 41, 42, 43 and 59.

59. SUBSEQUENT EVENTS

(a) On 1 December 2006, the Group has entered into an agreement (the “Disposal Agreement”) with China Beijing Shougang Hotel Development Company, a company incorporated in the PRC and is a whollyowned subsidiary of Shougang Corporation and Shougang Holding (hereinafter collectively referred to as the “Purchasers”) in relation to the Disposal of Beijing Dongzhimen for a consideration of RMB170,000,000 (equivalent to approximately HK$164,360,000). Up to the date of this report, the Disposal of Beijing Dongzhimen has not yet completed.

According to the Disposal Agreement, in any event that the Purchasers and/or Beijing Dongzhimen effect substantial changes to the existing use and/or existing operating model of its principal underlying asset, East Lake Villas or to directly or indirectly dispose of East Lake Villas and/or the site where East Lake Villas is located or to redevelop East Lake Villas and/or the site within five years from the date of completion of the Disposal of Beijing Dongzhimen, the Group can, within three months from the date of occurrence of such changes, request the Purchasers to appoint a qualified valuer as approved by the Group and in accordance with the relevant requirements of the Listing Rules, to assess the new valuation of East Lake Villas and/or the site based on such changes and other principles as the parties may agree. The Purchasers shall, base on their proportional interests to be purchased from the Group upon the Disposal of Beijing Dongzhimen, pay to the Group the difference between the consideration of RMB170,000,000 and the 44% acquiring interest in Beijing Dongzhimen in the new valuation of East Lake Villas and/or the site within three months from the date of issuance of the new valuation report, if any. Up to the date of this report, the Purchasers have no intention to dispose of the 44% acquiring interest in Beijing Dongzhimen or to procure Beijing Dongzhimen to dispose of or to redevelop East Lake Villas and/or the site and/or to effect substantial change to the existing use and/or its existing operating model of East Lake Villas within five years from the date of completion of the Disposal of Beijing Dongzhimen.

The followings are the financial positions, results and cash flows of Beijing Dongzhimen which are included in the consolidated income statement, the consolidated balance sheets and the consolidated cash flow statements of the Group for the Relevant Periods and for the six months ended 30 June 2005. Subsequent to the Disposal of Beijing Dongzhimen, the Group would no longer equity account for the financial positions and results of Beijing Dongzhimen:

(i) In the consolidated income statement of the Group:

					Six months	Six months
		Year ended 31 December			ended 30 June
		2003	2004	2005	2005	2006
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(restated)	(restated)	(restated)	(Unaudited
					and restated)
	Share of result of a jointly
	controlled entity	(3,780)	(70,197)	428	337	723

(ii)	In the consolidated balance sheet of the Group:

				As at
	As at 31 December			30 June
	2003	2004	2005	2006
	HK$’000	HK$’000	HK$’000	HK$’000
	(restated)	(restated)
Interest in a jointly controlled entity	211,582	118,022	120,113	119,360

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APPENDIX I

(iii) In the consolidated cash flow statement of the Group:

Share of result of a jointly controlled entity Dividend received from a jointly controlled entity	Six months Year ended 31 December ended 30 June 2003 2004 2005 2005 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Unaudited) 3,780 70,197 (428) (337) (723) 3,290 1,269 2,375 2,375 3,898

(b) On 1 December 2006, GDC Technology, a non wholly-owned subsidiary of the Company, has entered into a conditional agreement with a subscriber (the “GDC Tech Subscriber”), which is a company incorporated in the BVI and wholly-owned by a substantial shareholder of the Company, where the GDC Tech Subscriber will subscribe 52,383,580 shares of GDC Technology, representing approximately 48.14% of the existing issued share capital of GDC Technology, at a consideration of US$6.5 million (equivalent to approximately HK$50,570,000) (the “GDC Tech Subscription”).

Upon completion of the GDC Tech Subscription, the Company’s effective shareholding interest in GDC Technology will be diluted from approximately 62.49% to 40.17% and it will continue to be a subsidiary of the Company as GDC holds approximately 83.34% of the existing issued capital of GDC Tech as at the date of this report and approximately 56.25% of the issued capital of GDC Tech as enlarged by the GDC Tech Subscription.

Up to the date of this report, the GDC Tech Subscription has not yet completed.

(c) On the same day, GDC, a non wholly-owned subsidiary of the Company, has also entered into a conditional agreement with a subscriber other than the GDC Tech Subscriber (the “GDC Subscriber”), which is a company incorporated in the BVI and wholly-owned by a substantial shareholder of the Company, where the GDC Subscriber will subscribe 40,000,000 shares of GDC (the “GDC Share”), representing approximately 4.99% of the existing issued share capital of GDC, at a subscription price of HK$0.2436 per GDC Share (the “GDC Subscription”). The total consideration of the subscription of GDC Shares by the GDC Subscriber is approximately HK$9,744,000.

Upon completion of the GDC Subscription, the Company’s shareholding interest in GDC would be diluted from approximately 74.98% (based on the existing issued capital of GDC as at the date of this report) to 71.41% (based on the issued capital of GDC as enlarged by GDC subscription), and GDC will continue to be a subsidiary of the Company.

Up to the date of this report, the GDC Subscription has not yet completed.

II. SUBSEQUENT FINANCIAL STATEMENTS

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

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

127

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

1. INDEBTEDNESS

Borrowings

As at the close of business on 31 October 2006, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$169,466,000, comprising secured borrowings of approximately HK$84,871,000 and unsecured borrowings of approximately HK$84,595,000. The secured borrowings were bank loans. The unsecured borrowings of approximately HK$84,595,000 included payables due to related parties of approximately HK$2,721,000, payable due to a fellow subsidiary of approximately HK$40,775,000, payables due to shareholders of approximately HK$24,862,000, obligations under finance leases of approximately HK$2,523,000 and payables due to independent third parties of approximately HK$13,714,000.

Pledge of assets

As at the close of business on 31 October 2006, the secured borrowings were secured by certain assets of the Group of approximately HK$116,058,000.

Debt securities

As at the close of business on 31 October 2006, the Group had no debt securities.

Contingent liabilities

Save as disclosed in the section headed “Litigation” in Appendix V to this circular, the Group did not have any material contingent liabilities as at the close of business on 31 October 2006.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 31 October 2006 any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

Foreign currency amounts have been translated at the approximate exchange rates prevailing at the close of business on 31 October 2006.

2. WORKING CAPITAL

Subject to the estimated net proceeds to be received and receivable upon the completion of the Disposal, the GDC Subscription and the GDC Tech Subscription, and after taking into account the Remaining Group’s internal resources and presently available banking facilities and in the absence of unforeseen circumstances, the Directors are of the opinion that the Remaining Group will have sufficient working capital to meet its present requirements and for the next twelve months from the date of this circular.

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APPENDIX II

3. MATERIAL ADVERSE CHANGE

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 31 December 2005 (being the date to which the latest audited financial statements of the Group were made up).

4. MANAGEMENT DISCUSSION AND ANALYSIS OF THE REMAINING GROUP

(i) For the year ended 31 December 2005

(a) Results of operations

The revenue from continuing operations of the Remaining Group amounted to approximately HK$43.2 million for the year ended 31 December 2005, representing an increase of approximately 200% as compared with that for the year 2004.

Revenue from property investment and management continued to decrease as the Remaining Group has disposed of certain investments in property in the second half of 2004, in order to carry out its plan of diversifying business. The Remaining Group started cultural recreation content provision business, through acquiring and establishing subsidiaries, and generated revenue. As the revenue generated by the new businesses has outweighed the decrease in revenue of property investment and management, the Remaining Group’s revenue increased.

Due to that one of the Remaining Group’s subsidiaries, GDC, was under restructuring after it is acquired by the Remaining Group and started a new business as a contractor for computer graphic (“CG”) production and creation, the new business has not generated gross profit after deducting certain starting up costs. Although the Remaining Group has generated gross profit in other businesses, including property investment, the Remaining Group has incurred gross losses in aggregate during the year ended 31 December 2005.

During the year ended 31 December 2005, other income amounted to approximately HK$3.7 million which was mainly consist of dividend income from an associate held for sale and interest income. Other income for the year 2004 was mainly interest income.

Through acquisition of GDC, the Remaining Group has entered into the business of digital content distribution and exhibitions, which include sales of digital cinema equipment. This business incurred distribution costs amounted to approximately HK$2.5 million during the year ended 31 December 2005.

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ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

During the year ended 31 December 2005, administrative expenses amounted to approximately HK$95.1 million, representing an increase of approximately 176% as compared with that of the year 2004 amounted to approximately HK$34.4 million. The increase in administrative expenses was mainly due to that the Remaining Group has acquired and established a number of subsidiaries to carry out its plan of diversifying business and more expenses was incurred to restructure and to implement control on the subsidiaries. At the same time, in order to improve the incentive scheme to the management and staff of the Remaining Group, most of the former share option scheme has been cancelled during the year ended 31 December 2005. Expenses related to share option increased as economic value of the share option cancelled which would originally be charged to the Remaining Group’s income statement throughout the vesting period has been totally charged as expense for the year ended 31 December 2005.

During the year ended 31 December 2005, finance costs amounted to approximately HK$6.9 million, representing an increase of approximately 229% as compared with that of the year 2004 amounted to approximately HK$2.1 million. It is mainly the result of that balance of borrowings from shareholder, bank and other corporations and individuals increased as the Remaining Group increased in aggregate its borrowings from these parties to finance its diversifying business and working capital requirements during the process of diversification.

