Walnut Capital 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, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold all your shares in Haywood Investments Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. This circular does not constitute an offer of, nor is it calculated to invite offers for, shares of the Company.

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

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 905)

(1) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE; (2) APPLICATION FOR WHITEWASH WAIVER; AND

(3) PROPOSED CHANGE OF COMPANY NAME

Financial advisers to the Company

South China Capital Limited

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Independent financial adviser to the Independent Board Committees

WALLBANCK BROTHERS Securities (Hong Kong) Limited

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The Underwriter may by notice in writing to the Company given at any time before 4:00 p.m. of the third business day after the latest date for acceptance of the Offer Shares or
such later date as the Company may decide, terminate the Underwriting Agreement, if any of the following grounds of termination happens:
(1) there shall occur any of the following events which would, in the absolute opinion of the Underwriter, materially and adversely affect the business, financial or trading
position or prospects of the Group as a whole or the success of the Open Offer or otherwise makes it inexpedient or inadvisable for the Company or the Underwriter to
proceed with the Open Offer:
(a) the introduction of any new law or regulation or any change in existing law or regulation or any material change in the judicial interpretation or application
thereof or other occurrence of any nature whatsoever; or
(b) the occurrence of any event, development or change (whether or not local, national or international or forming part of a series of events or changes occurring or
continuing before, on and/or after the date of this Agreement and including an event or change in relation to or a development of an existing state of affairs) of a
political, military, financial, regulatory, economic, currency or other nature (whether or not sui generis with any of the forgoing or in the nature of any local,
national, or international, outbreak or escalation of hostilities or armed conflict) resulting in a material adverse change in, or which might reasonably be expected
to result in a material adverse change in political, economic or stock market conditions, or
(c) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange occurring due to exceptional
financial circumstances; or
(d) a change or development involving a prospective material change in taxation in Hong Kong or the implementation of exchange controls which shall or might
materially adversely affect the Company; or
(e) any material change in market conditions, taxation or exchange control or combination of circumstances in Hong Kong and the PRC (including without limitation
suspension or material restriction on trading in securities); or
(2) if the Underwriter shall receive notice of, or shall otherwise become aware of, the fact that any of the representations or warranties contained in the Underwriting
Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate and the Underwriter shall, in his absolute opinion, determine that any such untrue
representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a
whole or is otherwise likely to have a materially prejudicial effect on the Open Offer; or
(3) any change occurs in the circumstances of the Company or any member of the Group which would materially and adversely affect the business, financial or trading
position or prospects of the Group as a whole; or
(4) the Company commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which
breach or omission would have a material and adverse effect on the business, financial or trading position of the Group as a whole; or
(5) there shall occur any event, or series of events, beyond the control of the Underwriter (including, without limitation, acts of government, strike, lock-outs, fire, explosion,
flooding, civil commotion, acts of war, acts of terrorism or acts of God) which, in the absolute opinion of the Underwriter, have or would have the effect of making any
part of the Underwriting Agreement (including underwriting) incapable of performance in accordance with its terms or which prevents the processing of applications and/
or payments pursuant to the Open Offer or pursuant to the underwriting thereof or which have or is likely to have a material prejudicial effect on the Open Offer.
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If Mr. Zhou, the Underwriter, terminates the Underwriting Agreement, or if the conditions of the Underwriting Agreement have not been fulfilled in accordance with
the terms thereof, the Open Offer will not proceed. Shareholders and potential investors are advised to exercise due caution when dealing with the Shares, and if they
are in any doubt about their position, they should consult their professional advisers.
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Shareholders should note that the Shares will be dealt with on an ex-entitlement basis commencing from Monday, 19 June 2006 and that dealings in such Shares will take place
while the conditions to which the Underwriting Agreement is subject to remain unfulfilled. Any Shareholders or other persons dealing in such Shares up to the date on which all
conditions to which the Open Offer is subject to are fulfilled (which is expected to be Wednesday, 19 July 2006) will accordingly bear the risk that the Open Offer cannot
become unconditional and may not proceed. Any Shareholders or other persons contemplating on selling or purchasing the Shares who are in any doubt about their position are
recommended to consult their professional advisers.
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A letter of advice from WALLBANCK BROTHERS Securities (Hong Kong) Limited, the Independent Financial Adviser to the Independent Board Committees containing its opinion regarding the Open Offer and the Whitewash Waiver is set out on pages 25 to 46 of this circular.

A notice convening a EGM to be held at Conference Room 204, 2/F, 4 Harbour Road, Wanchai, Hong Kong on 23 June 2006 at 3:00 p.m. is set out on pages 97 to 99 of this circular. If you are not able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch registrar and transfer office in Hong Kong, Secretaries Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

18 May 2006

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
The Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Warning of risks of dealings in the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Business review and prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
The Whitewash Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Information and intention of the Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Proposed change in company name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
The EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Open Offer Independent Board Committee . . . . . . . . . . . . . . . . . .	23
Letter from the Whitewash Waiver Independent Board Committee. . . . . . . . . . . . .	24
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix I – Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . .	47
Appendix II – Valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	83
Appendix III – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	87
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	97

– i –

DEFINITIONS

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

“Announcement” the announcement dated 27 April 2006 as supplemented by a supplemental announcement dated 12 May 2006 made by the Company in relation to (1) the Open Offer, (2) the Whitewash Waiver and (3) the proposed change of name of the Company
“Application Form(s)” the application form for use by the Qualifying Shareholders to apply for the Offer Shares
“Board” the board of Directors
“CCASS”
the Central Clearing and Settlement System established and operated by HKSCC
“Commission” Securities and Futures Commission of Hong Kong
“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“Company” Haywood Investments Limited, a company incorporated in the Cayman Islands with limited liability whose shares are listed on the Stock Exchange under Chapter 21 of the Listing Rules
“Deed”
the novation deed dated 12 May 2006 entered into between the Company, Xiyang and Mr. Zhou pursuant to which all the rights and obligations of Xiyang under the Underwriting Agreement has been novated by Mr. Zhou
“Directors” the directors of the Company
“EGM”
the extraordinary general meeting of the Company to be convened on 23 June 2006 to approve the Open Offer, the Whitewash Waiver and the proposed change of name of the Company
“Excess Application Form(s)”
the excess application form for use by the Qualifying Shareholders to apply for the excess Offer Shares not initially taken up under the Open Offer

– 1 –

DEFINITIONS

“Excluded Shareholders”
the Shareholders whose names appear on the register of members of the Company on the Record Date and whose addresses are in places outside of Hong Kong or who are persons to whom in the Directors’ opinion, the Offer Shares may not be offered without compliance with registration and/or other legal or regulatory requirements of a jurisdiction or jurisdictions outside of Hong Kong
“Executive” the Executive Director of the Corporate Finance Division of the Commission or any of its delegate
“Group”
the Company and its subsidiaries
“HKSCC”
Hong Kong Securities Clearing Company Limited
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Independent Board Committees”
the Open Offer Independent Board Committee and the Whitewash Waiver Independent Board Committee
“Independent Financial Adviser”
WALLBANCK BROTHERS Securities (Hong Kong) Limited, a licensed corporation to carry out types 4, 6 and 9 regulated activities (advising on securities, advising on corporate finance and asset management respectively) under the SFO
“Independent Shareholders”
Shareholders who are not interested or involved in the Open Offer and the Whitewash Waiver, being Shareholders other than Mr. Zhou, Xiyang and persons acting in concert with them
“Last Trading Day”
7 April 2006, being the last trading day prior to the suspension of trading in the Shares prior to the publication of the Announcement
“Latest Practicable Date”
16 May 2006, being the latest practicable date 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
“Mr. Fong”
Mr. Fong Chi Hou, a non-executive Director interested in 10,300,000 Shares, representing approximately 6.44% of the Company’s issued share capital

– 2 –

DEFINITIONS

“Mr. Zhou” Mr. Zhou Chao, the Chairman of the Company and an executive Director, and the Underwriter who has a 90% interest in Xiyang
“Offer Share(s)” the 80,000,000 Shares proposed to be offered to the Qualifying Shareholders for subscription pursuant to the Open Offer
“Open Offer” the proposed issue of the Offer Shares at the Subscription Price by way of an open offer to the Qualifying Shareholders on the terms pursuant to the Prospectus Documents and summarized in this circular
“Open Offer Independent Board an independent committee of the Board comprising Mr. Committee” Liu Wing Ting, Stephen, Ms. Lam Lin Chu and Ms. Tse Po Chu, the independent non-executive Directors, formed for the purpose of advising the Independent Shareholders in relation to the Open Offer
“PRC” the People’s Republic of China
“Prospectus” the Open Offer prospectus
“Prospectus Documents”
the Prospectus, the Application Form and the Excess Application Form
“Qualifying Shareholders” the Shareholders other than the Excluded Shareholders whose names appear on the register of members of the Company as at the close of business on the Record Date
“Record Date” Friday, 23 June 2006, being the date by reference to which entitlements to the Open Offer will be determined
“Registrar” Secretaries Limited, the Company’s Hong Kong branch Share registrar located at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Share(s)”
the Shares of HK$0.025 in the issued share capital of the Company
“Shareholders”
the shareholders of the Company

– 3 –

DEFINITIONS

“Subscription Price”
the subscription price of HK$0.07 per Offer Share under the Open Offer
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Takeovers Code”
The Hong Kong Code on Takeovers and Mergers and Share Repurchases
“Underwriter” Mr. Zhou, the underwriter to the Open Offer
“Underwriting Agreement”
the underwriting agreement dated 7 April 2006 as amended by a supplemental underwriting agreement dated 18 April 2006 entered into between the Company and Xiyang in relation to the Open Offer
“Underwritten Shares”
the 58,644,800 Offer Shares underwritten by the Underwriter pursuant to the Underwriting Agreement and the Deed
“Whitewash Waiver”

a waiver of the obligation of the Underwriter and persons acting in concert with him to make a mandatory offer for all the Shares not already owned or agreed to be acquired by them under Note 1 on Dispensations from Rule 26 of the Takeovers Code

“Whitewash Waiver Independent Board Committee”

an independent committee of the Board comprising Mr. Liu Wing Ting, Stephen, Ms. Lam Lin Chu and Ms. Tse Po Chu, the independent non-executive Directors, and Mr. Fong Chi Hou and Mr. Wang Yao Dong, the non-executive Directors, formed for the purpose of advising the Independent Shareholders in relation to the Whitewash Waiver

“Xiyang”

Xiyang International Limited, a company incorporated in Hong Kong with limited liability whose registered address is Suite 2206, Office Tower, Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong, and is owned as to 90% and 10% by Mr. Zhou and Ms. Huang Song (both directors of Xiyang) who are the Chairman and an executive Director of the Company, being the largest Shareholder interested in 42,710,400 Shares, representing approximately 26.69% of the Company’s issued share capital on the Latest Practicable Date

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

– 4 –

2006

EXPECTED TIMETABLE

Despatch of the circular in relation to the EGM to
the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . Thursday, 18 May
Last day of dealings in the Shares on a cum-entitlement basis . . . . . . . . . . . Friday, 16 June
First day of dealings in the Shares on an ex-entitlement	. . . . . . . . . . . . . . Monday, 19 June
Latest time for lodging transfers of Shares
accompanied by the relevant title documents
in order to qualify for the Open Offer . . . . . . . . . . . . . . . 4:00 p.m. on Tuesday, 20 June
Register of members closed (both days inclusive) . . . . . . . . . . . . . . . . Wednesday, 21 June
	to Friday, 23 June
Latest time for lodging forms of proxy for
the EGM (48 hours prior to EGM) . . . . . . . . . . . . . . . . 3:00 p.m. on Wednesday, 21 June
Record Date for the Open Offer . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . Friday, 23 June
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . 3:00 p.m. on Friday, 23 June
Announcement of result of EGM . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . Monday, 26 June
Despatch of the Prospectus Documents . . . . . . . . . . . .	. . . . . . . . . . . . . . Thursday, 29 June
Latest time for payment for and
acceptance of the Offer Shares . . . . . . . . . . . . . . . . .	. . . . . . 4:00 p.m. on Friday, 14 July
Latest time for the Open Offer to
become unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 19 July
Announcement of results of the Open Offer . . . . . . . .	. . . . . . . . . . . . . Wednesday, 19 July
Despatch of refund cheques in respect of
wholly or partially unsuccessful excess applications	. . . . . . . . . . . . . Wednesday, 19 July
Share certificates of the Offer Shares to be posted . . .	. . . . . . . . . . . . . Wednesday, 19 July
Dealing in the Offer Shares commences . . . . . . . . . . .	. . . . . . . . . . . . . . . Monday, 24 July

Dates or deadlines specified in this circular for events in the timetable are for indicative purpose only and may be extended or varied. Any changes to the anticipated timetable for the Open Offer will be published by way of public announcement.

– 5 –

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE OPEN OFFER

The latest time for acceptance of and payment for the Open Offer will not take place if there is:

a tropical cyclone warning signal number 8 or above, or
a “black” rainstorm warning
(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on Friday, 14 July 2006. Instead the latest time of acceptance of and payment for the Open Offer will be extended to 5:00 p.m. on the same Business Day;
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on Friday, 14 July 2006. Instead the latest time of acceptance of and payment for the Open Offer will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m..

If the latest time for acceptance of and payment for the Open Offer does not take place on Friday, 14 July 2006, the dates mentioned in this section headed “Expected timetable” in this circular may be affected. A press announcement will be made by the Company in such event.

– 6 –

LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 905)

Executive Directors: Mr. ZHOU Chao Ms. HUANG Song Mr. PHANG Yul Cher Yeow Mr. CHU Kin Wang, Peleus

Non-executive Directors Mr. FONG Chi Hou Mr. WANG Yao Dong

Independent non-executive Directors: Mr. LIU Wing Ting, Stephen Ms. LAM Lin Chu Ms. TSE Po Chu

Registered office: Ugland House P.O. Box 309 George Town Grand Cayman Cayman Islands

Head office and principal place of business in Hong Kong: Rm. 2206, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong 18 May 2006

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE; (2) APPLICATION FOR WHITEWASH WAIVER; AND (3) PROPOSED CHANGE OF COMPANY NAME

INTRODUCTION

It was announced on 27 April 2006 (as supplemented by a supplemental announcement dated 12 May 2006) that the Board proposed (1) the Open Offer; (2) the Whitewash Waiver; and (3) the change in company name.

The Independent Board Committees have been established to advise the Independent Shareholders in relation to the Open Offer and the Whitewash Waiver. WALLBANCK BROTHERS Securities (Hong Kong) Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committees in this respect. The purpose of this circular is to provide you with further information regarding, among other things, the proposed Open Offer, the application for the Whitewash Waiver, the proposed change of company name, the financial and other information of the Group, the valuation report in relation to a property held by the Group, the advice of the Independent Financial Adviser to

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LETTER FROM THE BOARD

the Independent Board Committees in respect of the Open Offer and the Whitewash Waiver, the recommendations of the Independent Board Committees to the Independent Shareholders and the notice of the EGM, which shall be convened for the purpose of considering and, if thought fit, approving the resolutions in relation to the aforesaid proposals.