The Remaining Group has been actualising its business plan of diversifying its core business into businesses other than property investment and management, namely financial service provision and cultural recreation content provision.

Property investment and management

Both rental income and resalable value of the Remaining Group’s investment properties in Hong Kong has been improving comparing with 2004. However, as the Remaining Group had disposed of certain investments in industrial property, the aggregate amount of rental income decreased.

Financial service provision

Finance Leasing

The Remaining Group has acquired 60 per cent interest in South China International Leasing Company Limited (“South China Leasing”) during the year ended 31 December 2005. In addition, the Remaining Group has agreed with a third party to acquire its entire equity interest in Valuework Investment Holdings Limited (“Valuework”), a company incorporated in the British Virgin Islands with limited liability and held 20% equity interest of South China Leasing, for a consideration of approximately RMB1.5 million, or equivalent to approximately HK$1.46 million. As at 31 December 2005, although the transfer has been documented by an instrument of transfer, the Remaining Group has not yet paid the consideration. Accordingly, the Remaining Group has not yet recognised its control on the 100% equity interest in Valuework and its indirect 20% equity interest in South China

130

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Leasing in its accounting records. During the year ended 31 December 2005, business of South China Leasing was restructured and streamlined and resumed generating finance lease income from July 2005.

Financial Investment

To explore financial service provision business, the Remaining Group through its wholly owned subsidiary, 首方投資管理（深圳）有限公司 (“Capital Steel”), utilising its own fund, actively made financial service business such as asset custodian and project financial investment, as well as providing clients consultancy service such as design and evaluation of merger and acquisition and bank financing scheme. By the end of the year 2005, Capital Steel has signed an memorandum of cooperation on asset management with a state-owned asset management company and been successfully making a direct financial investment amounted to RMB30 million in a project and generating income within the same year.

Cultural recreation content provision

By a voluntary conditional share exchange offer, the Remaining Group acquired approximately 82.22% interest in GDC, a group of companies listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited and mainly engaged in creation and production of CGs, distribution and exhibition of digital content, and training of CG artists. To comply with the requirements of the GEM Listing Rules in respect of maintaining minimum public floating of 25%, the Remaining Group placed out shares of GDC held by the Remaining Group equivalent to approximately 7.24% of GDC’s share capital in September 2005. After the voluntary conditional share exchange offer being completed, the Remaining Group reorganised GDC’s business and expected it will generate positive return in the foreseeable future.

During the year ended 31 December 2005, through subsidiaries other than GDC, the Remaining Group started providing cultural recreation content, including movies and television drama series and generating revenue.

(b) Liquidity, financial resources and capital structure

The Remaining Group had bank balances and cash and pledged bank deposits of approximately HK$36.3 million as at 31 December 2005 (2004: HK$185.2 million) which were mainly denominated in Hong Kong dollars and Renminbi. The decrease was mainly because of cash were used in operating activities of the Remaining Group.

The Remaining Group’s bank borrowings and other banking facilities utilised amounted to approximately HK$91.2 million as at 31 December 2005 which comprised approximately HK$48.0 million and HK$43.2 million repayable within one year and repayable more than one year as at 31 December 2005 respectively. The bank loans and banking facilities utilised are variable-rate borrowings which carry interest at Hong Kong Interbank Offered Rate (“HIBOR”) plus a premium per annum.

131

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Approximately HK$66.2 million and HK$25.0 million of the bank borrowings and other banking facilities utilised outstanding at 31 December 2005 were secured and unsecured respectively. The Remaining Group’s bank borrowings were secured by pledged bank deposits, investment properties, land and buildings with carrying value of approximately HK$16.5 million, HK$85.5 million, HK$1.7 million and HK$0.8 million as at 31 December 2005 respectively.

Based on the carrying value of and the consideration for the Transferred Interests, the Directors expect that the gearing ratio of the Remaining Group would be improved.

(c) Foreign exchange exposure

The normal operations and investments of the Remaining Group are in Hong Kong and the PRC with revenue and expenditure denominated in Renminbi, Hong Kong dollars and United States dollars. The Renminbi income from the PRC and United States dollar incomes from areas outside the PRC and Hong Kong are mainly remitted to Hong Kong at the prevailing official exchange rate. Given the stability of the official exchange rates among Hong Kong dollars, Renminbi and United States dollars, the Directors believe that the Remaining Group will not be subject to any significant exposure associated with fluctuation in exchange rates under foreseeable circumstances. The Remaining Group has not hedged against any foreign currency fluctuations.

(d) Material acquisitions and disposals

In September 2004 and May 2005, the Remaining Group acquired 40% and 20% equity interest respectively of South China Leasing.

In February and March 2005, the Remaining Group acquired in aggregate 658,466,023 shares, representing approximately 82.22% of the issued share capital, of GDC. On 7 September 2005, to maintain the minimum public floating of 25% as required by the GEM Listing Rules, the Remaining Group placed 58,000,000 shares, representing approximately 7.24% of the issued share capital, of GDC to independent third parties.

(e) Employees and remuneration policies

As at 31 December 2005, the Remaining Group employed 410 full time employees. The Remaining Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employee share option scheme are also available to the employees of the Remaining Group. Remuneration packages are reviewed either annually or by special increment.

During the year ended 31 December 2005, the Company and its subsidiaries has not paid or committed to pay any amount as an inducement to join or upon joining the Company and/or its subsidiaries to any individual.

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ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

(f) Contingent liabilities

Save as disclosed in the section headed “Litigation” in Appendix V to this circular, the Remaining Group did not have any material contingent liability as at 31 December 2005.

(g) Order book

By nature of business, the Remaining Group does not maintain an order book.

(ii) For the six months ended 30 June 2006

(a) Results of operations

The unaudited revenue from continuing operations of the Remaining Group amounted to approximately HK$31.2 million for the six months ended 30 June 2006, increased for approximately 144 per cent as compared with the corresponding period of the year 2005.

Revenue from property investment and management was approximate to that of the corresponding period of the year 2005. Due to that the Remaining Group’s strategy of diversifying business was gradually carried out and won initial success, the revenue from each of the Remaining Group’s cultural recreation content provision and CG training businesses has grew for more than one hundred per cent. For this reason, the aggregate revenue of the Remaining Group recorded significant growth.

Due to that one of the Remaining Group’s subsidiaries, GDC, was under restructuring after it was acquired by the Remaining Group and started a new business as a contractor for CG creation and production during the corresponding period of the year 2005, the new business did not generate gross profit after deducting certain starting up costs at that time. It resulted in a gross loss for the Remaining Group being recorded during the corresponding period of the year 2005. During the six months ended 30 June 2006, as the CG creation and production contractor business started contributing gross profit, while other businesses maintained contributing gross profits, the Remaining Group as a whole recorded a gross profit.

During the six months ended 30 June 2006, other income amounted to approximately HK$12.2 million, increased for approximately 838% comparing with the corresponding period of the year 2005. The other income mainly consisted of investment income generated by the Remaining Group’s asset management division, which started normal operation in the second half of the year 2005 and therefore started contributing income during the six months ended 30 June 2006. The remaining balance of other income mainly consists of interest income and gain on disposal of investments held for trading, being approximate to the corresponding period of the year 2005.

133

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

During the six months ended 30 June 2006, distribution costs amounted to approximately HK$4.1 million, increased for approximately 242% comparing with the corresponding period of the year 2005. The main reason of the increase of distribution costs was that the Remaining Group was continuing to explore the business of sales of digital cinema equipment; and, at the same time, the Remaining Group incurred during this period non-recurring promotion expenses for the release of an animation movie.

During the six months ended 30 June 2006, administrative expenses amounted to approximately HK$27.7 million, decreased for approximately 26.7% comparing with the corresponding period of the year 2005. During the corresponding period of the year 2005, the Remaining Group incurred professional fee expenses of acquiring subsidiaries and expenses related to restructuring the subsidiaries because of carrying out its strategy of diversifying business. During the six months ended 30 June 2006, as the Remaining Group was focused at improving business of each of its divisions, to carrying out its strategy of diversifying business, the non-recurring expenses of acquisition and restructuring were saved.

During the six months ended 30 June 2006, gain on increase in fair value of investment properties amounted to approximately HK$5.8 million, decreased for approximately 44% comparing with the corresponding period of the year 2005, mainly because of that appreciation of property market as a whole in Hong Kong had been slowed down.

During the six months ended 30 June 2006, finance costs amounted to approximately HK$5.1 million, increased for approximately 55% comparing with the corresponding period of the year 2005. The increase in finance costs was mainly because of that the Remaining Group was still in the investment stage of carrying out its strategy of diversifying its business, that most of the divisions required investment of funding and some of them were yet to contribute cash return. For this reason, the Remaining Group needed increment of external financing to support its daily operation and investment.

During the six months ended 30 June 2005, the Remaining Group incurred an impairment loss of goodwill amounted to approximately HK$130.0 million. During the six months ended 30 June 2006, there was no transaction of similar nature.

During the six months ended 30 June 2006, although the financial results of the Remaining Group had had significant improvement, taxable profits were not increased to a great extent, therefore income tax expense was approximate to the corresponding period of the year 2005.

During the six months ended 30 June 2006, profit from discontinued operation amounted to approximately HK$20.4 million. The operation means the finance leasing business the Remaining Group operated through South China Leasing. During the six months ended 30 June 2006, due to that the Remaining Group had induced a new investor to South China Leasing to strengthen its capital structure in order to speed up its development, the Remaining Group’s interest in South China Leasing, direct and indirect, has been diluted to 50%. South China Leasing was therefore changed from a subsidiary to an associate of the Remaining Group. Its net result of operation is disclosed as the discontinued operation.

134

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

However, the Remaining Group will not only continue to operate finance leasing business through South China Leasing, but also speed up the development of the business. The profit was mainly come from profit on disposal arisen from dilution of the Remaining Group’s interest in South China Leasing.

The Remaining Group continued actualising its strategy of diversifying its core business into businesses other than property investment and management, namely financial service provision and cultural recreation content provision. Such strategy of diversifying business has won initial success.

Cultural recreation content provision

During the six months ended 30 June 2006, the Remaining Group has launched several television series and movies, among which a movie invested and produced jointly with independent third parties, Crazy Stone, became the one of those of the highest box office income among all movies released in the year 2006 in the PRC. The television series produced by the Remaining Group have been broadcasted on major television channels including China Central Television.

The Remaining Group’s strategy of entering into the business of contractor of CG creation and production, through GDC, has been proved to be suitable for the Remaining Group. During the six months ended 30 June 2006, GDC’s revenue grew significantly. At the same time, the Remaining Group has successfully turned gross loss of the related business in the corresponding period in the year 2005 into gross profit for the six months ended 30 June 2006. Further, the Remaining Group’s capability of CG creation and production not only recognised by its clients, but also the industry in general. During the six months ended 30 June 2006, the Remaining Group’s short film Peach Blossom Garden won the Golden Awards of “Digital Conference 6+2”, a well-known award of digital content in Asia created by TBS of Japan. It is the first time ever a Chinese studio had won this prestigious reward.

Financial service provision

Finance leasing

During the six months ended 30 June 2006, the Remaining Group operated finance leasing business through South China Leasing. During the six months ended 30 June 2006, to strengthen South China Leasing’s capital structure in order to speed up its development, the Remaining Group induced a new investor to South China Leasing. The Remaining Group’s interest in South China Leasing, direct and indirect, has been diluted to 50%. South China Leasing was therefore changed from a subsidiary to an associate of the Remaining Group. However, the Remaining Group will not only continue to operate finance leasing business through South China Leasing but also speed up the development of the business. During the six months ended 30 June 2006, South China Leasing’s amount of contract signed grew significantly.

135

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

Financial investment

The Remaining Group continued operating the business of financial service through Capital Steel. The return of Capital Steel’s direct financial investment has been booked during the six months ended 30 June 2006 while the principal of the investment has been collected before the Latest Practicable Date. Capital Steel continued to look for investment opportunities, and simultaneously provide financial services; several project were being negotiated, including one of assisting a bank in the PRC to restructure debts of the bank’s client.

Property Investment and Management

Both rental income and resalable value of the Remaining Group’s investment properties in Hong Kong and the PRC have been improving slightly comparing with 2005. The Remaining Group was still receiving stable cash flow from rental income.

(b) Liquidity, financial resources and capital structure

The Remaining Group had bank balances and cash amounted to approximately HK$48.2 million as at 30 June 2006 which were mainly denominated in Hong Kong dollars and Renminbi. The increase was mainly the combined result of that (i) the Remaining Group had reserved approximately HK$14.4 million at 31 December 2005 to restructure/ renew bank borrowings and paid the reserve after 31 December 2005; (ii) the Remaining Group had generated net cash inflow during the period; and, (iii) the Remaining Group had raised fund from a fellow subsidiary to finance the Remaining Group’s development.

The Remaining Group’s borrowings amounted to approximately HK$81.9 million as at 30 June 2006 (31 December 2005: HK$119.8 million) which comprised approximately HK$31.9 million and HK$50.0 million repayable within and after twelve months after 30 June 2006 respectively. All bank loans bear interest at market rates and are repayable over a period of five years.

The bank borrowings amounted to HK$50.0 million outstanding at 30 June 2006 were secured by investment properties and land and buildings with carrying value of approximately HK$70.0 million in aggregate.

Based on the carrying value of and the consideration for the Transferred Interests, the Directors expect that the gearing ratio of the Remaining Group would be improved.

(c) Foreign exchange exposure

136

ADDITIONAL FINANCIAL INFORMATION ON THE GROUP

APPENDIX II

the Remaining Group will not be subject to any significant exposure associated with fluctuation in exchange rates under foreseeable circumstances. The Remaining Group has not hedged against any foreign currency fluctuations.

(d) Material acquisition and disposals

In June 2006, after a series of restructuring, the Remaining Group’s interest in South China Leasing was diluted to 50%. South China Leasing became an associate to the Group since then.

(e) Employees and remuneration policies

As at 30 June 2006, the Remaining Group employed 403 full time employees. The Remaining Group remunerated its employees mainly with reference to the prevailing market practice, individual performance and experience. Other benefits such as medical coverage, insurance plan, mandatory provident fund, discretionary bonus and employee share option scheme are also available to the employees of the Remaining Group. Remuneration packages are reviewed either annually or by special increment.

During the six months ended 30 June 2006, the Company and its subsidiaries has not paid or committed to pay any amount as an inducement to join or upon joining the Company and/or its subsidiaries to any individual.

(f) Contingent liabilities

Save as disclosed in the section headed “Litigation” in Appendix V to this circular, the Remaining Group did not have any material contingent liability as at 30 June 2006.

(g) Order book

By nature of business, the Remaining Group does not maintain an order book.

137

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

1. UNAUDITED PRO FORMA BALANCE SHEET OF THE REMAINING GROUP UPON COMPLETION OF DISPOSAL

(A) Introduction

The unaudited pro forma balance sheet of the Remaining Group has been prepared to illustrate the effect of the Disposal.

The unaudited pro forma balance sheet of the Remaining Group has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Disposal as if the Disposal took place on 30 June 2006.

The unaudited pro forma balance sheet of the Remaining Group is based upon the audited consolidated balance sheet of the Group as at 30 June 2006, which has been extracted from the audited consolidated financial statements of the Group for the six months ended 30 June 2006 set out in Appendix I to this circular, after making pro forma adjustments relating to the Disposal that are (i) directly attributable to the transaction; and (ii) factually supportable.

The unaudited pro forma balance sheet of the Remaining Group is based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma balance sheet of the Remaining Group does not purport to describe the actual financial position of the Remaining Group that would have been attained had the Disposal been completed on 30 June 2006. The unaudited pro forma balance sheet of the Remaining Group does not purport to predict the future financial position of the Remaining Group.

The unaudited pro forma balance sheet of the Remaining Group should be read in conjunction with the historical information of the Group as set out in the audited consolidated financial statements of the Group for the six months ended 30 June 2006 set out in Appendix I to this circular and other financial information included elsewhere in this circular.

The statement has been prepared by the Directors for illustrative purpose only and because of its nature, it may not give a true picture of financial position of the Remaining Group following completion of the Disposal.

138

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

(B) Unaudited Pro Forma Assets and Liabilities Statement

	The Group			Unaudited
	as at	Pro forma		Remaining
	30 June 2006	Adjustment		Group
	HK$’000	HK$’000	Note	HK$’000
Non-current assets
Investment properties	132,900			132,900
Property, plant and equipment	8,888			8,888
Prepaid lease payments	1,666			1,666
Interest in a jointly controlled entity	119,360	(119,360)	(1)	–
Interest in an associate	2,019			2,019
Advance to an associate	43,553			43,553
	308,386			189,026
Current assets
Inventories	1,089			1,089
Production work in progress	11,373			11,373
Trade receivables	3,009			3,009
Prepayments, deposits and
other receivables	40,734			40,734
Receivables due from purchasers	–	66,000	(1)	66,000
Amount due to an associate	21,970			21,970
Prepaid lease payments	32			32
Investments held for trading	3,672			3,672
Bank balances and cash	48,245	95,070	(1)	143,315
	130,124			291,194
Current liabilities
Trade payables	1,724			1,724
Other payables and accruals	35,904			35,904
Income received in advance	16,030			16,030
Rental and management fee
deposits received	1,043			1,043
Amount due to a fellow subsidiary	426			426
Amount due to a related party	2,380			2,380
Amounts due to shareholders	25,888			25,888
Amount due to an associate	19			19
Tax liabilities	2,386			2,386
Borrowings	31,902			31,902
Obligations under finance leases	2,749			2,749
	120,451			120,451
Net current assets	9,673			170,743
Total assets less current liabilities	318,059			359,769

139

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

	The Group			Unaudited
	as at	Pro forma		Remaining
	30 June 2006	Adjustment		Group
	HK$’000	HK$’000	Note	HK$’000
Non-current liabilities
Amount due to former shareholder
of a subsidiary	805			805
Amount due to a fellow subsidiary	40,000			40,000
Borrowings	50,000			50,000
Obligations under finance leases	853			853
Deferred tax liabilities	382			382
	92,040			92,040
Net assets	226,019			267,729
Capital and reserves
Share capital	11,369			11,369
Reserves	211,039	41,710	(1)	252,749
Equity attributable to equity holders
of the parent	222,408			264,118
Minority interests	3,611			3,611
Total equity	226,019			267,729

Notes:

The adjustment reflects the gain on the Disposal of approximately HK$48,737,000 to be recognised by the Remaining Group which is calculated based on:
(i) the interest in BDIA shared by the Group of approximately HK$119,360,000 as at 30 June 2006;
(ii) the consideration of RMB170,000,000 (equivalent to approximately HK$165,000,000) and the estimated expenses to be incurred in connection with the Disposal of approximately HK$3,930,000. Of the consideration, approximately RMB102,000,000 (equivalent to approximately HK$99,000,000) will be settled in cash upon the Completion, representing 60% of the consideration and the remaining 40% of the consideration of approximately RMB68,000,000 (equivalent to approximately HK$66,000,000) will be settled in cash three months from the date of Completion in accordance with the terms of the Agreement; and
(iii) the release of translation reserve of approximately HK$7,027,000.
For illustrative purposes, amounts expressed in RMB for the purpose of the unaudited pro forma assets and liabilities statement of the Remaining Group have been translated into HK$ at the rate of HK$1=RMB1.0303.