THE OPEN OFFER

Issue statistics

Basis of the Open Offer : One Offer Share for every two Shares held on Record Date Number of Shares in issue as of the : 160,000,000 Shares Latest Practicable Date Number of Offer Shares : 80,000,000 Offer Shares Number of Shares in issue : 240,000,000 Shares immediately following the completion of the Open Offer Number of Offer Shares undertaken : 21,355,200 Offer Shares to be taken up by Xiyang Number of Underwritten Shares : 58,644,800 Offer Shares

As at the Latest Practicable Date, the Company has no derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares.

Qualifying Shareholders

The Company will send the Prospectus Documents to the Qualifying Shareholders and the Prospectus, for information only, to the Excluded Shareholders. Furthermore, the Company will send the Application Forms and the Excess Application Forms to the Qualifying Shareholders only. To qualify for the Open Offer, Qualifying Shareholders must be registered as members of the Company on the register of members of the Company on the Record Date and not be Excluded Shareholders. The Excluded Shareholders who are also Independent Shareholders are entitled to cast their vote on the resolutions in relation to the Open Offer and the Whitewash Waiver at the EGM.

In order to be registered as members of the Company on the Record Date, Qualifying Shareholders must lodge any transfer of Shares (with the relevant Share certificates) for registration with the Registrar by 4:00 p.m. on Tuesday, 20 June 2006.

– 8 –

LETTER FROM THE BOARD

The branch share registrar of the Company in Hong Kong is:

Secretaries Limited 26/F Tesbury Centre 28 Queen’s Road East Hong Kong

The invitation to apply for the Offer Shares will not be transferable and there will be no trading in the nil-paid entitlements on the Stock Exchange.

Closure of register of members

The register of members of the Company will be closed from Wednesday, 21 June 2006 to Friday, 23 June 2006 (both days inclusive) to determine the eligibility of the Qualifying Shareholders to the Open Offer. No transfer of Shares will be registered during this period.

The Subscription Price

The Subscription Price of HK$0.07 per Offer Share, payable in full on application, represents:

(i) a discount of approximately 15.66% to the closing price of HK$0.083 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 11.39% to the theoretical ex-entitlement price of approximately HK$0.079 per Share based on the aforesaid closing price per Share;
(iii) a discount of approximately 14.63% to the average closing price of approximately HK$0.082 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;
(iv) a premium of approximately 6.06% to the audited net asset value per Share of approximately HK$0.066 as at 31 December 2005; and
(v) a premium of 25% to the closing price of HK$0.056 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Subscription Price was determined based on arm’s length negotiations between the Company and Xiyang, with reference to the prevailing market prices of the Shares. The Board considers that the Subscription Price is fair and reasonable.

– 9 –

LETTER FROM THE BOARD

Pursuant to Rule 13.64 of the Listing Rules, where the market price of the securities of the issuer approaches the extremities of HK0.01 or HK$9,995.00, the Stock Exchange reserves the right to require the issuer either to change the trading method or to proceed with a consolidation or splitting of its securities. The Stock Exchange has indicated that the Company will be required to conduct a share consolidation in conjunction with the Company’s next fund raising exercise involving the issue of new Shares if the market price of the Shares is below HK$0.10 per Share at the time of the next fund raising exercise.

Status of the Offer Shares

The Offer Shares, when allotted and issued, will rank pari passu in all respects with the Shares in issue on the date of allotment and issue of the Offer Shares. Holders of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid in respect thereof on or after the date of allotment and issue of such Offer Shares.

Certificates for the Offer Shares

Subject to fulfillment of the conditions of the Open Offer, share certificates for the Offer Shares are expected to be posted on or before Wednesday, 19 July 2006 to those Qualifying Shareholders who have validly applied and paid for the Offer Shares at their own risks.

Rights of the Excluded Shareholders

The Prospectus Documents are not expected to be registered under the applicable securities legislation of any jurisdiction other than Hong Kong. Having reviewed the register of members of the Company and based on its register of members on the Latest Practicable Date, the Directors noted that none of the Shareholders has maintained an address outside of Hong Kong on the Company’s register of members. The Company will comply with Rule 13.36(2) of the Listing Rules and make enquiries regarding the feasibility of extending the Open Offer to the Excluded Shareholders and disclose the details of the Excluded Shareholders in the Prospectus should the Company’s register of members show that there are Excluded Shareholders on the Record Date. If, based on legal opinions provided by the legal advisers to the Company, the Directors consider that, in compliance with Rule 13.36(2) of the Listing Rules, it is necessary or expedient not to extend the Open Offer to the Excluded Shareholders on account either of the legal restrictions under the laws of the place of his registered address or the requirements of the relevant regulatory body or stock exchange in that place, the Open Offer will not be available to the Excluded Shareholders.

The Company will send the Prospectus to the Excluded Shareholders for their information only. The Company will not send the Application Forms and the Excess Application Forms to the Excluded Shareholders.

The Excluded Shareholders who are also Independent Shareholders are entitled to cast their votes on the resolutions in relation to the Open Offer and the Whitewash Waiver at the EGM. The Company will send the circular together with the notice in relation to the EGM. Please refer to the section headed “General” for further information.

– 10 –

LETTER FROM THE BOARD

Application for excess Offer Shares

Qualifying Shareholders may apply (using the Excess Application Forms) for entitlements of the Excluded Shareholders and any Offer Shares not initially subscribed by the Qualifying Shareholders.

The Directors will allocate excess Offer Shares at their discretion on a fair and equitable basis but will give preference to topping-up odd lots to whole board lots. The Qualifying Shareholders with the Shares held by a nominee company should note that the Board will regard the nominee as a single Shareholder according to the register of members of the Company. Accordingly, the Shareholders should note that the aforesaid arrangement in relation to the allocation of the excess Offer Shares will not be extended to beneficial owners individually. The Shareholders with their Shares held by a nominee company are advised to consider whether they would like to arrange registration of the relevant Shares in the name of the beneficial owner(s) prior to the Record Date. Shareholders and investors should consult their professional advisers if they are in any doubt with regard to the above.

Independent Shareholders’ approval at the EGM

The Stock Exchange is of the view that, in this particular case, the Open Offer should be aggregated with the Company’s open offer announced on 7 February 2005, the offer shares of which commenced trading on 18 April 2005, as the previous open offer falls within the 12 month period stipulated under Rule 7.24(5) of the Listing Rules. Accordingly, the Open Offer will be subject to, among others, the approval of the Independent Shareholders by way of poll at the EGM. Xiyang, persons acting in concert with it, the Directors (including Mr. Zhou and excluding the independent non-executive Directors), the chief executive of the Company and any of their associates will abstain from voting on the resolution in relation to the Open Offer.

Application for listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. Dealings in the Offer Shares will be subject to the payment of stamp duty in Hong Kong. Listing for the Offer Shares will not be sought for on any stock exchange other than the Stock Exchange.

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

– 11 –

LETTER FROM THE BOARD

Undertaking by Xiyang

As at the Latest Practicable Date, Xiyang holds 42,710,400 Shares, representing approximately 26.69% of the Company’s issued share capital. Xiyang has undertaken to the Company that:

(1) it owns beneficially and will on the Record Date own beneficially 42,710,400 Shares; and
(2) it will subscribe for the 21,355,200 Offer Shares that it is entitled to subscribe for under the Open Offer.

The Underwriting Agreement

Date : 7 April 2006 (as amended by a supplemental underwriting agreement dated 18 April 2006)
Underwriter : Xiyang, a company owned as to 90% and 10% by Mr. Zhou and Ms. Huang Song who are the Chairman and an executive Director of the Company respectively, being the largest Shareholder interested in 42,710,400 Shares, representing approximately 26.69% of the Company’s issued share capital on the Latest Practicable Date
Number of Offer : 58,644,800 Offer Shares Shares underwritten by the Underwriter
Underwriting : The underwriting commission under the Underwriting commission Agreement is nil. The Board considers the nil underwriting commission is favorable and in the interest of the Company and the Shareholders as a whole.

The Deed

Date : 12 May 2006 Parties involved : the Company, Xiyang and Mr. Zhou

On 12 May 2006, the Company, Xiyang (the original underwriter to the Open Offer pursuant to the Underwriting Agreement) and Mr. Zhou, the Chairman of the Company and an executive Director, entered in the Deed pursuant to which all the rights and obligations of Xiyang under the Underwriting Agreement have been novated by Mr. Zhou. As a result of the signing of the Deed, Mr. Zhou has become the Underwriter to the Open Offer.

Xiyang is a company incorporated in Hong Kong with limited liability and is owned as to 90% and 10% by Mr. Zhou and Ms. Huang Song, both executive Directors. Mr. Zhou believes that by acting as the underwriter to the Open Offer personally rather than through a

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LETTER FROM THE BOARD

company in which he has a 90% interest, he can demonstrate his commitment to the development of the Company in the capacities of the Chairman of the Company and an executive Director. Mr. Zhou further believes that this demonstration of his personal commitment to the Company would encourage the Qualifying Shareholders to take up their respective entitlements under the Open Offer.

Mr. Zhou’s potential deemed interests in the Company before and after the signing of the Deed will remain unchanged following the Open Offer. Ms. Huang Song, an executive Director holding the remaining 10% interest in Xiyang, has expressed her consent to the Deed.

The Underwriting Agreement and the Deed constitute a connected transaction exempt from all reporting, announcement and independent Shareholders’ approval requirements under Rule 14A.31(3)(c) of the Listing Rules.

Termination of the Underwriting Agreement

The Underwriter may by notice in writing to the Company given at any time before 4:00 p.m. of the third business day after the latest date for acceptance of the Offer Shares or such later date as the Company may decide, terminate the Underwriting Agreement, if any of the following grounds of termination happens:

(1) there shall occur any of the following events which would, in the absolute opinion of the Underwriter, materially and adversely affect the business, financial or trading position or prospects of the Group as a whole or the success of the Open Offer or otherwise makes it inexpedient or inadvisable for the Company or the Underwriter to proceed with the Open Offer:
(a) the introduction of any new law or regulation or any change in existing law or regulation or any material change in the judicial interpretation or application thereof or other occurrence of any nature whatsoever; or
(b) the occurrence of any event, development or change (whether or not local, national or international or forming part of a series of events or changes occurring or continuing before, on and/or after the date of this Agreement and including an event or change in relation to or a development of an existing state of affairs) of a political, military, financial, regulatory, economic, currency or other nature (whether or not sui generis with any of the forgoing or in the nature of any local, national, or international, outbreak or escalation of hostilities or armed conflict) resulting in a material adverse change in, or which might reasonably be expected to result in a material adverse change in political, economic or stock market conditions, or
(c) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange occurring due to exceptional financial circumstances; or

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LETTER FROM THE BOARD

(d) a change or development involving a prospective material change in taxation in Hong Kong or the implementation of exchange controls which shall or might materially adversely affect the Company; or
(e) any material change in market conditions, taxation or exchange control or combination of circumstances in Hong Kong and the PRC (including without limitation suspension or material restriction on trading in securities); or
(2) if the Underwriter shall receive notice of, or shall otherwise become aware of, the fact that any of the representations or warranties contained in the Underwriting Agreement was, when given, untrue or inaccurate or would be untrue or inaccurate and the Underwriter shall, in his absolute opinion, determine that any such untrue representation or warranty represents or is likely to represent a material adverse change in the business, financial or trading position or prospects of the Group taken as a whole or is otherwise likely to have a materially prejudicial effect on the Open Offer; or
(3) any change occurs in the circumstances of the Company or any member of the Group which would materially and adversely affect the business, financial or trading position or prospects of the Group as a whole; or
(4) the Company commits any breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission would have a material and adverse effect on the business, financial or trading position of the Group as a whole; or
(5) there shall occur any event, or series of events, beyond the control of the Underwriter (including, without limitation, acts of government, strike, lock-outs, fire, explosion, flooding, civil commotion, acts of war, acts of terrorism or acts of God) which, in the absolute opinion of the Underwriter, have or would have the effect of making any part of the Underwriting Agreement (including underwriting) incapable of performance in accordance with its terms or which prevents the processing of applications and/or payments pursuant to the Open Offer or pursuant to the underwriting thereof or which have or is likely to have a material prejudicial effect on the Open Offer.

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LETTER FROM THE BOARD

Conditions of the Underwriting Agreement

The obligations of the Underwriter to subscribe for the Underwritten Shares pursuant to the Underwriting Agreement and the Deed are conditional upon the happening of the following events by no later than the dates and times as specified in the Underwriting Agreement (or, in each case, such later date or time as the Underwriter may agree in writing with the Company):

(1) the issue and publication of the Announcement;
(2) the Executive granting the Whitewash Waiver;
(3) the approval of the Open Offer and the Whitewash Waiver by the Independent Shareholders by way of poll at a general meeting of the Company;
(4) the signing of 2 copies of each of the Prospectus by or on behalf of each of the Directors and by the secretary of the Company and the delivery of such signed copies to the Stock Exchange;
(5) the signing of 3 copies of each of the Prospectus by or on behalf of each of the Directors in accordance with section 342C of the Companies Ordinance and the filing and registration of one such signed copy of each of the Prospectus (together with all other documents required by section 342C of the Companies Ordinance to be attached thereto) with the Registrar of Companies in Hong Kong;
(6) the posting of the Prospectus to the Qualifying Shareholders and of the letter referred to in Clause 3.3 of the Underwriting Agreement to the Excluded Shareholders; and
(7) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment), and not having revoked the grant of, listing of and permission to deal in the Offer Shares, either unconditionally or subject to such conditions as are accepted by the Underwriter.

The Underwriter may waive any of the above conditions but has confirmed to the Company that it will not waive the above conditions (2) and (3). Completion of the subscription of underwritten Offer Shares by the Underwriter shall take place on or before the 3rd business day after the last day of acceptance of the Offer and is expected to be Wednesday, 19 July 2006.

It is one of the conditions of the Underwriting Agreement that the Whitewash Waiver be obtained. If (i) the Open Offer is not approved by the Independent Shareholders or (ii) the Whitewash Waiver is not approved by the Independent Shareholders or granted by the Executive, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed.

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LETTER FROM THE BOARD

Shareholding structure of the Company

The shareholding structure of the Company immediately before and after the completion of the Open Offer is set out below:

Shareholding as of the Latest Practicable Date Shares % 42,710,400 26.69 0 0.00	Shareholding as of the Latest Practicable Date Shares % 42,710,400 26.69 0 0.00	Shareholding immediately following the completion of the Open Offer (assuming full subscription by the Qualifying Shareholders) Shares % 42,710,400 17.80 21,355,200 8.90	Shareholding immediately following the completion of the Open Offer (assuming full subscription by the Qualifying Shareholders) Shares % 42,710,400 17.80 21,355,200 8.90	Shareholding immediately following the completion of the Open Offer (assuming nil subscription by the Qualifying Shareholders) Shares % 42,710,400 17.80 21,355,200 8.90	Shareholding immediately following the completion of the Open Offer (assuming nil subscription by the Qualifying Shareholders) Shares % 42,710,400 17.80 21,355,200 8.90
42,710,400 0 42,710,400 10,300,000 53,010,400 106,989,600	26.69 0.00 26.69 6.44 33.13 66.87	64,065,600 0 64,065,600 15,450,000 79,515,600 160,484,400	26.69 0.00 26.69 6.44 33.13 66.87	64,065,600 58,644,800 122,710,400 10,300,000 133,010,400 106,989,600	26.69 24.44
					51.13 4.29
					55.42 44.58
160,000,000	100.00	240,000,000	100.00	240,000,000	100.00

Reasons for the Open Offer and use of proceeds

The Company is an investment company listed pursuant to Chapter 21 of the Listing Rules. It is principally engaged in the investment in listed and unlisted companies in Hong Kong and the PRC.