140

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

2. UNAUDITED PRO FORMA INCOME STATEMENT AND UNAUDITED PRO FORMA CASH FLOW STATEMENT OF THE REMAINING GROUP UPON COMPLETION OF DISPOSAL

(A) Introduction

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Remaining Group have been prepared to illustrate the effect of the Disposal.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Remaining Group have been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Disposal as if the Disposal had taken place at the beginning of the year ended 31 December 2005.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Remaining Group are based upon the audited consolidated income statement and audited consolidated cash flow statement of the Group for the year ended 31 December 2005, which have been extracted from the consolidated financial statements of the Group for the year ended 31 December 2005 set out in Appendix I to this circular, after making pro forma adjustments relating to the Disposal that are (i) directly attributable to the transaction; and (ii) expected to have a continuing impact on the Remaining Group; and (iii) factually supportable.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Remaining Group are based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma income statement and unaudited pro forma cash flow statement of the Remaining Group does not purport to describe the actual results and cash flow of the Remaining Group that would have been attained had the Disposal been completed at the beginning of the year ended 31 December 2005 or to predict the future results and cash flow of the Remaining Group.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Remaining Group should be read in conjunction with the audited consolidated financial statement of the Group for the year ended 31 December 2005 set out in Appendix I to this circular and other financial information included elsewhere in this circular.

The statement has been prepared by the Directors for illustrative purpose only and because of their nature, they may not give a true picture of the results and the cash flow of the Remaining Group had the Disposal actually occurred at the beginning of the year ended 31 December 2005 or for any future period.

141

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

(B) Unaudited Pro Forma Income Statement

	The Group
	for the
	year ended			Pro Forma
	31 December	Pro Forma		Remaining
	2005	Adjustments		Group
	HK$’000	HK$’000	Notes	HK$’000
Continuing operations
Revenue	43,185			43,185
Cost of sales	(42,947)			(42,947)
Allowance for production work
in progress	(24,712)			(24,712)
Gross loss	(24,474)			(24,474)
Other income	3,724			3,724
Distribution costs	(2,535)			(2,535)
Administrative expenses	(95,063)			(95,063)
Increase in fair value of investment
properties	14,400			14,400
Decrease in fair value of investments
held for trading	(3,099)			(3,099)
Gain on disposal of investments
held for trading	919			919
Finance costs	(6,930)			(6,930)
Share of result of a jointly
controlled entity	428	(428)	(2)	–
Loss on disposal of partial interest
in a subsidiary	(12,345)			(12,345)
Share of result of an associate	(248)			(248)
Impairment loss on goodwill arising
from acquisition of a subsidiary	(191,457)			(191,457)
Gain on disposal of a jointly
controlled entity	–	38,796	(1)	38,796
Loss before taxation	(316,680)			(278,312)
Taxation	(2,372)			(2,372)
Loss for the year
from continuing operations	(319,052)			(280,684)
Discontinued operation
Loss from discontinued operation	(1,575)			(1,575)
Loss for the year	(320,627)			(282,259)
Attributable to:
Equity holders of the parent	(316,796)			(278,428)
Minority interests	(3,831)			(3,831)
	(320,627)			(282,259)

Loss per share
Basic
From continuing and
discontinued operations	(HK28.57 cents)		(3)	(HK25.11 cents)
For continuing operations	(HK28.43 cents)		(3)	(HK24.97 cents)
Diluted	N/A			N/A

142

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

(C) Unaudited Pro Forma Cash Flow Statement

	The Group
	for the
	year ended			Pro Forma
	31 December	Pro Forma		Remaining
	2005	Adjustments	Note	Group
	HK$’000	HK$’000		HK$’000
OPERATING ACTIVITIES
Loss before taxation from
continuing and discontinued
operations	(318,255)	38,368	(4)	(279,887)
Adjustments for:
Impairment loss on goodwill arising
from acquisition of a subsidiary	191,457			191,457
Share-based payment expenses	25,456			25,456
Allowance for production work
in progress	24,712			24,712
Depreciation of property, plant
and equipment	2,840			2,840
Amortisation of intangible asset	545			545
Finance costs	7,007			7,007
Allowance for bad and doubtful debts	521			521
Allowance for inventories	2,645			2,645
Impairment loss of property,
plant and equipment	2,350			2,350
Gain on disposal of property,
plant and equipment	(36)			(36)
Loss on disposal of partial interest
in a subsidiary	12,345			12,345
Increase in fair value of investment
properties	(14,767)			(14,767)
Amortisation of prepaid lease payments	134			134
Interest income	(976)			(976)
Dividend income from on associate
held for sale	(1,800)			(1,800)
Dividend income from equity investments	(162)			(162)
Share of result of a jointly controlled entity	(428)	428	(4)	–
Share of result of an associate	248			248
Gain on disposal of a jointly
controlled entity	–	(38,796)	(4)	(38,796)

143

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

Operating cash flows before movements in working capital Increase in inventories Decrease in production work in progress Increase in finance lease receivables Increase in trade receivables Decrease in prepayments, deposits and other receivables Decrease in investments held for trading Increase in trade payables Decrease in other payables and accruals Increase in income received in advance Decrease in rental and management fee deposits received Increase in security deposits received Cash used in operations Hong Kong Profits Tax paid Tax refunded Interest paid Bank facility arrangement fee paid NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES Proceeds from disposal of a jointly controlled entity Decrease in pledged bank deposits Proceeds from disposal of partial interest in a subsidiary Proceeds from disposal of held-to-maturity investment Acquisition of subsidiaries Dividend received from an associate held for sale Dividend received from a jointly controlled entity Interest received Proceed from disposal of property, plant and equipment Proceeds from disposal of other non-current asset Dividends received from equity investments Acquisition of an associate held for sale Purchases of property, plant and equipment Acquisition of prepaid lease payments	The Group for the year ended 31 December Pro Forma 2005 Adjustments Note HK$’000 HK$’000 (66,164) (5,234) 1,787 (67,708) (86) 23,702 6,998 993 (49,349) 2,504 (600) 1,948 (151,209) (143) 69 (1,746) (528) (153,557) – 156,251 (4) 49,045 12,760 9,369 8,778 7,204 2,375 (2,375) (4) 976 434 410 162 (28,816) (14,667) (4,881)	Pro Forma Remaining Group HK$’000 (66,164) (5,234) 1,787 (67,708) (86) 23,702 6,998 993 (49,349) 2,504 (600) 1,948 (151,209) (143) 69 (1,746) (528) (153,557) 156,251 49,045 12,760 9,369 8,778 7,204 – 976 434 410 162 (28,816) (14,667) (4,881)

144

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

NET CASH FROM INVESTING ACTIVITIES FINANCING ACTIVITIES Advance from shareholders Advance from a fellow subsidiary New loans raised Capital contribution from minority shareholders Advance from a related party Repayment of borrowings Repayment of obligations under finance leases NET CASH FROM FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash Bank overdrafts		The Group for the year ended 31 December Pro Forma 2005 Adjustments Note HK$’000 HK$’000 43,149 26,062 24,260 21,196 3,599 3,038 (65,800) (5,517) 6,838 (103,570) 119,683 1,478 (4,038) (4) 17,591 19,841 149,838 (4) (2,250) 17,591		Pro Forma Remaining Group HK$’000 197,025 26,062 24,260 21,196 3,599 3,038 (65,800) (5,517) 6,838 50,306 119,683 (2,560) 167,429 169,679 (2,250) 167,429

145

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

Notes:

The adjustment reflects the gain on the Disposal of HK$38,796,000 to be recognised by the Remaining Group which is calculated based on:
(i) the interest in BDIA shared by the Group approximately of HK$118,022,000 as at 1 January 2005;
(ii) the consideration of RMB170,000,000 (equivalent to approximately HK$160,181,000) and the estimated expenses to be incurred in connection with the Disposal if approximately HK$3,930,000. Of the consideration, approximately RMB102,000,000 (equivalent to approximately HK$96,109,000) will be settled in cash upon the Completion, representing 60% of the consideration and the remaining 40% of the consideration of approximately RMB68,000,000 (equivalently to approximately HK$64,072,000) will be settled in cash three months from the date of Completion in accordance with the terms of the Agreement; and
(iii) the release of translation reserve of approximately HK$567,000.
The adjustment reflects the exclusion of share of result and the effect of foreign exchange rate changes of BDIA for the year ended 31 December 2005 as if the Disposal had been completed on 1 January 2005.
The calculation of pro forma loss per share for continuing and discontinued operations at 31 December 2005 was based on the pro forma loss attributable to the equity holders of the parent of the Remaining Group of approximately HK$278,428,000 and the weighted average number of shares issued for the year ended 31 December 2005 of approximately 1,108,749,000 shares.

The calculation of pro forma loss per share for continuing operations at 31 December 2005 was based on the pro forma loss attributable to the equity holders of the parent of the Remaining Group of approximately HK$276,853,000 and the weighted average member of shares issued for the year ended 31 December 2005 of approximately 1,108,749,000 shares.

No diluted loss per share has been presented because the Company does not have any dilutive potential option for the year ended 31 December 2005.

The adjustments reflect the cash flow of BDIA for the year ended 31 December 2005 excluded from the Group.
For illustrative purpose, amounts expressed in RMB for the purpose of the unaudited pro forma income statement and cash flow statement of the Remaining Group have been translated into HK$ at the rate of HK$1=RMB1.0613.

146

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

3. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

==> picture [76 x 59] intentionally omitted <==

27 December 2006

The Board of Directors Shougang Concord Grand (Group) Limited 6/F, Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information of Shougang Concord Grand (Group) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the Directors of the Company (the “Directors”) for illustrative purposes only, to provide information about how the very substantial disposal of 44% interest in the registered capital of a jointly controlled entity, Beijing Dongzhimen International Apartment Co., Limited might have affected the financial information presented, for inclusion in Appendix III of the circular dated 27 December 2006 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on pages 138 to 146 to the Circular.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND REPORTING ACCOUNTANTS

It is the responsibility solely of the Directors to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

147

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE REMAINING GROUP

APPENDIX III

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the Directors. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the Directors on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the Directors, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of:

the financial position of the Group as at 30 June 2006 or any future date; or
the results and cash flows of the Group for the year ended 31 December 2005 or any future period.

OPINION

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

148

VALUER’S REPORT

APPENDIX IV

The following is the text of the letter and certificate of Capital Worth received from Sallmanns (Far East) Limited and addressed to the Company in connection with their opinion of the Capital Worth as at 31 October 2006 of the East Lake Villas for the purpose of inclusion in this circular.

==> picture [128 x 58] intentionally omitted <==

==> picture [31 x 56] intentionally omitted <==

27 December 2006

The Directors

Shougang Concord Grand (Group) Limited 6/F, Bank of East Asia Harbour View Centre 56 Gloucester Road

Wanchai Hong Kong

Dear Sirs,

In accordance with your instructions to assess the Capital Worth to the Investor of the property in the People’s Republic of China (the “PRC”) in which Shougang Concord Grand (Group) Limited (hereinafter referred to as the “Company”) and its subsidiary (hereinafter together referred to as the “Group”) have interests which are to be acquired by China Beijing Shougang Hotel Development Company (hereinafter referred to as “Shougang Hotel”) and Strength Up Investments Limited (hereinafter referred to as “Strength Up”), we confirm that we have carried out an inspection, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the Capital Worth to the Investor of the relevant property interests as at 31 October 2006 (hereinafter referred to as the “relevant date”).

The property known as East Lake Villas details of which are set out hereinafter, is owned by Beijing Dongzhimen International Apartment Co., Limited (hereinafter referred to as “BDIA”), a company held 51% by Shougang Hotel, 5% by The East Asiatic Co. (China) Limited, an independent third party, and 44% by Grand Award Limited, a wholly-owned subsidiary of the Company. The Company advises that it does not have absolute control over the strategic direction and management of East Lake Villas and previously has been unable to dispose of its equity interest in BDIA and hence its underlying interests in the property without agreement from Shougang Hotel. We are also instructed by the Company that Shougang Hotel and Strength Up intends to continue the existing use, management and operation of the property without significant changes. The Company sees no probability of putting the property into any alternative use and believes that it is unlikely that BDIA will dispose of or redevelop East Lake Villas in the near future and as such, we are instructed to assess the Capital Worth to the Investor of the property on the basis of its existing use being held as a long term investment with no intention for disposal or redevelopment and on the assumption that the current strategies in relation to leasing, operation and management will remain unchanged. We are of the opinion that these strategies and the continuation of the existing operation of serviced apartments have considerably impaired the otherwise apparent unrestricted value of the property.

149

VALUER’S REPORT

APPENDIX IV

Capital Worth to the Investor is defined as the value of the property to a particular investor, or class of investors, for identified investment objectives. In assessing the Capital Worth of the property, we are herein instructed to assume that the investment objectives including, inter alia, the retention of the existing use and existing operation model of the property and the required rate of investment return of the prospective investor are identical to those of the Company. We wish to highlight that Capital Worth to the Investor as assessed by us does not represent the Market Value of the property.

We have assessed the Capital Worth to the Investor (hereinafter referred to as the “Capital Worth”) of the property as a fully operational and going-concern serviced-apartment development being held as a long term investment with no intention for disposal or redevelopment having regard to the trading accounts of the previous and current years and taking into account the estimated trading potential following consultation with the Company and current operator. We have assessed the Capital Worth by the Investment Method which is a method which incorporates capitalization of the historical net income derived from the business operation.

In undertaking the assessment of the Capital Worth, we have, in accordance with the instruction, assumed that there will be no material change in the current operation, leasing strategies and cost structures of East Lake Villas. When determining the capitalization rate for capitalization of the historical net income, we have based upon the Company’s required rate of investment return and have made appropriate adjustments with due regard to the operation results and trading potential of the property and the market situation. We have further assumed that the Business Licence of BDIA and its other licences and permits necessary for the continuous operation of the serviced-apartments will be renewed upon expiry without payment of monies of onerous amount.

In considering the property interests, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the RICS Appraisal and Valuation Standards (5th Edition May 2003) published by the Royal Institution of Chartered Surveyors; and the HKIS Valuation Standards on Properties (First Edition January 2005) published by the Hong Kong Institute of Surveyors.

We have relied to a very considerable extent on the information given by the Company and BDIA and have accepted advice given to us on such matters as tenure, income and expense information, leasing and operation, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and all other relevant matters.

We have been shown copies of various title documents including State-owned Land Use Rights Grant Contracts, State-owned Land Use Rights Certificates, Building Ownership Certificates, and official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing title to the property interest in the PRC and any material encumbrances that might be attached to the property interests or any lease amendments. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature, which could affect its value. We have relied considerably on the advice given by the Company’s PRC legal advisers – Hill & Co., concerning the validity of the BDIA’s title to the property interests.

150

VALUER’S REPORT

APPENDIX IV

We have not carried out detailed site measurements to verify the correctness of the site area in respect of the property but have assumed that the site areas shown on the documents and official site plan handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

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

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company and BDIA. We have also been confirmed by the Company and BDIA that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

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

Our certificate of Capital Worth is attached.

Yours faithfully, for and on behalf of

Sallmanns (Far East) Limited Paul L. Brown B.Sc. FRICS FHKIS Director

Note: Paul L. Brown is a Chartered Surveyor who has 23 years’ experience in the valuation of properties in the PRC and 26 years of property valuation experience in Hong Kong, the United Kingdom and the Asia-Pacific region.

151

VALUER’S REPORT

APPENDIX IV

CERTIFICATE OF CAPITAL WORTH

Property interest held for investment by the Group in the PRC

Property

Description and tenure

Capital Worth to the Investor in existing state Particulars of as at occupancy 31 October 2006 RMB

East Lake Villas East Lake Villas comprises two No. 35 Dongzhimenwai phases of development with a Avenue total site area of approximately Dongcheng District 44,225.79 sq.m. Beijing The PRC Phase I occupies an irregularshaped site with a site area of approximately 34,229 sq.m. upon which are constructed 36 villas of 2 or 3 storeys and 2 apartment buildings of 14 and 19-storey respectively, an 8-storey office building, a 3-storey club house and several low-rise ancillary blocks having a total gross floor area of approximately 42,404.13 sq.m.

The property is 366,000,000 currently held as office and serviced apartments for leasing and is subject to various tenancies. The total gross rent for October 2006 is approximately RMB8,934,000.

Phase II occupies an irregularshaped site with a site area of approximately 9,996.79 sq.m. on which are constructed two 18storey apartment buildings having a total gross floor area of approximately 31,910.03 sq.m.

Phase I was completed in various stages between 1989 and 1991 whilst Phase II was completed in 2001. Renovation of Phase I was completed in 2003.

The land use rights of Phase I were granted for respective terms of 40 years for the club house, 50 years for office uses and 70 years for villa, apartment and other uses, whilst Phase II were granted for a term expiring on 25 June 2070 for apartment uses.