The estimated net proceeds from the Open Offer are approximately HK$4.8 million. The Directors intend to utilize the net proceeds as to (i) approximately HK$2.3 million for future investment in accordance with the Company’s investment policy of investing in listed and unlisted companies in Hong Kong and the PRC to achieve medium term capital appreciation and (ii) approximately HK$2.5 million for the Company’s working capital. At present, no particular investment targets have been identified by the Company. Should any investment be made, the Company will comply with the Listing Rules.

The Board considers that the Open Offer provides a good opportunity for the Group to strengthen its capital base and to enhance its financial position. In addition, since the Open Offer will allow the Qualifying Shareholders to maintain their respective pro rata

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LETTER FROM THE BOARD

shareholdings in the Company, the Board considers that it is in the interests of the Company and the Shareholders as a whole to raise capital through the Open Offer. The Directors have also explored other alternative modes of fund raising including bank loan and placing of new Shares, open offer or rights issue using an independent underwriter. Having contacted banks and securities houses in relation to the above, the Directors are of the view that responses received have not been as favourable to the Company and equitable to the Shareholders as compared to the current arrangement under the Open Offer.

The estimated expenses of the Open Offer are about HK$0.8 million, which include professional fees payable to the financial advisers, lawyers and financial printer, etc. and will be borne by the Company.

Fund raising activities of the Company during the past 12 months

Date of		Net	Intended use of	Actual use of
announcement	Event	proceeds	proceeds	proceeds
7 February 2005	Open offer of	HK$4.7	Used for future	Invested in
	80,000,000 offer	million	investment	accordance with
	Shares on the		purposes which	the Company’s
	basis of one		will be invested	investment policy
	offer Share for		in accordance
	every existing		with the
	Share held		Company’s
			investment policy
			of investing in
			listed and
			unlisted
			companies in
			Hong Kong and
			the PRC to
			achieve medium
			term capital
			appreciation

Save for the open offer mentioned above, there has not been any capital raising activities via the placing of new Shares, rights issue or open offer of Shares in the 12 month immediately before the date of the Announcement.

WARNING OF RISKS OF DEALINGS IN THE SHARES

If Mr. Zhou, the Underwriter, terminates the Underwriting Agreement, or if the conditions of the Underwriting Agreement have not been fulfilled in accordance with the terms thereof, the Open Offer will not proceed. Shareholders and potential investors are advised to exercise due caution when dealing with the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

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LETTER FROM THE BOARD

Shareholders should note that the Shares will be dealt with on an ex-entitlement basis commencing from Monday, 19 June 2006 and that dealings in such Shares will take place while the conditions to which the Underwriting Agreement is subject to remain unfulfilled. Any Shareholders or other persons dealing in such Shares up to the date on which all conditions to which the Open Offer is subject to are fulfilled (which is expected to be Wednesday, 19 July 2006) will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholders or other persons contemplating on selling or purchasing the Shares who are in any doubt about their position are recommended to consult their professional advisers.

BUSINESS REVIEW AND PROSPECTS OF THE GROUP

On 12 May 2005, the Company entered into a new investment management agreement with Hua Yu Investment Management Limited (“Hua Yu”) with effect from 20 May 2005 to replace Altus Capital Limited (“Altus”), the former investment manager. As Hua Yu has extensive investment experience in the PRC and Hong Kong, the Company believes it will be beneficial to appoint Hua Yu as the investment manager in order to fully capture the investment opportunities in the PRC and Hong Kong.

On 30 May 2005, there was a change in the substantial shareholder of the Company. Xiyang acquired 20.49% of the shares of the Company from Mr. Lee Wing On Samuel, the former substantial shareholder of the Company and 6.20% shares of the Company through the Stock Exchange. After the shares acquisition, Xiyang became the new substantial and largest shareholder of the Company. Xiyang is a company incorporated in Hong Kong and is principally engaged in investments in properties in Hong Kong. The Group has since then focused its efforts in rationalising its investment portfolio.

On 29 July 2005, the Group entered into an agreement with an independent third party to dispose of the Group’s entire 25% equity interests in and loan to Standard Supplies Limited (“SSL”) at cost of HK$500,000 and HK$250,000 respectively. SSL is principally engaged in the trading of flooring materials in Hong Kong and the PRC. In the opinion of the Directors, the Group has not been in a position to exercise any significant influence over the financial and operating policies of SSL. The reason for the disposal is to streamline the investment portfolio of the Company.

On 1 August 2005, the Group acquired a 30% of the equity interest in Summit Asset Holdings Limited (“SAHL”). SAHL is a company incorporated in Hong Kong with limited liability and the other 70% equity interest is owned by an independent third party. SAHL has acquired a residential property in Hong Kong at a consideration of HK$3,880,000 from an independent third party in September 2005 and the property is held for investment purpose. On 29 December 2005, the Group has further acquired the remaining 70% equity interest in SAHL and shareholder’s loan of approximately HK$985,000 at cost of HK$7 and approximately HK$985,000 respectively. The reason for the acquisition is for long term capital investment purpose.

On 3 August 2005, the Group acquired a 30% of the equity interest in Rise Profit Holdings Limited (“RPHL”). RPHL is a company incorporated in Hong Kong with limited liability and the other 70% equity interest is owned by an independent third party. On 15

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LETTER FROM THE BOARD

August 2005, RPHL acquired a taxi vehicle and its licence to operate in Hong Kong at a consideration of HK$3,650,000 from an independent third party. The taxi vehicle and its operating license is held for investment purpose.

From September 2005, the Group has invested in certain listed shares in Hong Kong with a view of gaining good investment returns and yields for our shareholders.

In view of improving global and domestic economic conditions, the Board will continue to pursue investment opportunities which can generate stable revenue and business prospects under Company’s investment philosophy and acceptable level of risks.

As stated in the Company’s financial statements for the year ended 31 December 2005 reproduced in Appendix I to this circular, the Company had amounts due to Directors of approximately HK$500,000 as at 31 December 2005. Approximately HK$227,000 of this amount is attributable to a balance due to Mr. Zhou, an executive Director. The remaining balance of approximately HK$273,000 is due to certain ex-Directors.

THE WHITEWASH WAIVER

As at the Latest Practicable Date, Mr. Zhou, by virtue of his 90% interest in Xiyang, and persons acting in concert with him are deemed to be interested in 42,710,400 Shares, representing approximately 26.69% of the Company’s issued share capital on the Latest Practicable Date and all of such Shares are held by Xiyang. The Directors confirm that Mr. Zhou and persons acting in concert with him have not dealt in the Shares during the 6 months immediately prior to the date of the Announcement and the period up to the Latest Practicable Date and will not deal in the Shares until the completion of the Open Offer. In the event that Mr. Zhou is required to subscribe for all the 58,644,800 Offer Shares underwritten pursuant to the Underwriting Agreement and the Deed, Mr. Zhou and persons acting in concert with him will become interested in a total of 122,710,400 Shares, representing approximately 51.13% of the Company’s issued share capital as enlarged by the Open Offer. Mr. Zhou and persons acting in concert with him will then be obliged to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by them pursuant to Rule 26 of the Takeovers Code. An application has been made to the Executive, by Mr. Zhou, for the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver will be granted, subject to the approval of the Independent Shareholders taken by way of a poll at the EGM.

Investors should be aware that if the Whitewash Waiver is granted to Mr. Zhou, he may not be required to make further mandatory general offers pursuant to the Takeover Codes if his shareholding in the Company becomes greater than 50% as a result of acting as the Underwriter.

The EGM will be held to consider and, if thought fit, passing the resolutions to approve, among other things, the Whitewash Waiver. The resolution in respect of the Whitewash Waiver will be voted on by way of a poll. Mr. Zhou, Xiyang, their associates and persons acting in concert with them will abstain from voting on the said resolution. Mr.

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LETTER FROM THE BOARD

Fong, a non-executive Director interested in 10,300,000 Shares, representing approximately 6.44% of the Company’s issued share capital, has indicated that he will vote in favour of the resolution in relation to the Whitewash Waiver at the EGM.

INFORMATION ON AND INTENTION OF THE UNDERWRITER

Mr. Zhou, aged 31, has been appointed as an executive Director and the Chairman of the Company since June 2005. He has years of business experience in the PRC and sits on management positions in various companies operating in industries including fertilizer, trading, transportation, steel and iron, water purification, mining, etc. in the PRC. Xiyang is a company incorporated in Hong Kong with limited liability and is owned as to 90% and 10% by Mr. Zhou and Ms. Huang Song who are the Chairman and an executive Director of the Company, being the largest Shareholder interested in 42,710,400 Shares, representing approximately 26.69% of the Company’s issued share capital on the Latest Practicable Date since 30 May 2005. The shareholding of Mr. Zhou and Ms. Huang Song in Xiyang has not changed since Xiyang became a Shareholder.

It is the intention of the Underwriter that the Group will continue its current business and the Underwriter has no intention to make any major changes to the business including any redeployment of the fixed assets of the Company. It is the intention of the Underwriter to continue the employment of the employees of the Group.

In deciding to support the Open Offer by acting as the Underwriter, the Underwriter believes that the Open Offer will strengthen the Group’s financial position.

The Directors confirm that there is no agreement, arrangement or understanding (including any compensation arrangement) between the Underwriter or any person acting in concert with him and any of the Directors, recent Directors, Shareholders or recent Shareholders having any connection with or dependence upon the Open Offer and/or the Whitewash Waiver.

PROPOSED CHANGE IN COMPANY NAME

The Board proposes to change the Company’s English name from “Haywood Investments Limited” to “Apex Capital Limited” and to adopt the new Chinese name “ ” in place of the previous Chinese name “ ” for identification purpose in the Cayman Islands and registration purpose under Part XI of the Companies Ordinance. The Company’s registered name will still be its English name as changed and the new Chinese name is for identification purposes only which has no legal effect under the Cayman Islands law. The Board considers that the proposed new name can reflect the change of the Company’s largest Shareholder in 2005 and the subsequent change of the Company’s management team.

The change of the Company’s name will not affect any of the rights of the Shareholders. All existing share certificates of the Company in issue bearing the name “Haywood Investments Limited” will, after the change of the Company’s name, continue to

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LETTER FROM THE BOARD

be evidence of title to the same number of Shares under the Company’s new name and will be valid for trading, settlement and registration purposes. Upon the change of Company name becoming effective, any issue of share certificates thereafter will be in the new name.

The proposed change of name is subject to (1) the passing of a special resolution by the Shareholders at the EGM to approve the proposed change of name and (2) the Registrar of Companies in the Cayman Islands approving the proposed change of name and issuing a new certificate of incorporation on change of name.

THE EGM

The EGM will be held to consider and, if thought fit, passing of the resolutions to approve (1) the proposed Open Offer, (2) the Whitewash Waiver and (3) the proposed change of name of the Company.

Set out on pages 97 to 99 of this circular is the notice for the convening of the EGM to be held at Conference Room 204, 2/F, 4 Harbour Road, Wanchai, Hong Kong at 3:00 p.m. on Friday, 23 June 2006 at which resolutions will be proposed for the approval of (1) the Open Offer, (2) the Whitewash Waiver and (3) the change of the name of the Company.

The Open Offer will be subject to, among others, the approval of the Independent Shareholders by way of poll at the EGM. Xiyang, persons acting in concert with it, the Directors (including Mr. Zhou and Mr. Fong and excluding the independent non-executive Directors), the chief executive of the Company and any of their associates will abstain from voting on the resolution in relation to the Open Offer. Only the Independent Shareholders will be permitted to vote on the resolution by way of poll in relation to the Whitewash Waiver. Xiyang and its beneficial owners Mr. Zhou and Ms. Huang Song, both executive Directors, will abstain from voting on the resolution in relation to the Whitewash Waiver at the EGM. Mr. Fong, a non-executive Director interested in 10,300,000 Shares, representing approximately 6.44% of the Company’s issued share capital, has indicated that he will vote in favour of the resolution in relation to the Whitewash Waiver at the EGM.

A form of proxy for use at the EGM is enclosed with this circular. If you do not intend to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it as soon as possible to the Registrar, Secretaries Limited at 26/F, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for the holding of the EGM. Delivery of a form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting thereof should you so desire.

RECOMMENDATIONS

WALLBANCK BROTHERS Securities (Hong Kong) Limited, the appointment of which has been approved by the Independent Board Committees, has been appointed as the Independent Financial Adviser to advise the Independent Board Committees with regard to the terms and conditions of the Open Offer and the Whitewash Waiver. The Independent Financial Adviser considers that the Open Offer and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of

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LETTER FROM THE BOARD

the Company and the Shareholders as a whole. The text of the letter of advice from the Independent Financial Adivser to the Independent Board Committees containing its recommendation and the principal factors it has taken into account in arriving at its recommendation are set out on pages 25 to 46 of this circular.

The Independent Board Committees, having taken into account the advice of the Independent Financial Adviser, consider that the Open Offer and the Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committees recommend the Shareholders to vote in favour of the Open Offer and the Whitewash Waiver. The Independent Board Committees are independent of and not connected with and not acting in concert with the Underwriter and persons acting in concert with him. The text of the letters from the Independent Board Committees are set out on pages 23 to 24 of this circular.

The Shareholders who are eligible to vote at the EGM are urged to read the letters from the Independent Financial Adviser and the Independent Board Committees before making a decision as to how to vote at the EGM.

The Directors consider that (1) the Open Offer, (2) the Whitewash Waiver and (3) the change of the name of the Company are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

Subject to the necessary resolutions for the approval of the Open Offer and the Whitewash Waiver being passed at the EGM, it is expected that the Prospectus Documents will be despatched to the Qualifying Shareholders and for their information only, the Excluded Shareholders, on or about Thursday, 29 June 2006.

FURTHER INFORMATION

Your attention is drawn to the texts of the letters from the Independent Board Committees and the Independent Financial Adviser containing their respective recommendations and opinions regarding the Open Offer and the Whitwash Waiver and the information set out in the appendices to this circular.

Yours faithfully, For and on behalf of the Board Phang Yul Cher Yeow Executive Director

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LETTER FROM THE OPEN OFFER INDEPENDENT BOARD COMMITTEE

==> picture [288 x 74] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 905)

18 May 2006

To the Shareholders

Dear Sir or Madam,

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE

As the Open Offer Independent Board Committee, we have been appointed to advise you in connection with the Open Offer, the details of which are set out in the letter from the Board contained in the circular to the Shareholders dated 18 May 2006 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms of the Open Offer and the advice of the Independent Financial Adviser in relation thereto as set out on pages 25 to 46 of the Circular, we are of the opinion that the Open Offer is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole. We therefore recommend that you vote in favour of the resolution in relation to the Open Offer to be proposed at the EGM.

Yours faithfully,

Mr. LIU Wing Ting, Stephen Ms. LAM Lin Chu Ms. TSE Po Chu

Open Offer Independent Board Committee

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LETTER FROM THE WHITEWASH WAIVER INDEPENDENT BOARD COMMITTEE

==> picture [288 x 74] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 905)

18 May 2006

To the Shareholders

Dear Sir or Madam,

APPLICATION FOR WHITEWASH WAIVER

As the Whitewash Waiver Independent Board Committee, we have been appointed to advise you in connection with the Whitewash Waiver, the details of which are set out in the letter from the Board contained in the circular to the Shareholders dated 18 May 2006 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the terms of the Whitewash Waiver and the advice of the Independent Financial Adviser in relation thereto as set out on pages 25 to 46 of the Circular, we are of the opinion that the Whitewash Waiver is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole. We therefore recommend that you vote in favour of the resolution in relation to the Whitewash Waiver to be proposed at the EGM.

Yours faithfully,

Mr. LIU Wing Ting, Stephen Ms. LAM Lin Chu Ms. TSE Po Chu Mr. FONG Chi Hou Mr. WANG Yao Dong

Whitewash Waiver Independent Board Committee

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter from Wallbanck Brothers in connection with the Open Offer and application for Whitewash Waiver, which has been prepared for the purpose of inclusion in this circular.

==> picture [52 x 52] intentionally omitted <==

WALLBANCK BROTHERS Securities (Hong Kong) Limited

1005B, Tower 1, Lippo Centre 89 Queensway, Central, Hong Kong

18 May 2006

To the Independent Board Committees and the Independent Shareholders of Haywood Investments Limited

Dear Sirs,

PROPOSED OPEN OFFER TO QUALIFYING SHAREEHOLDERS AT HK$0.07 PER OFFER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD PAYABLE IN FULL ON APPLICATION AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committees and the Independent Shareholders in respect of the fairness and reasonableness of the terms of the Open Offer and application for Whitewash Waiver, details of which are set out in the letter from the Board (the “Board Letter”) contained in the circular of the Company dated 18 May 2006 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context of this letter otherwise requires.

On 27 April 2006 and 12 May 2006, the Company announced, among other things, the Open Offer and application for Whitewash Waiver. Pursuant to the Open Offer, the Company will offer the Offer shares at a subscription price of HK$0.07 per Offer Share to Qualifying Shareholders on the basis of one Offer Share for every two Shares held by Qualifying Shareholders. The Open Offer is fully underwritten pursuant to the Underwriting Agreement dated 7 April 2006 (as amended by a supplemental underwriting agreement dated 18 April 2006) and the Deed dated 12 May 2006. Based on 160,000,000 Shares in issue, 80,000,000 Offer shares will be offered to the Qualifying Shareholders on the Record Date.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Stock Exchange has the view that, in this particular case, the Open Offer should be aggregated with the Company’s open offer announced on 7 February 2005, the offer shares of which commenced trading on 18 April 2005, as the previous open offer falls within the 12 month period stipulated under Rule 7.24(5) of the Listing Rules. Accordingly, the Open Offer will be subject to, among others, the approval of the Independent Shareholders by way of poll at the EGM.

As mentioned above, the Company and Xiyang have entered into the Underwriting Agreement on 7 April 2006, which has been amended by a supplemental agreement dated 18 April 2006. On 12 May 2006, the Company, Xiyang (the original underwriter to the Open Offer pursuant to the Underwriting Agreement) and Mr. Zhou Chao (“Mr. Zhou”), the Chairman of the Company and an executive Director, entered into the Deed pursuant to which all the rights and obligations of Xiyang under the Underwriting Agreement has been novated by Mr. Zhou. As a result of the signing of the Deed, Mr. Zhou has become the Underwriter to the Open offer. Xiyang, is the single largest Shareholder beneficially interested in 42,710,400 Shares, representing approximately 26.69% of the issued share capital of the Company. The shareholdings of Xiyang are owned as to 90% by Mr. Zhou and as to 10% by Ms. Huang Song. Mr. Zhou and Ms. Huang Song are the Chairman and an Executive Director of the Company respectively. By virtue of Mr. Zhou’s interest in the Underwriting Agreement and Deed, Mr. Zhou, Xiyang and parties acting in concert, the Directors, the chief executive of the Company and their respective associates will abstain from voting in respect of the resolutions to approve, among other things, the Open Offer at the EGM.

In the event that the Underwriter is required to subscribe for all the 58,644,800 Offer Shares being underwritten pursuant to the Underwriting Agreement, the Underwriter and parties acting in concert will become interested in a total of 122,710,400 Shares, representing approximately 51.13% of the issued share capital of the Company as enlarged by the Open Offer. Under Rule 26 of the Takeovers Code, the Underwriter and parties acting in concert will then be obliged to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by them. An application has been made to the Executive by the Underwriter for the granting of the Whitewash Waiver. The Executive has indicated that the Whitewash Waiver would be granted, subject to the approval of the Independent Shareholders taken by way of poll at the EGM of the Company.

The Independent Board Committees, consisting of three independent non-executive Directors, namely Mr. Liu Wing Ting, Stephen, Ms. Lam Lin Chu and Ms. Tse Po Chu, has been formed to consider the Open Offer and application for Whitewash Waiver; and to make recommendation to the Independent Shareholders on the voting of the ordinary resolutions in relation to the Open Offer and the Application for Whitewash Waiver.

BASIS OF OUR OPINION

In formulating our opinion and recommendations, we have relied on the accuracy of the information, opinions and representations provided to us by the Directors and management of the Company, and have assumed that all information, opinions and representations contained or referred to in the Circular were true and accurate at the time they were made and will continue to be accurate at the date of the dispatch of the Circular.

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We have no reasons to doubt that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. We consider that we have received sufficient information to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular to provide a reasonable basis for our opinions and recommendations. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted an independent investigation into the business and affairs of the Company.

In formulating our opinion, we have relied on the financial information provided by the Company, particularly, on the accuracy and reliability of financial statements and other financial data of the Company. We have not audited, compiled nor reviewed the said financial statements and financial data. We shall not express any opinion or any form of assurance on them. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. The Directors have also advised us that no material facts have been omitted from the information to reach an informed view, and we have no reason to suspect that any material information has been withheld. We have not carried out any feasibility study on any past, and forthcoming investment decision or opportunity undertaken or be undertaken by the Company. Our opinion has been formed on the assumption that any analysis, estimation, forecast, anticipation, condition and assumption provided by the Company are valid and sustainable. Our opinions shall not be constructed as to give any indication to the validity, sustainability and feasibility of any past, existing and forthcoming investment decision or opportunity undertaken or to be undertaken by the Company.

In formulating our opinions, we have not considered the taxation implications on Qualifying Shareholders in relation to the Open Offer as these are particular to the individual circumstances of each Shareholder. It is emphasized that we will not accept responsibility for any tax effect on or liability of any person resulting from his or her acceptance or non-acceptance of the Open Offer. In particular, Qualifying Shareholders who are overseas residents or are subject to overseas taxation or Hong Kong taxation on securities dealings should consult about their own tax positions, and if in any doubt, should consult their own professional advisers.

In formulating our opinions, we have made reference to analysis on comparables on a non-exhaustive, best knowledge and endeavor basis.

Our opinions are necessarily based upon the financial, economic, market, regulatory and other conditions as they existed on, and the facts, information, representations, and opinions made available to us as of, the Latest Practicable Date. We disclaim any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion expressed herein which may come or be brought to our attention after the Latest Practicable Date.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Our opinions are formulated only and exclusively for the purpose of the Open Offer and the Whitewash Waiver and shall not be used for any comparison purpose in any circumstance nor with any other opinions.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion regarding the terms of the Open Offer and the Whitewash Waiver, we have taken into consideration of the following principal factors and reasons:

1. Reasons for the Open Offer

(a) Business review of the Group

The Company is an investment company listed pursuant to Chapter 21 of the Listing Rules and principally engaged in investing in listed and unlisted companies in Hong Kong and the PRC. Listed below is a summary of the audited consolidated results of the Group for the three years ended 31 December 2005.

Year ended 31 December 2005 (audited) (HK$’000) 177 295 (3,538) (114) (2,043) –	Year ended 31 December 2004 (audited) (HK$’000) 49 102 (3,443) – (3,808) –	Year ended 31 December 2003 (audited) (HK$’000) 4 280 (2,269) – (8,800) (1,014) (11,799) (61) (11,860) 52 (11,808)
(5,223) (25) (5,248) –	(7,100) (7) (7,107) –	(11,799 (61
		(11,860 52
(5,248)	(7,107)

Source: The Company’s annual results announcement for the year ended 31 December 2005 and the annual report for the year ended 31 December 2004

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the Company’s annual report for the year ended 31 December 2004, the Group recorded a net loss attributable to Shareholders of approximately HK$7.1 million in comparison with a net loss attributable to Shareholders of approximately HK$11.8 million for the year ended 31 December 2003. The Group had an increase of approximately 51.7% in administrative expense to approximately HK$3.44 million (2003: approximately HK$2.27 million). The Group’s turnover increased to approximately HK$49,000 from approximately HK$4,000 in the year ended 31 December 2003.

As stated in the Company’s annual report for the year ended 31 December 2004, the loss of HK$7.1 million was mainly attributable to the impairment losses totaling HK$3.8 million approximately and administrative expenses of HK$3.4 million approximately incurred during the year. The impairment losses were incurred from the further provision made in respect of the unlisted equity investment in the PRC and the investment in unlisted company in Hong Kong, which was principally involved in the insurance brokerage business operation in Hong Kong and had ceased operation on or around December 2004. As stated in the Company’s 2004 annual report, the Group’s investment portfolio comprised of two separate categories, namely, listed securities and unlisted securities. During the year ended 31 December 2004, the listed investment portfolio of the Group included investments in quoted securities of Hong Kong listed companies whose businesses principally focus on facilitating web-based transactions by providing outsourcing services for an integrated e-commerce solution to enable any company to extend its business to the Internet; and on distribution of video programmers, sub-licensing video program rights, film exhibition and video conversion services. The unlisted investment portfolio included unlisted equity in companies engaging in the manufacture and trading of building materials and provision of related consultancy services; and in the trading of flooring materials in Hong Kong and PRC; and in the insurance brokerage business operated in Hong Kong. The unlisted securities also comprise of unlisted convertible loan notes in a number of companies.

Based on the Company’ results announcement for the year ended 31 December 2005 dated 18 April 2006, the Group recorded a decrease of approximately 26.2% in net loss attributable to Shareholders to approximately HK$5.2 million comparing with approximately HK$7.1 million as for the year ended 31 December 2004. The said decrease was attributable to the reduction of approximately 46.4% in the impairment loss recognized in respect of available-for sale financial assets or investments in securities. The Group’s turnover increased by approximately 261% to approximately HK$0.18 million from approximately HK$49,000 as for the year ended 31 December 2004. In terms of composition by categories, the Group’s investment portfolio for the year ended 31 December 2005 remained the same as in the year ended 31 December 2004. During the year ended 31 December 2005, the Group expanded its listed investment portfolio by investing in the business sector involving property rental and estate agency; and its unlisted investment portfolio by investing in the business sector involving taxi’s operation and property investment, in addition to the business sectors invested by the Group during the year ended 31 December 2004.

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The 2005 results announcement indicated that in July 2005 the Group entered into an agreement with an independent third party to dispose all its equity interests and shareholder’s loan in Standard Supplies Limited. Standard Supplies Limited is principally engaged in the trading of flooring materials in Hong Kong and PRC. In 2005, through two transactions, the Group acquired 100% equity interest and shareholder’s loan in Summit Asset Holdings Limited, which owned a residential property in Hong Kong, subject to a legal opinion concerning the compliance with the investment restriction of not more than 35%, as indicated in the prospectus of the Company dated 7 July 1998. In 2005, the Group acquired a 30% equity interest in Rise Profit Holdings Limited, which owns a taxi vehicle and license. For further details of the above-said transactions, please refer to the Board Letter.

(b) Reasons for the Open Offer and use of proceeds

We refer to the Directors’ representation that as at 31 March 2006, the unaudited cash and bank balance of the Group was approximately HK$0.35 million. On the basis of the Directors’ representation that the annual administration expense of the Group is estimated to be approximately HK$2.5 million, which is within the range for the three recent financial years from 2003 to 2005, the Group’s aforementioned cash and bank balance may not be sufficient to meet the said administrative expense of the Group.

The Directors further represented that given the recent improved equity market condition and the need to facilitate the long-term growth of the Company, the Directors consider that it is appropriate and is in the interests of the Company to raise equity capital to strengthen the group’s financial position. The Company believes that raising equity capital through open offer would be welcomed by the Shareholders since it offers an opportunity for them to maintain their respective pro-rata shareholdings in the Company.

The estimated net proceeds from the Open Offer is approximately HK$4.8 million and will be used as to approximately HK$2.3 million for future investment purpose in accordance with the Company’s investment policy of investing in listed and unlisted companies in Hong Kong and the PRC to achieve medium term capital appreciation and approximately HK$2.5 million for the Company’s working capital.

(c) Alternative financings to the Open Offer

The Directors represented that they had considered other alternatives of fund raising such as bank financing and placement of new Shares. For bank financing, the Directors are of the view that interest expenses to be borne by the Company will be inevitably incurred, possibly expanding the Company’s loss position. Furthermore, a loan obtained from banks will eventually have to be repaid sometime in the future. In fact, it is difficult for the Company to obtain further debt financing as the banks were reluctant to offer bank loans and credit facilities to the Group in view of losses suffered by the Company for the previous consecutive years; and lack of other property to be used as security for such financing. The alternative of a private placement of shares shall result in a dilution of existing Shareholders’ interests in the Company.

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

A rights issue can also be one of the fund raising alternatives for the Company. Rights issue and open offer both offer all the shareholders an equal opportunity to participate in the enlargement of a company’s capital base and participate in the future growth of the company. The main difference of a rights issue as compared with an open offer is that a rights issue allows shareholders who do not wish to subscribe the rights shares to dispose of their nil-paid rights in the market. In consideration of the existing shareholding structure of the Company, the Directors represent their view that any trading in nil-paid rights shall bring about instability and uncertainty to the shareholding structure of the Company, which shall include the possibility of a change of the substantial shareholder of the Company. As a result, this may pose negative and detrimental impact on the continuity and stability of the management of the Group, which would not be in the interests of the Shareholders of the Company as a whole. The Shareholders shall be aware that such possibility shall also apply to excess application.

The Directors hold the view that the Open Offer allows the Qualifying Shareholders to maintain their respective pro rata shareholdings in the Company and participate in the future growth and development of the Group.

The proposed Open Offer shall enable the existing Shareholders (except Excluded Shareholders) to maintain their relative percentage interests in the Company among themselves, should they choose to subscribe, in the same way as a rights issue. However, the alternative of a private placement of shares shall result a dilution of existing Shareholders’ interests in the Company.

In addition, the Open Offer allows the Qualifying Shareholders to maintain their respective pro rata shareholdings in the Company and participate in the future growth and development of the Group.

Taking into account of the above factors and having regarded the difficulties experienced by the Group in obtaining more bank loans and credit facilities and the effect of a possible interest rate hike which could create upward pressure on the Group’s finance costs had the Group’s present fund raising been in the form of a bank loan, we consider that in such circumstance, it is commercially viable for the Group to raise finance by equity financing instead of by debt financing.