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Notes:

Pursuant to a State-owned Land Use Rights Certificate, Jin Shi Dong She Wai Guo Yong (2003 Chu) Zi Di No. 10210 issued by Beijing Municipal People’s Government on 26 May 2003, the land use rights of a parcel of land of Phase I with a site area of approximately 34,229 sq.m. were granted to Beijing Dongzhimen International Apartment Co., Ltd. (北京東直門國際公寓有限公司 ) (hereinafter referred to as the “BDIA”) for composite uses for the following terms for the respective uses:

Uses Club house Office Residential	Expiry Date
	28 May 2042 28 May 2052 28 May 2072

According to a Building Ownership Certificate, Jin Fang Quan Zheng Shi Dong She Wai Zi Di No. 10137 issued by Beijing Land Resources and Housing Administrative Bureau on 26 May 2003, the building ownership title of the buildings in Phase I with a total gross floor area of approximately 42,404.13 sq.m. is held by BDIA.
Pursuant to a Land Use Right Certificate, Jin Shi Dong She Wai Guo Yong (2002 Chu) Zi Di No. 10205 issued by Beijing Municipal People’s Government on 8 November 2002, the land use rights of a parcel of land of Phase II with a site area of approximately 9,996.79 sq.m. were granted to BDIA for a term expiring on 25 June 2070 for “Apartment” uses.
According to a Building Ownership Certificate, Jin Fang Quan Zheng Shi Dong She Wai Zi Di No. 10131 issued by Beijing Land Resources and Housing Administrative Bureau on 8 November 2002, the building ownership title of the buildings in Phase II with a total gross floor area of approximately 31,910.03 sq.m. is held by BDIA.
We have been provided with a legal opinion regarding BDIA and the property interests by the Company’s PRC legal advisers, which contains, inter alia, the following:
a) BDIA is a sino-foreign equity joint venture which was formed by Shougang Hotel, The East Asiatic Co. (China) Limited and Grand Award Limited, which contributed 51% of its capital, 5% of its capital and 44% of its capital respectively; the profit of the company is to be shared amongst the shareholders of the company in accordance with the proportion of capital contributed by them respectively;
b) BDIA holds a valid business licence for operation for an operation period from 18 December 1986 to 17 August 2016; BDIA is allowed to conduct business including letting of offices, villas and apartments, food and beverage, fitness, massage and beauty services;
c) the land use rights and building ownership rights of the property are legally owned by BDIA;
d) BDIA has the right to occupy, lease, transfer and mortgage the property during the terms of the relevant land use rights without additional payment of any land premium or expenses other than the normal taxes and expenses;
e) Pursuant to a mortgage contract and 3 loan contracts, portion of the property is subject to a mortgage in favour of Huaxia Bank Beijing Shi Jing Shan Branch.

153

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Interests and short positions of the Directors in shares and underlying shares of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company 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 (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) were required, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(i) Long positions in Shares and underlying Shares:

Capacity in which
Name of Director
interests are held
Wang Qinghai
Beneficial owner
Cao Zhong
Beneficial owner
Cheng Xiaoyu
Beneficial owner
Yuan Wenxin
Beneficial owner
Leung Shun Sang, Tony
Beneficial owner

Number of Shares/
Percentage of
underlying Shares held in the Company
total interest as
Interests
to the issued
Interests in
under equity
share capital
Shares
derivatives
Total interests
of the Company*
8,278,679
–
8,278,679
0.73%
8,278,679
–
8,278,679
0.73%
8,278,679
–
8,278,679
0.73%
4,920,000
–
4,920,000
0.43%
8,278,000
679
8,278,679
0.73%

Unlisted cash settled options were granted pursuant to the Company’s share option scheme adopted on 7 June 2002 (the “Scheme”). Upon exercise of the share options in accordance with the Scheme, ordinary shares of HK$0.01 each in the share capital of the Company are issuable. The share options are personal to the respective Directors.

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(ii) Long positions in shares and underlying shares of GDC, an associated corporation of the Company:

Capacity in which
Name of Director
interests are held
Cao Zhong
Beneficial owner
Chen Zheng
Beneficial owner
Wang Tian
Beneficial owner
Cheng Xiaoyu
Beneficial owner
Yuan Wenxin
Beneficial owner
Leung Shun Sang, Tony
Beneficial owner
Liu Wei
Beneficial owner
Tam King Ching, Kenny
Beneficial owner
Zhou Jianhong
Beneficial owner

Number of shares/
Percentage of
underlying shares held in GDC
total interests
Interests
as to the
Interests
under equity
Total
issued share
in shares
derivatives
interests
capital of GDC*
–
8,008,200
8,008,200
1%
–
8,008,200
8,008,200
1%
–
800,820
800,820
0.1%
–
800,820
800,820
0.1%
–
800,820
800,820
0.1%
–
8,008,200
8,008,200
1%
–
800,820
800,820
0.1%
–
800,820
800,820
0.1%
–
800,820
800,820
0.1%

Unlisted physically settled options were granted pursuant to GDC’s share option scheme adopted on 18 July 2003 (the “GDC Scheme”). Upon exercise of the share options in accordance with the GDC Scheme, ordinary shares of HK$0.01 each in the share capital of GDC are issuable. The share options are personal to the respective Directors.
(iii) Long positions in shares and underlying shares of GDC Tech, an associated corporation of the Company:

Capacity in which Name of Director interests are held Cao Zhong Beneficial owner Chen Zheng Beneficial owner Leung Shun Sang, Tony Beneficial owner	Percentage of Number of shares/ total interests underlying shares held in GDC Tech as to the Interests issued share Interests under equity Total capital of in shares derivatives interests GDC Tech* 4,266,667 4,266,667 8,533,334 7.84% 4,266,667 4,266,667 8,533,334 7.84% 2,130,000 3,333 2,133,333 1.96%

Unlisted physically settled options were granted pursuant to GDC Tech’s share option scheme adopted on 19 September 2006 (the “GDC Tech Scheme”). Upon exercise of the share options in accordance with the GDC Tech Scheme, ordinary shares of HK$0.1 each in the share capital of GDC Tech are issuable. The share options are personal to the respective Directors.

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GENERAL INFORMATION

APPENDIX V

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the shares, underlying shares and debentures of the Company or any of its associated corporation (within the meaning of Part XV of the SFO) which were required (a) 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 (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

Save as disclosed in this circular, none of the Directors or proposed Director is a director or employee of a company which has an interest in the Shares and underlying Shares which would fall to be disclosed under the provisions of Division 2 and 3 of Part XV of the SFO.

(b) Directors’ service contracts

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

(c) Directors’ interests in competing businesses

As at the Latest Practicable Date, the interests of the Directors in the businesses (other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or any member of the Group) which were considered to compete or were likely to compete, either directly or indirectly, with the businesses of the Group were as follows:

	Name of entity whose	Description of businesses
	businesses were	of the entity which were
	considered to compete or	considered to compete or	Nature of interest
	likely to compete with the	likely to compete with	of the Director
Name of Director	businesses of the Group	the businesses of the Group	in the entity
Wang Qinghai	Shougang Corporation*	Property investment	Director
Cao Zhong	China Shougang International	Property investment	Director
	Trade and Engineering
	Corporation*

* Such businesses may be carried out through its subsidiaries or associates or by way of other forms of investments.

Save as disclosed above, as at the Latest Practicable Date, in so far as the Directors were aware, none of the Directors or their respective associates had any interest in a business that competed or was likely to compete with the business of the Group.

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GENERAL INFORMATION

APPENDIX V

(d) Directors’ interests in assets and contracts

None of the Directors had any direct or indirect interest in any assets which have been acquired or disposed or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, being the date to which the latest published audited accounts of the Group were made up.

None of the Directors was materially interested, directly or indirectly, in any contract or arrangements entered into by any member of the Group subsisting at the Latest Practicable Date and which was significant in relation to the business of the Group.

3. SUBSTANTIAL SHAREHOLDERS

(a) As at the Latest Practicable Date, according to the register kept by the Company pursuant to Section 336 of SFO, the following persons and companies (other than the Directors or chief executive of the Company) had an interest or short position in the Shares and the underlying Shares which would fall to be disclosed to the Company under the provisions of the Divisions 2 and 3 of Part XV of the SFO:

Long positions in the Shares:

			Percentage
			of interest
		Number	as to the
		of Shares	issued share
	Capacity in which	held in the	capital of the
Name of Shareholder	interests are held	Company	Company	Note(s)
Shougang Holding	Interests of controlled	465,753,673	40.97%	1
	corporations
Wheeling Holdings	Beneficial owner	430,491,315	37.87%	1
Limited (“Wheeling”)
Cheung Kong	Interests of controlled	133,048,717	11.70%	2, 3
(Holdings) Limited	corporations
(“Cheung Kong”)
Max Same Investment	Beneficial owner	91,491,193	8.05%	2
Limited (“Max Same”)
Li Ka-shing	Interests of controlled	133,048,717	11.70%	3
	corporations,
	founder of
	discretionary trusts

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APPENDIX V

			Percentage
			of interest
		Number	as to the
		of Shares	issued share
	Capacity in which	held in the	capital of the
Name of Shareholder	interests are held	Company	Company	Note(s)
Li Ka-Shing Unity	Trustee	133,048,717	11.70%	3
Trustee Company
Limited (“TUT1”)
Li Ka-Shing Unity	Trustee, beneficiary	133,048,717	11.70%	3
Trustee Corporation	of a trust
Limited (“TDT1”)
Li Ka-Shing Unity	Trustee, beneficiary	133,048,717	11.70%	3
Trustcorp Limited	of a trust
(“TDT2”)

Notes:

Wheeling was a wholly-owned subsidiary of Shougang Holding and its interest was included in the interests held by Shougang Holding.
Max Same was a wholly-owned subsidiary of Cheung Kong and its interest was included in the interests held by Cheung Kong.
Li Ka-Shing Unity Holdings Limited (“Unity Holdco”), of which each of Mr. Li Ka-shing, Mr. Li Tzar Kuoi, Victor and Mr. Li Tzar Kai, Richard was interested in one-third of the entire issued share capital, owned the entire issued share capital of TUT1. TUT1 as trustee of The Li Ka-Shing Unity Trust (“UT1”), together with certain companies which TUT1 as trustee of UT1 was entitled to exercise or control the exercise of more than one-third of the voting power at their general meetings, held more than one-third of the issued share capital of Cheung Kong.