2. Principal terms of the Open Offer

(a) Basis of the Open Offer

The basis of the Open Offer is one Offer Share for every two Shares held on the Record Date at the Subscription Price, payable in full by the Qualifying Shareholders upon acceptance.

– 31 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Share price performance

We have tabulated the monthly highest closing price, monthly lowest closing price, and average daily closing price per Share in each of the twelve months during the year ended 7 April 2006 (being the last trading day prior to the suspension in trading of the Shares).

	Highest	Lowest	Average
	monthly	monthly	daily
	closing price	closing price	closing price
Month	per Share	per Share	per Share
	HK$	HK$	HK$
2005
April (commencing from 8 April)	0.094	0.058	0.076
May	0.077	0.065	0.071
June	0.086	0.066	0.075
July	0.119	0.083	0.100
August	0.130	0.080	0.110
September	0.083	0.061	0.075
October	0.078	0.068	0.071
November	0.090	0.062	0.073
December	0.090	0.080	0.085
2006
January	0.080	0.058	0.070
February	0.078	0.058	0.065
March	0.086	0.062	0.070
April (ending on 7 April)	0.083	0.083	0.083

Source: Bloomberg

– 32 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Share price performance

==> picture [388 x 262] intentionally omitted <==

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

0.140
0.120
0.100
0.080
0.060
Subscription Price of
HK$0.07 per Share
0.040
0.020
0.000
Date
8-Apr-0522-Apr-056-May-0520-May-053-Jun-0517-Jun-051-Jul-0515-Jul-0529-Jul-0512-Aug-0526-Aug-059-Sep-0523-Sep-057-Oct-0521-Oct-054-Nov-0518-Nov-052-Dec-0516-Dec-0530-Dec-0513-Jan-0627-Jan-0610-Feb-0624-Feb-0610-Mar-0624-Mar-067-Apr-06
Closing price per Share (HK$)
----- End of picture text -----

Source: Bloomberg

The above chart shows that the closing price of the Shares hovered around the Subscription Price of HK$0.07 per Offer Share for most of the year ended 7 April 2006 (being the last trading day prior to the suspension in trading of the Shares) except for July and August 2005 where the closing price per Share spiked up to HK$0.13 on 1 August 2005.

– 33 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Liquidity

We have also tabulated the monthly trading volume of the Shares and average daily trading volume of the Shares expressed as a percentage of the Company’s issued share capital based on 160,000,000 Shares in issue as at the Latest Practicable Date.

		Average daily
		turnover as a
		% of the
	Monthly	Company’s
	trading	issued share
Month	volume	capital
		%
2005
April (commencing from 8 April)	6,620,800	0.26
May	32,512,330	1.02
June	36,989,930	1.05
July	7,554,400	0.24
August	6,269,270	0.17
September	11,360,000	0.34
October	8,500,000	0.27
November	8,260,000	0.23
December	480,000	0.02
2006
January	7,840,000	0.26
February	580,000	0.02
March	1,780,000	0.05
April (ending on 7 April)	180,000	0.03

Source: Bloomberg

– 34 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Trading volume

==> picture [384 x 271] intentionally omitted <==

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

12,000.00
10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
0
Date
8-Apr-05 8-May-05 8-Jun-05 8-Jul-05 8-Aug05 8-Sep-05 8-Oct-05 8-Nov-05 8-Dec05 8-Jan-06 8-Feb-06 8-Mar-06
Daily turnover (Shares)
----- End of picture text -----

Source: Bloomberg

The above chart shows that the trading of the Shares was relatively not active with most of the months during the year ended 7 April 2006 (being the last trading prior to the suspension in trading of the Shares) with a comparatively lower turnover in the latter half of the aforementioned one year period. The highest monthly trading volume, which occurred in June 2005, was 36,989,930 Shares, and average daily turnover in that period represented approximately 1.05% of the issued share capital of the Company. We consider that the liquidity of the Shares to be relatively low.

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) The Subscription Price

The Subscription Price of HK$0.07 per Offer Share, payable in full on application, represents:

(i) a discount of approximately 15.66% to the closing price of HK$0.083 per Share as quoted on the Stock Exchange on 7 April 2006, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement;
(ii) a discount of approximately 11.39% to the theoretical ex-entitlement price of approximately HK$0.079 per Share based on the aforesaid closing price per Share;
(iii) a discount of approximately 14.63% to the average closing price of approximately HK$0.082 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including 7 April 2006;
(iv) a premium of approximately 6.06% to the audited net asset value per Share of approximately HK$0.066 as at 31 December 2005; and
(v) a premium of approximately 25.0% to the closing price of HK$0.056 per Share on the Stock Exchange on the Latest Practicable Date.

The Directors are of the view that the determination of the Subscription Price was based on arm’s length negotiations between the Company and the Underwriter, with reference to the prevailing market prices of the Shares. The Board believes that the Subscription Price is fair and reasonable to the Company and the discount of the Subscription Price as compared to the recent market prices would encourage Shareholders to participate in the Open Offer and accordingly the future growth of the Group.

– 36 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

To our best knowledge and based on the information from the Stock Exchange and GEM’s websites, we have identified 18 open offers announced by companies listed on the Main board and the Growth Enterprise Market of the Stock Exchange from 23 May 2005 to the Latest Practicable Date (the “Reference Open Offers Companies”) for comparison and analysis purpose. The analysis is summarized as follows:

				Discount/
				(premium) to
				theoretical
				ex-entitlement
			Discount/	price of
			(premium) to	shares based
			closing price	on the closing
			of shares on	price of
			the last	shares on the
		Basis of	trading day	last trading
Company name	Date of	provisional	prior to	day prior to
(stock code)	announcement	allotment	announcement	announcement
			%	%
China Nan Feng Group	28 April 2006	3 for 1	63.86	30.64
Limited (979)
China National Resources	26 April 2006	1 for 2	28.6	21.1
Development Holdings
Limited (661)
Tomorrow International	8 March 2006	5 for 4	13.4	(30.7)
Holdings Limited (760)
Heng Tai Consumables	1 March 2006	2 for 5	47.6	39.5
Group Limited (197)
Syscan Technology	28 February 2006	3 for 1	58.9	26.83
Holdings Limited (8083)
Uni-Bio Science Group	15 February 2006	2 for 1	18.0	6.9
Limited (690)
South Sea Petroleum	27 January 2006	1 for 2	41.18	31.03
Holdings Limited (76)
Fortuna International	27 January 2006	2 for 1	90	75
Holdings Limited (530)
TCL Communication	22 December 2005	1 for 1	20.0	11.0
Technology Holdings
Limited (2618)
Satellite Device Limited	25 November 2005	3 for 1	13.3	3.7
(8172)
ePro Limited (8086)	17 November 2005	1 for 2	18.75	13.33
Foundation Group Limited	18 October 2005	3 for 1	77.0	45.63
(1182)
Earnest Investments	12 October 2005	8 for 1	90.7	52.4
Holdings Limited (339)
United Power Investment	29 August 2005	1 for 1	67.39	50.82
Limited (674)
Gorient Holdings Limited	5 August 2005	3 for 1	60.00	27.54
(729)
Shang Hua Holdings	7 July 2005	1 for 2	83.3	77
Limited (371)
Sino Gas Group Limited	30 May 2005	2 for 1	48.7	23.1
(260)

– 37 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

					Discount/
					(premium) to
					theoretical
					ex-entitlement
				Discount/	price of
				(premium) to	shares based
				closing price	on the closing
				of shares on	price of
				the last	shares on the
			Basis of	trading day	last trading
Company name		Date of	provisional	prior to	day prior to
(stock code)		announcement	allotment	announcement	announcement
				%	%
U-Right	International	23 May 2005	1 for 2	31.5	23.48
Holdings Limited (627)
			Mean	48.44	29.35
			Median	48.15	27.19
The Company		28 April 2006	1 for 2	15.66	11.39
Source:	website of the Stock	Exchange

The discounts to the closing prices on the last trading days prior to the dates of the announcements in relation to the Reference Open Offers Companies range from approximately 13.3% to 90.7% with the mean and median of approximately 48.44% and 48.15% respectively. The discounts to theoretical ex-entitlement price based on the last trading days prior to the dates of the announcement in relation to the Reference Open Offers Companies range from approximately 30.7% premium to 77% discount with the mean and median of approximately 29.35% and 27.19% respectively.

While the discount rate of approximately 15.66% of the Subscription price to the closing price of HK$0.083 per Share as quoted on the Stock Exchange on 7 April 2006, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement, it falls within the above range and lower than the mean and median.

While the discount rate of approximately 11.39% of the Subscription price to the theoretical ex-entitlement price of approximately HK$0.079 per Share based on the aforesaid closing price per Share, it falls within the above range and lower than the mean and median.

– 38 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

To our best knowledge and based on the information from the Stock Exchange and GEM’s websites, we have identified 14 rights issues (but only 13 are suitable for comparison purpose) announced by companies listed on the Main board and the Growth Enterprise Market of the Stock Exchange from 11 January 2006 to the Latest Practicable Date (the “Reference Rights Issue Companies”) for comparison and analysis purpose. The reason for such analysis of rights issue is because we are of the view that rights issue is a direct comparable to an open offer as both are fund raising exercises and are of similar structure. The analysis is summarized as follows:

				Discount/
				(premium) to
				theoretical
				ex-entitlement
			Discount/	price of
			(premium) to	shares based
			closing price	on the closing
		Basis of	of shares on	price of
		provisional	the last	shares on the
		allotment	trading day	last trading
Company name	Date of	for the	prior to	day prior to
(stock code)	announcement	rights issue	announcement	announcement
			%	%
Anex International	3 May 2006	1 for 1	19.4	10.7
Holdings Limited (723)
See Corporation Limited	27 April 2006	5 for 1	79.4	39.1
(491)
Wah Yuen Holdings	7 April 2006	3 for 2	50.74	29.18
Limited (2349)
Wing Hing International	29 March 2006	1 for 2	36.31	27.54
(Holdings) Limited
(621)
CK Life Sciences	23 March 2006	1 for 2	30.9	22.9
International (Holdings)
Limited (8222)
Asia Standard Hotel Group	23 March 2006	1 for 2	42.68	33.33
Limited (292)
Easyknit International	8 March 2006	1 for 2	15.5	11.1
Holdings Limited (1218)
Chuang’s China	6 March 2006	1 for 4	10.1	8.3
Investments Limited
(298)
Grandy Corporation (8143)	2 March 2006	1 for 2	68.42	59.18
JCG Holdings Limited	17 February 2006	1 for 2	7.59	5.19
(626)
Asia Orient Holdings	10 February 2006	1 for 2	38.8	29.7
Limited (214)
Kanhan Technologies	24 January 2006	3 for 1	89.44	67.94
Group Limited (8175)
Fintronics Holdings	11 January 2006	1 for 1	55.6	38.7
Company Limited (706)
		Mean	41.91	29.45
		Median	38.8	29.18
The Company	28 April 2006	1 for 2	15.66	11.39

Source: website of the Stock Exchange

– 39 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The discounts to the closing prices on the last trading days prior to the dates of the announcements in relation to the Reference Rights Issues Companies range from approximately 7.59% to 89.44% discount with the mean and median of approximately 41.91% and 38.8% respectively. The discounts to theoretical ex-entitlement price based on the last trading days prior to the dates of the announcement in relation to the Reference Rights Issues Companies range from approximately 5.19% to 67.94% with the mean and median of approximately 29.45% and 29.18% respectively.

While the discount rate of approximately 15.66% of the Subscription Price to the closing price of HK$0.083 per Share as quoted on the Stock Exchange on 7 April 2006, being the last trading day before the suspension of trading in the Shares pending the publication of the Announcement, it falls within the above range and lower than the mean and median.

As a summary, based on our analysis, the discount rates of the Subscription Price against the closing price on the Last Trading Day and against the theoretical ex-entitlement price based on the closing price on the Last Trading Day are lower than the mean and median of the respective discount rates of the Reference Open Offers Companies and Reference Rights Issues Companies, having regarded that the discount rates of the Subscription Price fall within the ranges of the respective discount rates of the Reference Open Offers Companies and Reference Rights Issues Companies and the Open Offer allows all Qualifying Shareholders to participate in the Company’s future growth, we are of the view that the Subscription Price is fair and reasonable so far as Independent Shareholders are concerned.

(e) Other principal terms of the Open Offer

The Open Offer is conditional upon, among other things, certain conditions as stated in the Board Letter, which include: (a) the Executive granting the Whitewash Waiver; (b) the approval of the Open Offer and application for Whitewash Waiver by the Independent Shareholders at the EGM; and (c) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment), and not having revoked the grant of, a listing of and permission to deal in the Offer Shares, either unconditionally or subject to such conditions as are accepted by the Underwriter.

– 40 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition, Shareholders and other potential investors should be aware that the Open Offer will not proceed in accordance with the terms contained in the section headed “Termination of the Underwriting Agreement” in the Board Letter.

3. Underwriting arrangement

The Company and Xiyang have entered into the Underwriting Agreement on 7 April 2006, which has been amended by a supplemental agreement dated 18 April 2006. On 12 May 2006, the Company, Xiyang (the original underwriter to the Open Offer pursuant to the Underwriting Agreement) and Mr. Zhou Chao (“Mr. Zhou”), the Chairman of the Company and an executive Director, entered in the Deed pursuant to which all the rights and obligations of Xiyang under the Underwriting Agreement has been novated by Mr. Zhou. As a result of the signing of the Deed, Mr. Zhou has become the Underwriter to the Open offer. Xiyang, is the single largest Shareholder beneficially interested in 42,710,400 Shares, representing approximately 26.69% of the issued share capital of the Company. The shareholdings of Xiyang are owned as to 90% by Mr. Zhou and as to 10% by Ms. Huang Song. Mr. Zhou and Ms. Huang Song are the Chairman and an Executive Director of the Company respectively.

Mr. Zhou, the sole Underwriter will not receive any underwriting commission for the underwritten Offer Shares.

The Directors indicate that Mr. Zhou will provide adequate financial support to fully fulfill and accomplish its duties and obligations of being the underwriter as stipulated by the Underwriting Agreement and the Deed.

The Directors consider that the Underwriting Agreement and the Deed to be on normal and reasonable commercial terms based on market practice. The Directors also indicated that Mr. Zhou is assisting the Company to raise the required funds under the Open Offer and the above underwriting arrangements also demonstrate the financial commitment of Mr. Zhou to the Group’s future development.

– 41 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We set out below the underwriting commission charged by the underwriters to the open offers or rights issues of the following comparable companies:

	Underwriting	Underwriting
Company name (stock code)		commission
		%
The Company		0
Easyknit International Holdings Limited (1218)		1.0
Chuang’s China Investments Limited (298)		2.0
Grandy Corporation (8143)		2.5
Heng Tai Consumables Group Limited (197)		2.5
JCG Holdings Limited (626)		0
Uni-Bio Science Group Limited (690)		2
Asia Orient Holdings Limited (214)		2
Climax International Company Limited (439)		2.5
South Sea Petroleum Holdings Limited (76)		2.5
Fortuna International Holdings Limited (530)		1
Kanhan Technologies Group Limited (8175)		2.5
Fintronics Holdings Company Limited (706)		1.5
	Mean	1.83
	Median	2.0

Source: website of the Stock Exchange

As demonstrated above, the underwriting commission of the Comparable Companies ranged from 0% to 2.5% with the mean and median underwriting commission as 1.83% and 2.0% respectively. The underwriting commission of the Open Offer of 0% is within the range of the Comparable Companies and is in our opinion fair and reasonable so far as the Independent Shareholders are concerned.

4. Undertaking by Xiyang

The Board Letter indicates that as at the Latest Practicable Date, Xiyang holds 42,710,400 Shares, representing approximately 26.69% of the Company’s issued share capital; and Xiyang has undertaken to the Company that:

(1) it owns beneficially and will own on the Record Date beneficially 42,710,400 Shares; and
(2) it will subscribe for the 21,355,200 Offer Shares that it is entitled to subscribe for under the Open Offer.

5. Potential dilution effect on the Shareholders

The attributable interest (in terms of percentage shareholding) in the Company of those Qualifying Shareholders who take up their entitlements in full under the Open Offer will remain unchanged after the Open Offer.

– 42 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For Excluded Shareholders and those Qualifying Shareholders who do not elect to subscribe for in full their assured allotments under the Open Offer, depending on the extent that they take their entitlements, their attributable interest in the Company will be diluted immediately following the Open Offer to a maximum dilution of approximately 33.33%. We consider that the dilution is not prejudicial on the ground that all Qualifying Shareholders are entitled to subscribe for their entitlements under the terms of the Open Offer.

The Qualifying Shareholders should also note that application for subscription for Offer Shares not initially taken up under the Open Offer can be made using the Excess Application Form. Accordingly, Qualifying Shareholders who would like to take the Open Offer as an opportunity to increase their attributable interest (in terms of percentage shareholding) in the Company can do so at a Subscription Price which is at a discount to recent closing prices of the Shares on the Stock Exchange.

Also having taken into account that the Open Offer under the existing arrangement will be a better alternative of fund raising to increase the working capital of the Group and enabling the Qualifying Shareholders to maintain their proportionate interests in the Company should they wish to do so, we therefore consider that in such circumstances the possible dilution effect on the Shareholders as a result of the Open Offer is acceptable.

6. Financial effect of the Open Offer

(a) Effect on net tangible assets

With reference to the unaudited pro forma statement of adjusted net tangible assets of the Group as set out in Appendix I to the Circular, the audited net tangible assets of the Group as at 31 December 2005 amounted to approximately HK$10.5 million, which is equivalent to approximately HK$0.07 per Share. Following the completion of the Open Offer, the unaudited pro forma net tangible assets of the Group is estimated to increase from approximately HK$10.5 million to approximately HK$15.3 million, representing an increase of approximately HK$4.8 million or 45.8%, while the unaudited pro forma net tangible asset per Share of the Group is estimated to decrease from approximately HK$0.07 to approximately HK$0.0637, representing a decrease of approximately 9.0%, maybe as a result of deduction of estimated relevant expense from the proceeds of the Open Offer. The net tangible assets of the Group will be improved as a result of the injection of fresh capital from the Open Offer.

(b) Effect on gearing ratio

As shown in the 2005 results announcement, the Group had total debts (including short-term borrowings, amounts due to Directors and long-term borrowings of approximately HK$121,000, HK$500,000 and HK$2,565,000 respectively) of approximately HK$3,186,000 and total assets of approximately HK$14,310,000 as at 31 December 2005. This translates to a gearing ratio (calculated as total debts / total assets x 100%) of approximately 22.26% as at 31 December 2005. It is expected that the net proceeds raised under the Open Offer will lower the Group’s gearing ratio as a result of an increased total assets.

– 43 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Effect on cash position

As stated in the 2005 results announcement, the Group had audited cash and bank balances as at 31 December 2005 of approximately HK$52,000. The net proceeds from the Open Offer of approximately HK$4.8 million is expected to improve the Group’s cash position immediately following the completion of the Open Offer.

7. Application for Whitewash Waiver

As a result of the signing of the Underwriting Agreement and the Deed, Xiyang’s shareholding in the Company following the Open Offer will be 64,065,600 Shares, representing approximately 26.69% of the Company’s issued share capital as enlarged by the Open Offer. As Xiyang’s shareholding in the Company is expected to remain less than 30% following the Open Offer, Xiyang is not expected to be required to make a mandatory general offer for all the Shares not already owned or agreed to be acquired by it pursuant to Rule 26 of the Takeovers Code.

Investors should be aware that if the Whitewash Waiver is granted to Mr. Zhou, it may not be required to make further mandatory general offers pursuant to the Takeover Codes if his shareholding in the Company becomes greater than 50% as a result of acting as the underwriter to the Open Offer.

The Underwriting Agreement and the Deed are conditional on the Whitewash Waiver be obtained. If the application for Whitewash Waiver is not approved by the Independent Shareholders or granted by the Executive, the Underwriting Agreement will not become unconditional, then, the Open Offer will not proceed.

As indicated in the Board Letter, it is the intention of the Underwriter that the Group will continue its current business and the underwriter has no intention to make any major change to the business or employment of the employees of the Group.

Two independent board committees have been established by the Company to advise the Independent Shareholders on the Proposed Open Offer and application for the Whitewash Waiver.

The Directors confirm that, based on their best knowledge and belief, the Underwriter and persons acting in concert with it have not dealt in the Shares during the 6 months immediately prior to the Latest Practicable Date.

– 44 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

In formulating our recommendation to the Independent Board Committees in respect of the terms of Open Offer and application for the Whitewash Waiver, we have taken into account all the factors and reasons set out above, in particulars:

the unsatisfactory performance of the Group for the three consecutive years of 2003, 2004 and 2005, especially the repeated loss incurred by the Group for the said three years amounting to approximately HK$11.8 million, HK$7.1 million and HK$5.2 million respectively;
the cash and bank balance of the Group as at 31 March 2006 may be insufficient to cover the annual administrative expense;
the repeated losses incurred by the Group for the previous three consecutive years had reduced the net assets of the Company from HK$12.3 million for the year ended 31 December 2003 to HK$10.5 million for the year ended 31 December 2005, representing a reduction of approximately 14.63%;
the net assets value of the Group has been reduced to HK$10.5 million as at 31 December 2005 in which further capital may be required for the Group to continue its investment business;
the difficulties for the Group to obtain debt finance due to the repeated losses incurred by the Group for the previous three consecutive years;
relatively low liquidity of the Shares;
the difficulties in securing independent underwriting from the other securities houses by the Group;
the discount of the Subscription Price;
The improvement to the financial position of the Group, especially the cash position of the Group upon completion of the Open Offer;
the Open Offer provides the Group an opportunity to raise equity funds under current improving market conditions instead of debt financing which is expected to increase the Group’s gearing;
the Open Offer allows all Qualifying Shareholders to participate in the enlargement of the Company’s capital base;
the discount of the Subscription Price to the current market price of the Shares would encourage more Qualifying Shareholders to participate in the Open Offer;
there would be no dilution effect on those Qualifying Shareholders who take up their entitlements in full.

– 45 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having considered the above factors and reasons and Directors’ representations, we are of the opinion that in such circumstances of the Group, the terms of the Open Offer and the Application of the Whitewash Waiver, are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Therefore, we recommend the Independent Board Committees to advise the Independent Shareholders to vote in favor of the Open Offer and application for Whitewash Waiver at the EGM.

Yours faithfully, For and on behalf of Wallbanck Brothers Securities (Hong Kong) Limited Phil Chan Chief Executive Officer

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL RESULTS AND ASSETS AND LIABILITIES FOR THE LAST THREE YEARS ENDED 31 DECEMBER 2005

The following financial information has been extracted from the audited financial statements of the Group for each of the three years ended 31 December 2005. Grant Thornton, the Company’s auditor, has expressed unqualified opinions on the Company’s financial statements for each of the three years ended 31 December 2005. The Company has not published any interim statement or preliminary announcement since the publication of the Company’s results for the year ended 31 December 2005. There has not been any material change to the accounting policy of the Company which would make the Company’s financial information for the three years ended 31 December 2005 not comparable. However, as of 1 January 2005, the Group has adopted the new or revised standards and interpretations of Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). The adoption of the new or revised standards and interpretations of HKFRS (“new HKFRS”) did not result in any material changes to the Company’s financial statements for the year ended 31 December 2004, further details of which are set out in note 3 to the Company’s financial statements for the year ended 31 December 2005 set out in this appendix for further information. The Directors confirm that the adoption of the new HKFRS did not result in any material changes to the financial information for the year ended 31 December 2003 which was prepared under the then accounting standards issued by the HKICPA. The financial information for the three years ended 31 December 2005 presented below is comparable despite the adoption of the new HKFRS. For each of the three years ended 31 December 2005, the Group did not have any extraordinary items, exceptional items, minority interests and had not declared any dividend.

Results
Turnover
Loss from operations
Finance costs
Loss before taxation
Taxation
Loss for the year
Loss per share
Assets and liabilities
Property, plant and equipment
Investment property
Available-for-sale financial assets
Investments in securities
Current assets
Current liabilities
Non-current liabilities
Shareholders’ funds

Year ended 31 December
2005
2004
2003
HK$’000
HK$’000
HK$’000
177
49
4
(5,223)
(7,100)
(11,799)
(25)
(7)
(61)
(5,248)
(7,107)
(11,860)
–
–
52
(5,248)
(7,107)
(11,808)
(HK$0.04)
(HK$0.10)
(HK$0.21)
As at 31 December
2005
2004
2003
HK$’000
HK$’000
HK$’000
219
227
–
3,860
–
–
6,874
–
–
–
9,464
9,714
3,357
2,996
3,282
(1,261)
(1,545)
(652)
(2,565)
(52)
–
10,484
11,090
12,344

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

The following is the audited consolidated accounts of the Company for the year ended 31 December 2005 as extracted from pages 23 to 67 of the 2005 annual report of the Company.

Consolidated Income Statement

For the year ended 31 December 2005

Notes Revenue 6 Other income Administrative expenses Other operating expenses Impairment loss recognised in respect of available-for-sale financial assets/investments in securities 7 Loss from operations 8 Finance costs 9 Loss before income tax Income tax expense 11 Loss for the year attributable to equity holders of the Company 12 Loss per share for loss attributable to the equity holders of the Company during the year 13 Basic Diluted	2005 HK$’000 177 295 (3,538) (114) (2,043)	2004 HK$’000 49 102 (3,443) – (3,808) (7,100) (7) (7,107) – (7,107) (HK$0.10) N/A
	(5,223) (25) (5,248) –	(7,100 (7
		(7,107 –
	(5,248) (HK$0.04) N/A

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2005

2005 Notes HK$’000 ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 14(a) 219 Investment property 15 3,860 Available-for-sale financial assets 17 6,874 Investments in securities 17 – 10,953 Current assets Prepayment, deposits paid and other receivables 209 Pledged deposit – Cash at banks 52 Financial assets at fair value through profit or loss 18 3,096 3,357 Total assets 14,310 Current liabilities Other payables 640 Borrowings 19 121 Amounts due to directors 20 500 1,261 Net current assets 2,096 Total assets less current liabilities 13,049 Non-current liabilities Borrowings 19 2,565 Net assets 10,484 EQUITY Share capital 21 4,000 Reserves 23 6,484 Total equity 10,484 Net asset value per share 25 HK$0.07 Zhou Chao Director Huang Song Director	2005 HK$’000 219 3,860 6,874 –	2004 HK$’000 227 – – 9,464
	10,953 209 – 52 3,096 3,357 14,310 640 121 500 1,261 2,096 13,049 2,565 10,484 4,000 6,484	9,691 1,956 1,000 40 –
		2,996
		12,687
		1,326 14 205
		1,545
		1,451
		11,142
		52
		11,090
		2,000 9,090
		11,090

		HK$0.14

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Balance Sheet

As at 31 December 2005

2005 Notes HK$’000 ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 14(b) 219 Interests in subsidiaries 16 11,698 Investments in securities 17 – 11,917 Current assets Prepayment, deposits paid and other receivables 201 Cash at banks 34 Financial assets at fair value through profit or loss 18 496 731 Total assets 12,648 Current liabilities Other payables 560 Borrowings 19 – Amounts due to directors 20 500 1,060 Net current liabilities (329) Total assets less current liabilities 11,588 Non-current liabilities Borrowings 19 – Net assets 11,588 EQUITY Share capital 21 4,000 Reserves 24 7,588 Total equity 11,588 Zhou Chao Director Huang Song Director	2005 HK$’000 219 11,698 –	2004 HK$’000 227 11,115 47 11,389 1,206 38 – 1,244 12,633 1,245 14 205 1,464 (220) 11,169 52 11,117 2,000 9,117 11,117
	11,917 201 34 496 731 12,648 560 – 500 1,060 (329) 11,588 –	11,389 1,206 38 –
		1,244
		12,633
		1,245 14 205
		1,464
		(220
		11,169
		52

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2005

Equity Share capital HK$’000 1,440 – –	attributable Share premium HK$’000 101,127 – –	to equity holders of the Company Investment revaluation reserve Accumulated losses Total equity HK$’000 HK$’000 HK$’000 53 (90,276) 12,344 (6) – (6) – (7,107) (7,107) (6) (7,107) (7,113) – – 6,291 – – (432) 47 (97,383) 11,090 (47) – (47) – (5,248) (5,248) (47) (5,248) (5,295) – – 5,200 – – (511) – (102,631) 10,484	to equity holders of the Company Investment revaluation reserve Accumulated losses Total equity HK$’000 HK$’000 HK$’000 53 (90,276) 12,344 (6) – (6) – (7,107) (7,107) (6) (7,107) (7,113) – – 6,291 – – (432) 47 (97,383) 11,090 (47) – (47) – (5,248) (5,248) (47) (5,248) (5,295) – – 5,200 – – (511) – (102,631) 10,484	to equity holders of the Company Investment revaluation reserve Accumulated losses Total equity HK$’000 HK$’000 HK$’000 53 (90,276) 12,344 (6) – (6) – (7,107) (7,107) (6) (7,107) (7,113) – – 6,291 – – (432) 47 (97,383) 11,090 (47) – (47) – (5,248) (5,248) (47) (5,248) (5,295) – – 5,200 – – (511) – (102,631) 10,484
– 560 – 2,000 – – – 2,000 –	– 5,731 (432) 106,426 – – – 3,200 (511)	(6) – – 47 (47) – (47) – –	(7,107) – – (97,383) – (5,248) (5,248) – –	(7,113 6,291 (432
				11,090 (47 (5,248
				(5,295 5,200 (511
4,000	109,115	–	(102,631)

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2005

Note Cash flow from operating activities Loss before income tax Adjustments for: Depreciation Finance costs Loss on disposal of property, plant and equipment Impairment loss recognised in respect of available-for-sale financial assets/investments in securities Operating loss before working capital changes Increase in financial assets at fair value through profit or loss Decrease/(Increase) in prepayment, deposits paid and other receivables (Decrease)/Increase in other payables Increase/(Decrease) in amounts due to directors Cash used in operations Interest paid Net cash used in operating activities Cash flow from investing activities Acquisition of a subsidiary 29 Purchases of investments in available-for-sale financial assets/investments in securities Proceeds from sale of available-for-sale financial assets Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash generated from/(used in) investing activities Cash flow from financing activities Net proceeds from issue of shares Capital element of finance lease payments Interest element of finance lease payments Decrease/(Increase) in pledged deposit Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December	2005 HK$’000 (5,248) 234 25 62 2,043	2004 HK$’000 (7,107) 35 7 10 3,808 (3,247) – (1,780) 1,004 (125) (4,148) (2) (4,150) – (3,564) – (209) 12 (3,761) 5,859 (9) (5) (1,000) 4,845 (3,066) 3,106 40
	(2,884) (3,096) 1,977 (2,093) 295 (5,801) (25) (5,826) 3 – 500 (1,258) 970 215 4,689 (66) – 1,000 5,623 12 40	(3,247 – (1,780 1,004 (125
		(4,148 (2
		(4,150
		– (3,564 – (209 12
		(3,761
		5,859 (9 (5 (1,000
		4,845
		(3,066 3,106
	52

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Financial Statements

For the year ended 31 December 2005

1. NATURE OF OPERATIONS

The principal activity of Haywood Investments Limited (the “Company”) is to act as an investment holding company. The principal activities of the Company’s subsidiaries are set out in note 16 to the financial statements. The Group principally invests in listed and unlisted companies in Hong Kong and in other parts of the People’s Republic of China, excluding Hong Kong (the “PRC”) and investment property in Hong Kong.