In addition, Unity Holdco also owned the entire issued share capital of TDT1 as trustee of The Li KaShing Unity Discretionary Trust (“DT1”) and TDT2 as trustee of another discretionary trust (“DT2”). Each of TDT1 and TDT2 held units in UT1.

By virtue of the SFO, each of Mr. Li Ka-shing, being the settlor and may being regarded as a founder of each of DT1 and DT2 for the purpose of the SFO, TUT1, TDT1 and TDT2 was deemed to be interested in the same block of Shares in which Cheung Kong was interested under the SFO.

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GENERAL INFORMATION

APPENDIX V

(b) As at the Latest Practicable Date, so far as is known to any Director, the following persons and companies were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or had any option in respect of such capital:

	Name of		% of
Name of registered	beneficial		attributable
shareholder	owner	Name of member of the Group	interest
Zhou Lin	Zhou Lin	四方源創國際影視文化傳播	20%
		（北京）有限公司(Concord
		Creation International (Beijing)
		Company Limited*)
		(“Concord Creation”)
Yang Yong	Yang Yong	廣東四方源創動畫製作	20%
		有限公司(Concord
		Creation Animation
		Production Guangdong
		Company Limited*)
		(“Guangdong Creation”)
Concord Creation	Zhou Lin	Guangdong Creation	16%
			(Note 1)
Concord Creation	Zhou Lin	東陽市四方源創影視製作	20%
		有限公司(Dongyang	(Note 2)
		Concord Creation Film & TV
		Company Limited*)
		(“Dongyang Creation”)
Guangdong Creation	Zhou Lin	杭州四方源創動畫製作有限公司	16%
and Chen Zheng		(Concord Creation Animation	(Note 3)
		Production Hangzhou
		Company Limited*)
		(“Hangzhou Creation”)
Guangdong Creation	Yang Yong	Hangzhou Creation	20%
and Chen Zheng			(Note 4)

For identification purpose only

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GENERAL INFORMATION

APPENDIX V

Notes:

Guangdong Creation was held as to 80% by Concord Creation. As Concord Creation was beneficially held as to 20% by Zhou Lin, Guangdong Creation was deemed to be held as to 16% by Zhou Lin.
Dongyang Creation was held as to 90% by Concord Creation. As Concord Creation was beneficially held as to 20% by Zhou Lin, Dongyang Creation was deemed to be held as to 18% by Zhou Lin. Together with Zhou Lin’s beneficial interest of 2% held in Dongyang Creation through another nominee, Zhou Lin has an aggregate interest of 20% in Dongyang Creation.
Hangzhou Creation was beneficially held as to 100% by Guangdong Creation which included its beneficial interest of 10% held in Hangzhou Creation through its nominee, Chen Zheng. As Guangdong Creation was deemed to be beneficially held as to 16% by Zhou Lin, Hangzhou Creation was deemed to be held as to 16% by Zhou Lin.
Hangzhou Creation was beneficially held as to 100% by Guangdong Creation which included its beneficial interest of 10% held in Hangzhou Creation through its nominee, Chen Zheng. As Guangdong Creation was held as to 20% by Yang Yong, Hangzhou Creation was deemed to be held as to 20% by Yang Yong.

Save as disclosed above, the Directors and chief executive of the Company were not aware of any person who has an interest or short position in the Shares, or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

4. LITIGATION

As at the Latest Practicable Date, the Group was engaged in the following litigation or arbitration of material importance:

(a) On 14 May 2003, GDC Entertainment Limited (“GDC Entertainment”), an indirect nonwholly owned subsidiary of the Company, entered into a co-production agreement (the “Coproduction Agreement”) with Westwood Audiovisual and Multimedia Consultants, Inc. (“WAMC”) and Production and Partners Multimedia, SAS (“P&PM”), in which the Group has a 25% equity interest, in relation to an animated television series.

In about November 2004, P&PM and WAMC commenced proceedings against GDC Entertainment in the Court of Commerce of Angouleme (France) alleging breaches on the part of GDC Entertainment of the Co-production Agreement.

In relation to the French proceedings, the Group’s French legal advisers have advised that the enforcement of P&PM’s and WAMC’s claims should only be limited to the assets of GDC Entertainment.

Further, arbitration proceedings were commenced by GDC Entertainment against P&PM and WAMC in Hong Kong by way of a notice of arbitration dated 16 June 2005 issued pursuant to the Co-production Agreement. In the arbitration, issues had been raised by GDC Entertainment as to whether P&PM and/or WAMC was in repudiatory breach of the Coproduction Agreement which entitled GDC Entertainment to terminate the same claim of damages from P&PM and WAMC. Pleadings have not yet been exchanged in the arbitration.

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GENERAL INFORMATION

APPENDIX V

P&PM and WAMC have applied to the arbitrator for the determination of a preliminary issue as to whether the arbitrator has jurisdiction to hear the dispute which GDC Entertainment will refer to the arbitrator in the arbitration. The hearing of the application was held on 20 January 2006. The arbitrator published her Award on the Issue of Jurisdiction on 23 March 2006 dismissing the application, and made an order for costs in GDC Entertainment’s favour in respect of the application. Since then, there has been no further step taken by the parties apart from recently. GDC Entertainment has written to the arbitrator seeking directions for the further conduct of the arbitration, including the service of pleadings in the arbitration. GDC Entertainment is still waiting to hear from the arbitrator as to how she would like to proceed with the arbitration.

(b) On 16 August 2006, 深圳大學文化科技服務有限公司(“Shenzhen University”) commenced legal action in the People’s Court (Nanshan District) in the PRC against 環球數碼媒體科技研究（深圳）有限公司 (“Shenzhen IDMT”), an indirect non-wholly owned subsidiary of the Company for, among others, unpaid rent, related expenses and compensation in the amount of RMB8,960,000. On 14 September 2006, Shenzhen IDMT filed a counterclaim against Shenzhen University for, among others, compensation for renovation fee and relocation expenses in the amount of approximately RMB10,726,000 and RMB6,000,000 respectively and returns of rental deposit. This action is continuing.

Save as disclosed above, neither the Company nor any other members of the Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

5. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) had been entered into by the Group within the two years preceding the date of this circular and up to the Latest Practicable Date:

(a) the agreement dated 10 March 2005 entered into between Jeckman Holdings Limited (“Jeckman Holdings”) and 深圳金融租賃有限公司 (Shenzhen Finance Leasing Company Limited) in respect of the acquisition of a 20% interest in the registered capital of South China International Leasing Company Limited (“South China Leasing”) by Jeckman Holdings;
(b) the agreement dated 15 March 2005 entered into between Jeckman Holdings, Valuework Investment Holdings Limited and Shenzhen Jiayinda Investment Company Limited in respect of the participation in the increase in the registered capital of South China Leasing from US$5,000,000 to US$24,000,000 by Jeckman Holdings;
(c) the placing agreement dated 22 August 2005 entered into between Upper Nice Assets Limited (“Upper Nice”), a wholly-owned subsidiary of the Company, and Baron Capital Limited in respect of the placing of not more than 58,000,000 shares in GDC by Upper Nice;

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(d) the option agreements dated 7 September 2005 entered into between Upper Nice and the Company with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu Xu Ping in respect of ordinary shares of GDC;
(e) the conditional subscription agreement dated 27 September 2005 entered into between the Company and China Life Insurance (Overseas) Company Limited (“CLIO”) in respect of the subscription of 626,950,496 new shares of RMB1.00 each in the issued share capital of CLIO;
(f) the supplemental agreements to the option agreements dated 4 November 2005 entered into between Upper Nice and the Company with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu Xu Ping;
(g) the deed of assignments dated 4 November 2005 entered into between Upper Nice, the Company and Li Baoku with each of Baron Absolute Return Fund (I) Limited, China Investment Fund Company Limited, Chan Kwok Sum, Hung Chen Richael, Lee Tin Wei Bettina, Shiu Kum Tai, Tang Ping Sum and Wu Xu Ping in respect of the transfer of 58,000,000 option shares (with put options) to Li Baoku;
(h) the agreement dated 26 January 2006 entered into between the Company and CLIO in respect of the termination of the conditional subscription agreement dated 27 September 2005;
(i) the agreement of sale and purchase of shares dated 12 June 2006 entered into between Grand Phoenix Limited, a wholly-owned subsidiary of the Company, as vendor, and Good Business Trading Limited as purchaser in respect of the transfer of 8 shares of US$1.00 each in the share capital of Jeckman Holdings to Good Business Trading Limited for a consideration of HK$25,000,000;
(j) the Agreement;
(k) the GDC Subscription Agreement; and
(l) the GDC Tech Subscription Agreement.

162

GENERAL INFORMATION

APPENDIX V

6. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given opinions or advice which is contained in this circular:

Name	Qualification
Deloitte Touche Tohmastsu (“DTT”)	Certified Public Accountants
Sallmanns (Far East) Limited (“Sallmanns”)	Qualified Surveyors and Valuers
Ernst & Young Corporate Finance Limited (“EYCFL”)	a licensed corporation to carry out
	types 1 (dealing in securities) and 6
	(advising on corporate finance)
	regulated activities for the purposes
	of the SFO

DTT, Sallmanns and EYCFL have given and have not withdrawn their written consent to the issue of this circular with the inclusion of their letters and/or references to their name, in the form and context in which they are included.

As at the Latest Practicable Date, none of DTT, Sallmanns and EYCFL had any shareholding in any member of the Group or had any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor did they have any interest, either directly or indirectly, in any assets which have been, since 31 December 2005 (being the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to, or are proposed to be acquired or disposed of by or leased to any member of the Group.

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s principal place of business in Hong Kong at 6th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong during normal business hours on any weekday other than public holidays, from the date of this circular up to and including the date of the SGM:

(a) the Bye-laws of the Company;
(b) the Agreement, the GDC Subscription Agreement and the GDC Tech Subscription Agreement;
(c) the material contracts referred to in the section headed “Material contracts” in this appendix;
(d) the accountant’s report on the Group set out in Appendix I to this circular;
(e) the written consents referred to under the section headed “Experts and consents” in this appendix;
(f) the annual reports of the Company for the two years ended 31 December 2005;

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GENERAL INFORMATION

APPENDIX V

(g) the interim report of the Company for the six months ended 30 June 2006;
(h) the letter from the Independent Financial Adviser, the text of which is set out on pages 23 to 43 of this circular;
(i) the letter from DTT setting out their opinion on the pro forma financial information on the Remaining Group included in Appendix III to this circular;
(j) the valuer’s report on the East Lake Villas, prepared by Sallmanns, the text of which is set out in Appendix IV to this circular;
(k) this circular;
(l) the circular issued by the Company dated 28 July 2006 in relation to the transfer of 4,266,667 shares, 4,266,667 shares and 7,466,666 shares in the issued share capital of GDC Tech by GDC to Mr. Cao Zhong, Mr. Chen Zheng and Dr. Chong Man Nang, respectively, for an aggregate cash consideration of HK$1,600,000; and
(m) the circular issued by the Company dated 6 July 2006 in relation to the transfer of 8 shares of US$1.00 each in the share capital of Jeckman Holdings to Good Business Trading Limited for a consideration of HK$25,000,000.

8. MISCELLANEOUS

(a) The registered office of the Company is at Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda and the principal place of business of the Company in Hong Kong is at 6th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(b) The Hong Kong branch share registrars and transfer office of the Company is Tengis Limited, 26/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(c) The qualified accountant of the Company is Mr. Tsang Yu Tit, who is a fellow member of The Association of Chartered Certified Accountants and an associate member of The Hong Kong Institute of Certified Public Accountants, and holds a bachelor degree of arts in accountancy.
(d) The company secretary of the Company is Ms. Cheng Man Ching, who is a fellow member of each of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries and an associate member of the Hong Kong Institute of Bankers, and holds a master degree in business administration and a master degree of arts.
(e) The English text of this circular and form of proxy shall prevail over the Chinese text in the case of inconsistency.

164

NOTICE OF SGM

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

(Incorporated in Bermuda with limited liability)

(Stock Code: 730)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of Shougang Concord Grand (Group) Limited (the “Company’’) will be held on 12 January 2007 at 11:00 a.m. at JW Marriott Ballroom, Level 3, JW Marriott Hotel Hong Kong, Pacific Place, 88 Queensway, Hong Kong for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT
(a) the agreement (the “Agreement”) dated 1 December 2006 entered into between Grand Award Limited (“Grand Award”), a wholly-owned subsidiary of the Company as vendor, China Beijing Shougang Hotel Development Company and Strength Up Investments Limited (collectively the “Purchasers”) as purchasers, and Shougang Holding (Hong Kong) Limited as guarantor, pursuant to which Grand Award has conditionally agreed to sell, and the Purchasers have conditionally agreed to purchase the 44.0% equity interest in the registered capital of Beijing Dongzhimen International Apartment Co., Limited held by Grand Award (a copy of which is produced at this meeting and marked “A” and signed by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved; and
(b) the board of directors of the Company (the “Board”) be and is hereby authorised to do all such things and execute all such documents in its absolute discretion as it deems fit or appropriate to give effect to the Agreement and the implementation of all transactions contemplated thereunder.”
“ THAT
(a) the subscription agreement (the “GDC Subscription Agreement”) dated 1 December 2006 entered into between Global Digital Creations Holdings Limited (“GDC”), a non-wholly owned subsidiary of the Company as issuer and Great Horizon International Limited (the “GDC Subscriber”) as subscriber, pursuant to which GDC has conditionally agreed to issue and allot to the GDC Subscriber, and the GDC Subscriber has conditionally agreed to subscribe for 40,000,000 new shares (the “GDC

* For identification purpose only

165

NOTICE OF SGM

Subscription Share(s)”) of HK$0.01 each in the capital of GDC at a price of HK$0.2436 per GDC Subscription Share (a copy of which is produced at this meeting and marked “B” and signed by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved; and

(b) the Board be and is hereby authorised to do all such things and execute all such documents in its absolute discretion as it deems fit or appropriate to give effect to the GDC Subscription Agreement and the implementation of all transactions contemplated thereunder.”
“ THAT
(a) the subscription agreement (the “GDC Tech Subscription Agreement”) dated 1 December 2006 entered into between GDC Technology Limited (“GDC Tech”), an indirect non-wholly owned subsidiary of the Company as issuer and Greater Appeal Investments Limited (the “GDC Tech Subscriber”) as subscriber, pursuant to which GDC Tech has conditionally agreed to issue and allot to the GDC Tech Subscriber, and the GDC Tech Subscriber has conditionally agreed to subscribe for 52,383,580 new shares of HK$0.10 each in the capital of GDC Tech for an aggregate consideration of approximately US$6.5 million (a copy of which is produced at this meeting and marked “C” and signed by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved; and
(b) the Board be and is hereby authorised to do all such things and execute all such documents in its absolute discretion as it deems fit or appropriate to give effect to the GDC Tech Subscription Agreement and the implementation of all transactions contemplated thereunder.”

By order of the Board of

Shougang Concord Grand (Group) Limited

Cao Zhong

Vice Chairman and Managing Director

Hong Kong, 27 December 2006

166

NOTICE OF SGM

Notes:

1. Any member of the Company entitled to attend and vote at the meeting by the above notice is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him/her. A proxy need not be a member of the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.

3. In order to be valid, the instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority must be delivered to the office of Tengis Limited, the Company’s branch share registrars and transfer office in Hong Kong at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting thereof (as the case may be).

4. Completion and return of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) and in such event, the instrument appointing a proxy shall be deemed to be revoked.

5. In the case of joint registered holders of any share, if more than one of such joint holders be present at the meeting, the vote of the senior who tenders a vote, whether in person, or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.

167

AI assistant

Ulferts International Limited — Proxy Solicitation & Information Statement 2006

50108_rns_2006-12-27_c155b967-de02-4089-8ea3-5dc0613ffb6e.pdf

首長四方（集團）有限公司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

CIMB-GK Securities (HK) Limited

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

首長四方（集團）有限公司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

I. INTRODUCTION

II. THE DISPOSAL

1. THE AGREEMENT

Date

Parties

Asset to be disposed of

Consideration

Conditions to Completion

Post Completion event

2. INFORMATION ON BDIA

LETTER FROM THE BOARD

3. REASONS FOR AND BENEFITS OF THE DISPOSAL AND USE OF PROCEEDS

LETTER FROM THE BOARD

4. FINANCIAL EFFECT OF THE DISPOSAL

5. PROSPECTS

LETTER FROM THE BOARD

III. THE GDC SUBSCRIPTION AND THE GDC TECH SUBSCRIPTION

1. THE GDC SUBSCRIPTION AGREEMENT

Date

Parties

Shares to be issued

Consideration

Conditions to completion

2. THE GDC TECH SUBSCRIPTION AGREEMENT

Date

Parties

Shares to be issued

Consideration

Conditions to completion

3. INFORMATION ON GDC AND GDC TECH

LETTER FROM THE BOARD

4. REASONS FOR AND BENEFITS OF THE GDC SUBSCRIPTION AND THE GDC TECH SUBSCRIPTION AND USE OF PROCEEDS

5. FINANCIAL EFFECT OF THE GDC SUBSCRIPTION AND THE GDC TECH SUBSCRIPTION

LETTER FROM THE BOARD

IV. LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

V. INDEPENDENT BOARD COMMITTEE

VI. SGM

VII. PROCEDURE FOR DEMANDING A POLL AT THE SGM

VIII. RECOMMENDATION

IX. ADDITIONAL INFORMATION

首長四方（集團）有限公司[] SHOUGANG CONCORD GRAND (GROUP) LIMITED*

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

(1) VERY SUBSTANTIAL DISPOSAL AND CONNECTED TRANSACTION: DISPOSAL OF INTEREST IN A JOINTLY CONTROLLED ENTITY

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW SHARES IN A SUBSIDIARY

(3) DISCLOSEABLE AND CONNECTED TRANSACTION: PROPOSED DEEMED DISPOSAL OF INTEREST IN A MAJOR SUBSIDIARY

INTRODUCTION

THE DISPOSAL – PRINCIPAL REASONS AND FACTORS

Information relating to BDIA

Background of and reasons for the Disposal

Principal terms of the Disposal

The consideration

Conditions to Completion

Post completion event

Analysis

Financial effects of the Disposal

Earnings and net assets

Working capital and gearing

THE GDC TECH SUBSCRIPTION AND THE GDC SUBSCRIPTION - PRINCIPAL REASONS AND FACTORS

Background of the GDC Tech Subscription

Terms of the GDC Tech Subscription

Ulferts International Limited Proxy Solicitation & Information Statement 2006

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**

首長四方（集團）有限公司[] *SHOUGANG CONCORD GRAND (GROUP) LIMITED**