The investment and acquisition of Summit Asset Holdings Limited (“Summit Asset”) described in note 29 are in line with the Group’s strategy to strengthen the investment portfolio of the Group.

2. GENERAL INFORMATION

The financial statements set out on pages 23 to 67 have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) as issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

The Company was incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Law (Revised) of the Cayman Islands. The Company’s shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of the Company’s registered office is Ugland House, PO Box 309, George Town, Grand Cayman, Cayman Islands and, its principal place of business is Unit 2206, 22nd Floor, Office Tower, Convention Plaza, No. 1 Harbour Road, Hong Kong.

The financial statements for the year ended 31 December 2005 were approved by the board of directors on 18 April 2006.

3. ADOPTION OF NEW/REVISED HKFRS

From 1 January 2005, the Group has adopted the new/revised standards and interpretations of HKFRS, which are relevant to its operations. This includes the following new, revised and renamed standards:

HKAS 1	Presentation of Financial Statements
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 40	Investment Property
HKFRS 2	Share-based Payment
HKFRS 3	Business Combinations
HK(SIC) Int-12	Scope of HKAS-Int 12 Consolidation-Special Purpose Entities
HK(SIC) Int-15	Operating Leases-Incentives
HK(SIC) Int-21	Income Taxes-Recovery of Revalued Non-Depreciable Assets

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

All the standards have been applied retrospectively except where specific transitional provisions require a different treatment. Significant effects on current, prior or future periods arising from the first-time application of the standards listed above in respect to presentation, recognition and measurement of accounts are described in the following notes:

Adoption of HKAS 32 and HKAS 39

Prior to the adoption of HKAS 39, non-trading securities are measured at fair value. Changes in fair value are dealt with in investment revaluation reserve until the securities are sold or determined to be impaired, at which time the cumulative gain or loss previously recognised in investment revaluation reserve is included in the income statement for that period.

On the adoption of HKAS 39, the Group classified its investment into available-for sale and measured its financial assets at fair value.

In accordance with the transitional provisions of HKAS 39, it does not permit the recognition, derecognition and measurement of financial assets and liabilities in accordance with the standard on a retrospective basis. Accordingly, the reclassification is made on 1 January 2005 and the comparative figures have not been restated.

The effect of changes in the accounting policies as a result of adopting HKAS 32 and 39 on the consolidated balance sheet is set out below. There was no effect on the income statement in the current or prior year:

At 1 January 2005 HK$’000 (Decrease)/increase in assets Investments in securities (9,464) Available-for-sale financial assets 9,464

–

Other standards adopted

The adoption of other HKASs did not result in significant alterations to the Group’s accounting policies. The specific transitional provisions contained in some of these standards were considered. The adoption of these other standards did not result in any changes to the amounts or disclosures in these financial statements.

New Standards or interpretations that have been issued but are not yet effective

The Group has not early adopted the following standards or interpretations that have been issued but are not yet effective. The adoption of such standards and interpretations will not result in substantial changes to the Group’s accounting policies.

HKAS 1 (Amendment)	Capital Disclosures1
HKAS 19 (Amendment)	Employee Benefits-Actuarial Gains and Losses, Group Plans and
	Disclosures2
HKAS 21 (Amendment)	The Effects of Changes in Foreign Exchange Rates-Net Investment
	in a Foreign Operation2
HKAS 39 (Amendment)	Cash Flow Hedge Accounting of Forecast Intragroup Transactions2
HKAS 39 (Amendment)	The Fair Value Option2
HKAS 39 & HKFRS 4	Financial Instruments: Recognition and Measurement and Insurance
(Amendment)	Contracts-Financial Guarantee Contracts2
HKFRS 1& HKFRS 6	First-time Adoption of Hong Kong Financial Reporting Standards
(Amendments)	and Exploration for and Evaluation of Mineral Resources2
HKFRS 6	Exploration for and Evaluation of Mineral Resources2
HKFRS 7	Financial Instruments-Disclosures1

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease[2] HK(IFRIC)-Int 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds[2] HK(IFRIC)-Int 6 Liabilities Arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment[3] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[4]

1 Effective for annual periods beginning on or after 1 January 2007
2 Effective for annual periods beginning on or after 1 January 2006
3 Effective for annual periods beginning on or after 1 December 2005
4 Effective for annual periods beginning on or after 1 March 2006

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The significant accounting policies that have been used in the preparation of these financial statements are summarised below.

The financial statements have been prepared on the historical cost basis except for the revaluation of investment properties and certain financial assets and liabilities. The measurement bases are fully described in the accounting policies below.

It should be noted that accounting estimates and assumptions are used in preparation of the financial statements. Although these estimates are based on management’s best knowledge of current events and actions, actual results may ultimately differ from those estimates.

(b) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. All material inter-company transactions and balances within the Group are eliminated on consolidation.

(c) Subsidiaries

Subsidiaries are entities (including special purpose entities) over which the Company has the power to control the financial and operating policies. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases.

Acquired subsidiaries are subject to application of the purchase method. This involves the revaluation at fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their revalued amounts, which are also used as the bases for subsequent measurement in accordance with the Group’s accounting policies. Goodwill represents the excess of acquisition cost over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the Company’s balance sheet, subsidiaries are carried at cost less any impairment loss. The results of the subsidiaries are accounted for by the Company on the basis of dividends received and receivable at the balance sheet date.

(d) Property, plant and equipment

(i) Depreciation

Depreciation of property, plant and equipment is calculated using the straight line method to allocate their cost over their estimated useful lives as follows:

Leasehold improvements	50%
Furniture, fixtures and equipment	20%
Motor vehicles	50%

Assets held under finance leases are depreciated over their estimated useful lives or where shorter the term of the lease using the same method as owned assets in the same category.

(ii) Measurement bases

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the assets to the working condition and location for its intended use. Subsequent expenditure relating to property, plant and equipment is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets. When assets are sold or retired, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the income statement.

(e) Investment property

On initial recognition, investment property is measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment property is stated at fair value. Fair value is determined by directors or external professional valuers, with sufficient experience with respect to both the location and the nature of the investment property. The carrying amounts recognised in the balance sheet reflect the prevailing market conditions at the balance sheet date.

Any gain or loss resulting from either a change in the fair value or the sale of an investment property is immediately recognised in income statement.

(f) Leases

The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is recognised at the time of inception of the lease at the present value of the lease payments plus incidental payments (the “initial value”), if any, to be borne by the lessee. A corresponding amount is recognised as a finance lease liability, irrespective or whether some of these lease payments are payable up-front at the date of inception of the lease.

Subsequent accounting for assets held under finance lease agreement, ie depreciation methods and useful lives corresponds to those applied to comparable acquired assets. The corresponding finance lease liability is reduced by lease payments less finance charges, which are expensed to finance costs.

All other leases are treated as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the terms of the lease. Affiliated costs, such as maintenance and insurance, are expensed as incurred.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g) Financial assets

In previous year, the Group classified its investments in non-trading securities other than subsidiaries as investment in securities and were stated at fair value at the balance sheet date. Changes in the fair value of individual securities were credited or debited to the investment revaluation reserve until the security was sold, or was determined to be impaired. Upon disposal, the cumulative gain or loss representing the difference between the net sales proceeds and the carrying amount of the relevant security, together with any surplus/deficit transferred from the investment revaluation reserve, was dealt with in the income statement. Where there is objective evidence that individual investments were impaired, the cumulative loss recorded in the revaluation reserve was taken to the income statement.

From 1 January 2005 onwards, the Group classifies its financial assets into the following categories: loans and receivables, financial assets at fair value through profit or loss, available-for-sale financial assets and held-to-maturity investments. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the financial assets were acquired. The designation of financial assets is re-evaluated at every reporting date at which a choice of classification or accounting treatment is available.

All financial assets are recognised on their trade date. All financial assets that are not classified as fair value through profit or loss are initially recognised at fair value, plus transaction costs.

Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

Financial assets at fair value through profit or loss include financial assets that are either held for trading or are designated by the Group to be carried at fair value through profit or loss on initial recognition.

Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value recognised in the income statement. Financial assets originally designated as financial assets at fair value through profit or loss may not subsequently be re-classified.

Available-for-sale financial assets include non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. All financial assets within this category are subsequently measured at fair value, unless otherwise disclosed, with changes in value recognised in equity, net of any effects arising from income taxes.

Upon disposal, the cumulative gain or loss previously recognised in equity is transferred to the income statement. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in the income statement even though the financial asset has not been derecognised. Impairment losses previously recognised in the income statement on equity instruments will not reverse through income statement in subsequent periods. Impairment losses previously recognised in income statement on debt securities are subsequently reversed through income statement 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, 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 income statement 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 loss will not reverse in subsequent periods.

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivables. Loans and receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any impairment losses. Any changes in their value are recognised in income statement.

Loans and receivables are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the write-down is determined as the difference between the asset’s carrying amount and the present value of estimated future cash flows.

(h) Impairment of assets

Property, plant and equipment and interests in subsidiaries are subject to impairment testing.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level.

Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised as an expense immediately for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow evaluation.

An impairment loss is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount and only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised

(i) Income tax

Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a component of tax expense in the income statement.

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided for in full. Deferred tax assets are recognised to the extent that it is probable that they will be able to be offset against future taxable income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Most changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement. Only changes in deferred tax assets or liabilities that relate to a change in value of assets or liabilities that is charged directly to equity are charged or credited directly to equity.

(j) Cash and cash equivalents

Cash and cash equivalents include cash at bank and in hand.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(k) Share capital

Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.

Any transaction costs associated with the issuing of shares are deducted from the share premium, net of any related income tax benefits to the extent they are incremental costs directly attributable to the equity transaction.

(l) Pension obligations and short term employee benefits

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The contributions recognised in respect to defined contribution plans are expensed as they fall due. Liabilities and assets may be recognised if underpayment or prepayment has occurred and are included in current liabilities or current assets as they are normally of a short term nature.

Short-term employee benefits are recognised for the number of paid leave days (usually holiday entitlement) remaining at the balance sheet date. They are included in other payables at the undiscounted amount that the Group expects to pay as a result of the unused entitlement.

(m) Financial liabilities

The Group’s financial liabilities include bank borrowings, other payables, amounts due to directors and finance lease liabilities. They are included in balance sheet line items “Borrowings”, “Other payables” and “Amounts due to directors”.

Financial liabilities are recognised when the Group becomes a party to the contractual agreement of the instrument. All interest related charges are recognised as an expense in “finance cost” in the income statement.

Finance lease liabilities are measured at initial value less the capital element of lease repayments.

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

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Other payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest rate method.

(n) Recognition of revenue

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

Dividend income is recognised when the Group’s right as a shareholder to receive payment is established.

(o) Foreign currencies

The financial statements are presented in Hong Kong Dollars (HK$), which is also the functional currency of the Company.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the income statement under “other income” or “other operating expenses”, respectively.

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

In the consolidated financial statements, all separate financial statements of subsidiaries, originally presented in a currency different from the Group’s presentation currency, have been converted into Hong Kong dollars. Assets and liabilities have been translated into Hong Kong dollars at the closing rate at the balance sheet date. Income and expenses have been converted into Hong Kong Dollars at the average rates over the reporting period. Any differences arising from this procedure have been dealt with in the currency translation reserve in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Hong Kong dollars at the closing rate.

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

(p) Segment reporting

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

Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant and equipment, receivables, investment properties, financial assets at fair value through profit and loss and available-for-sale investments, and mainly exclude cash at banks. Segment liabilities comprise operating liabilities and exclude items such as amount due to directors.

Capital expenditure comprises additions to property, plant and equipment, including additions resulting from acquisitions through purchases of subsidiaries.

In respect of geographical segment reporting, revenues are based on the country in which the investment is located and total assets and capital expenditure are where the assets are located.

(q) Critical accounting estimates and judgements

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

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

Investment properties

The investment property of the Group was stated at fair value in accordance with the accounting policy state in note 4(e). The fair value of the investment properties are determined by the directors as set out in note 15. Such valuations were based on certain assumptions, which are subject to uncertainty and might materially differ from the actual results.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In making the judgement, consideration has been given to assumptions that are mainly based on market conditions existing at the balance sheet dates and appropriate capitalisation rates. These estimates are regularly compared to actual market data and actual transactions entered into by the Group.

Impairment of available-for-sale financial assets

The Group follows the guidance of HKAS 39 when determining whether an investment in available-for-sale financial assets is other-than-temporarily impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the expected time span the Group will hold on to this investment.

5. SEGMENT INFORMATION

The Group makes investments in Hong Kong and in other parts of the PRC. These geographical markets are the basis on which the Group reports its primary segment information.

Segment information about these geographical markets is presented below:

Revenue – turnover Results Segment results Unallocated corporate expenses Loss from operations Finance costs Loss before income tax Income tax expense Loss for the year Assets Segment assets Unallocated corporate assets Total assets Liabilities Segment liabilities Unallocated corporate liabilities Total liabilities Other information Capital expenditure Depreciation Impairment loss recognised in income statement	Hong Kong 2005 2004 HK$’000 HK$’000 177 49 (352) (3,575) 7,384 3,564 (3,326) (66) 1,258 284 234 35 – 3,064	PRC 2005 2004 HK$’000 HK$’000 – – (2,043) (744) 6,874 8,917 – – – – – – 2,043 744	Total 2005 2004 HK$’000 HK$’000 177 49 (2,395) (4,319) (2,828) (2,781) (5,223) (7,100) (25) (7) (5,248) (7,107) – – (5,248) (7,107) 14,258 12,481 52 206 14,310 12,687 (3,326) (66) (500) (1,531) (3,826) (1,597) 1,258 284 234 35 2,043 3,808	Total 2005 2004 HK$’000 HK$’000 177 49 (2,395) (4,319) (2,828) (2,781) (5,223) (7,100) (25) (7) (5,248) (7,107) – – (5,248) (7,107) 14,258 12,481 52 206 14,310 12,687 (3,326) (66) (500) (1,531) (3,826) (1,597) 1,258 284 234 35 2,043 3,808
			(2,395) (2,828) (5,223) (25) (5,248) –	(4,319 (2,781
				(7,100 (7
				(7,107 –
			(5,248) 14,258 52 14,310
			(3,326) (500)	(66 (1,531
			(3,826) 1,258 234 2,043

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

No business segment analysis is presented as less than 10% of the Group’s revenue and contribution to loss from operations is attributable to the investment property.

6. REVENUE AND TURNOVER

Interest income Dividend income	2005 HK$’000 127 50 177	2004 HK$’000 49 –
		49

7. IMPAIRMENT LOSS RECOGNISED IN RESPECT OF AVAILABLE-FOR-SALE FINANCIAL ASSETS/INVESTMENTS IN SECURITIES

Unlisted equity securities: – Tianjin Standard International Building Materials Industry Co., Ltd (“Tianjin Standard”) (note 17(b)(i)) – Koffman Asset Holdings Limited (“Koffman Asset”) (note 17(b)(iii))	2005 HK$’000 2,043 – 2,043	2004 HK$’000 744 3,064
		3,808

8. LOSS FROM OPERATIONS

	2005	2004
	HK$’000	HK$’000
Loss from operations is arrived at after charging/(crediting):
Auditors’ remuneration
– current year	123	197
– overprovision in prior year	(76)	(12)
Depreciation
– owned assets	234	24
– leased assets	–	11
Investment management fee	369	203
Financial assets at fair value through profit or loss
– fair value loss	150	–
– fair value gain	(36)	–
Gain on disposal of financial assets at fair value through profit or loss	(25)	–
Loss on disposal of property, plant and equipment	62	10
Operating lease charges on office premises	226	446
Retirement benefits scheme contributions	22	43
Staff costs (including directors’ remuneration (note 10(a)) but excluding
retirement benefits scheme contributions)	1,155	1,018
Write off of other payables	(240)	(102)

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. FINANCE COSTS

Finance charges on finance leases Interest charges on other loan	2005 HK$’000 25 – 25	2004 HK$’000 5 2
		7

10. DIRECTORS’ AND EMPLOYEES’ REMUNERATION

(a) Remuneration of the directors for the year is as follows:

2005 Executive directors Mr. Tham Ming Yong (note (i)) Mr. Phang Yul Cher Yeow Mr. Zhou Chao (note (ii)) Ms. Huang Song (note (iii)) Mr. Chu Kin Wang, Peleus (note (iv)) Mr. Tai Ah Lam, Michael (note (v)) Non-executive directors Mr. Wong Yao Dong (note (vi)) Mr. Fong Chi Hou (note (vi)) Independent non-executive directors Ms. Lam Lin Chu (note (vii)) Mr. Liu Wing Ting, Stephen (note (iii)) Ms. Tse Po Chu (note (iv)) Mr. Wong Wing Hang, Henry (note (viii))	Fees HK$’000 50 312 280 60 113 – 10 – 45 60 35 30 995	Salaries and allowances Retirement benefits scheme contributions HK$’000 HK$’000 – – – 8 – – – – 7 4 – – – – – – – – – – – – – – 7 12	Total HK$’000 50 320 280 60 124 – 10 – 45 60 35 30
			1,014

(i) resigned on 7 July 2005
(ii) appointed on 1 June 2005
(iii) appointed on 7 July 2005
(iv) appointed on 16 September 2005
(v) resigned on 16 September 2005

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(vi) appointed on 1 November 2005
(vii) appointed on 4 April 2005
(viii) resigned on 31 March 2005

2004 Executive directors Mr. Tham Ming Yong Mr. Phang Yul Cher Yeow Mr. Wong Fong Kim Mr. Tai Ah Lam, Michael Independent non-executive directors Mr. Chang Kin Man Dr. Wong Yun Kuen, Edward Mr. Wong Wing Hang, Henry Mr. Hsieh Dominick	Fees HK$’000 36 – – – 49 90 42 – 217	Salaries and allowances Retirement benefits scheme contributions HK$’000 HK$’000 58 3 182 5 – – – – – – – – – – – – 240 8	Total HK$’000 97 187 – – 49 90 42 –
			465

No directors waived or agreed to waive any emoluments in respect of the year (2004: Nil).

No emoluments were paid to the directors as an inducement to join or upon joining the Group or as compensation for loss of office during the year (2004: Nil).

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year included four (2004: two) directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining one (2004: three) individual during the year are as follows:

Salaries, allowances and benefits in kind Retirement benefits scheme contributions	2005 HK$’000 71 – 71	2004 HK$’000 344 10
		354

The emoluments of all individuals were within the band ranging from Nil to HK$1,000,000 of the year (2004: Nil).

No emoluments were paid to the highest paid individual (2004: three) as an inducement to join or upon joining the Group or as compensation for loss of office during the year (2004: Nil).

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. INCOME TAX EXPENSE

No Hong Kong Profits Tax has been provided in the financial statements as the Group did not have any assessable profits during the year (2004: Nil).

Reconciliation between accounting loss and tax expense at applicable tax rates is as follows:

Loss before income tax Tax at applicable rate of 17.5% Tax effect of non-deductible expenses Tax losses not recognised as deferred tax asset Income tax expense	2005 HK$’000 (5,248) (918) 468 450 –	2004 HK$’000 (7,107) (1,244) 709 535 –

At 31 December 2005, a deferred tax asset of approximately HK$2,686,000 (2004: HK$2,236,000) in respect of tax losses available to offset future profits was not recognised in the financial statements as it is not certain that the Group will generate future taxable profits to enable it to utilise such tax losses. This tax loss has no expiry date.

12. LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

Of the consolidated loss for the year of HK$5,248,000 (2004: HK$7,107,000), a loss of HK$4,171,000 (2004: HK$7,084,000) has been dealt with in the financial statements of the Company.

13. LOSS PER SHARE

The calculation of the basic loss per share is based on the consolidated loss for the year attributable to the equity holders of the Company of HK$5,248,000 (2004: HK$7,107,000) and on the weighted average number of 136,547,945 (2004: 70,809,180, restated) shares in issue during the year as adjusted for the share consolidation on the basis of every five ordinary shares of the Company of HK$0.01 each into two ordinary shares of HK$0.025 each (note 21(c)).

Diluted loss per share amounts have not been presented because there were no dilutive potential shares.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

(a) Group

Leasehold improvements HK$’000 At 1 January 2004 Cost – Accumulated depreciation – Net book amount – Year ended 31 December 2004 At 1 January 2004 – Additions 29 Disposals – Depreciation (7) At 31 December 2004 22 At 31 December 2004 Cost 29 Accumulated depreciation (7) Net book amount 22 Year ended 31 December 2005 At 1 January 2005 22 Additions 321 Disposals (34) Depreciation (107) At 31 December 2005 202 At 31 December 2005 Cost 302 Accumulated depreciation (100) Net book amount 202	Furniture, fixtures and equipment HK$’000 – – –	Motor vehicles HK$’000 – – –	Total HK$’000 – – – – 284 (22) (35) 227 260 (33) 227 227 1,258 (1,032) (234) 219 322 (103) 219
– 29 – (7)	– 255 (22) (28)	– – – –	– 284 (22 (35
22	205	–
29 (7)	231 (26)	– –	260 (33
22	205	–
22 321 (34) (107)	205 97 (262) (23)	– 840 (736) (104)	227 1,258 (1,032 (234
202	17	–
302 (100)	20 (3)	– –	322 (103
202	17	–

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Company

Leasehold improvements HK$’000 At 1 January 2004 Cost – Accumulated depreciation – Net book amount – Year ended 31 December 2004 At 1 January 2004 – Additions 29 Disposals – Depreciation (7) At 31 December 2004 22 At 31 December 2004 Cost 29 Accumulated depreciation (7) Net book amount 22 Year ended 31 December 2005 At 1 January 2005 22 Additions 302 Disposals (22) Depreciation (100) At 31 December 2005 202 At 31 December 2005 Cost 302 Accumulated depreciation (100) Net book amount 202	Furniture, fixtures and equipment HK$’000 – – –	Total HK$’000 – –
		–

– 29 – (7)	– 255 (22) (28)	– 284 (22 (35
22	205	227

29 (7)	231 (26)	260 (33
22	205	227

22 302 (22) (100)	205 20 (205) (3)	227 322 (227 (103
202	17	219

302 (100)	20 (3)	322 (103
202	17	219

(c) At 31 December 2004, the cost of property, plant and equipment included an amount of HK$80,000 in respect of assets held under finance leases and the related accumulated depreciation amounted to HK$11,000. The finance lease liabilities were fully repaid during the year.

15. INVESTMENT PROPERTY – GROUP

Carrying amount as at 1 January Additions Carrying amount as at 31 December	2005 HK$’000 – 3,860 3,860	2004 HK$’000 – –
		–

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the opinion of the directors, the property interests held under operating leases are classified as investment property due to the potential of earning rentals or for capital appreciation or both, rather than for (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business and are measured using the fair value model.

Investment property was revalued on 28 December 2005 by an independent, professionally qualified valuer, Centraline Surveyors. The valuation (“professional valuation”) was based on current prices in an active market. At 31 December 2005, investment property was stated at valuation estimated by the directors of the Company with reference to the professional valuation. Investment property is located in Hong Kong and held under a medium term lease.

The investment property has been pledged as security for certain bank borrowings as set out in note 19.

No outgoings was incurred since the acquisition of this investment property.

16. INTERESTS IN SUBSIDIARIES – COMPANY

Unlisted shares, at cost Amounts due from subsidiaries Less: Impairment loss	2005 HK$’000 10 53,774 (42,086) 11,698	2004 HK$’000 – 51,204 (40,089) 11,115

The amounts due from subsidiaries are unsecured, interest free and have no fixed repayment terms. In the opinion of the directors, no part of the amount will be repayable within one year from the balance sheet date and the balances are therefore shown as non-current.

Particulars of subsidiaries at 31 December 2005 are as follows:

	Place of	Particulars	Percentage of issued	Percentage of issued	Percentage of issued
	incorporation/	of issued	capital held by		the	Principal
Name	operations	capital	Company			activities
			Directly	Indirectly
Double Dragon Profits	Hong Kong	2 ordinary	100%		–	Provision of
Limited*		shares of				management
		HK$1 each				services
Gold Canal	British Virgin	10 ordinary	–	100%		Investment
International Limited	Islands (“BVI”)	shares of				holding
(“Gold Canal”)		US$1 each
Good Place Investments	Hong Kong	2 ordinary	100%		–	Inactive
Limited*		shares of
		HK$1 each
Mega Way *	Hong Kong	10,000	100%		–	Investment in
		ordinary				Hong Kong
		shares of				listed shares
		HK$1 each
New Portfolio Limited	BVI	1 ordinary	100%		–	Investment
		share of				holding
		US$1 each

– 68 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Place of	Particulars	Percentage of issued	Percentage of issued	Percentage of issued
		incorporation/	of issued	capital held by		the	Principal
Name		operations	capital	Company			activities
				Directly	Indirectly
Speedy	Zone Limited	BVI	1 ordinary	100%		–	Inactive
			shares of
			US$1 each
Summit	Asset*	Hong Kong	10 ordinary	100%		–	Properties
			shares of				investment
			HK$1 each

Not audited by Grant Thornton or other Grant Thornton International member firms.

17. AVAILABLE-FOR-SALE FINANCIAL ASSETS/INVESTMENTS IN SECURITIES

Equity securities listed in Hong Kong (Note 17(a)) Unlisted equity securities (Note 17(b))	Group 2005 2004 HK$’000 HK$’000 – 47 6,874 9,417 6,874 9,464	Company 2005 2004 HK$’000 HK$’000 – 47 – – – 47	Company 2005 2004 HK$’000 HK$’000 – 47 – – – 47
			47

Particulars of available-for-sale financial assets at 31 December 2005 are as follows:

(a) Securities listed on the Stock Exchange – Group and Company

				Market
	Place of	Number of		value/ Fair
Name of investee company	Incorporation	shares held	Cost	value
			HK$’000	HK$’000
At 31 December 2004
Riche Multi-Media Holding Limited	Bermuda	220,000	–	47

The Group’s interest in this company is less than 1% as at 31 December 2004 and was disposed of during the current year.

(b) Unlisted securities – Group

Name of investee company Place of incorporation Note Tianjin Standard (i) PRC Standard Supplies Limited (“Standard Supplies”) (ii) Hong Kong Koffman Asset (iii) BVI	Cos 2005 HK$’000 17,461 – 3,064 20,525	t 2004 HK$’000 17,461 500 3,064 21,025	Accumulated impairment losses 2005 2004 HK$’000 HK$’000 (10,587) (8,544) – – (3,064) (3,064) (13,651) (11,608)	Carrying value 2005 2004 HK$’000 HK$’000 6,874 8,917 – 500 – – 6,874 9,417	Carrying value 2005 2004 HK$’000 HK$’000 6,874 8,917 – 500 – – 6,874 9,417
					9,417

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(i) Pursuant to various agreements entered into in December 2000, the Group acquired all the issued share capital of Gold Canal for a nominal value, changed the terms of the convertible loan note such that it has become interest-free and has neither fixed repayment terms nor the right to conversion. Gold Canal’s sole asset is a 21% equity interest in Tianjin Standard, which is principally engaged in the manufacture and trading of building materials and the provision of related consultancy services. In the opinion of the directors, since the acquisition of Gold Canal by the Group, the Group has not been in a position to exercise any significant influence over the financial and operating policies of Tianjin Standard due to the lack of representation on the board of directors in Tianjin Standard. Accordingly, Tianjin Standard is accounted for as an unlisted equity security. Based on Tianjin Standard’s audited PRC financial statements for the year ended 31 December 2005, the company continued to make losses and therefore, an additional impairment charge of HK$2,043,000 (2004: HK$744,000) was made for the year after taking into account the investee’s current year’s results.

At 31 December 2005, the carrying amount of interests in Tianjin Standard exceeded 10% of total assets of the Group.

(ii) The Group subscribed for 425,000 class “A” shares and 75,000 class “B” shares of Standard Supplies at the consideration of HK$500,000 on 19 October 2004. The Group owned 25% of Standard Supplies’ shareholding after subscription which is principally involved in the trading of flooring materials in Hong Kong and PRC. In the opinion of the directors, the Group has not been in a position to exercise any significant influence over the financial and operating policies of Standard Supplies. Accordingly, Standard Supplies is accounted for as an unlisted equity security. On 29 July 2005, the Group disposed its entire interest in this investment to a third party at a consideration of HK$500,000.
(iii) Pursuant to the subscription agreement dated 5 May 2004, the Group subscribed for 10 new shares of Koffman Asset at the consideration of approximately HK$3,064,000 representing a 9.1% equity interest in that company. The consideration was satisfied by setting off the same against the amount of loan owed by Koffman Professional Insurance Brokerage Limited, a subsidiary of Koffman Asset. Koffman Asset is a company principally involved in an insurance brokerage business which operated in Hong Kong. In 2004, Koffman Asset encountered financial difficulties and ceased operations, and accordingly an impairment charge was made against the full investment cost in 2004.

18. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Notes Securities listed in Hong Kong (a) Unlisted security (b)	Group 2005 2004 HK$’000 HK$’000 2,710 – 386 – 3,096 –	Company 2005 2004 HK$’000 HK$’000 110 – 386 – 496 –	Company 2005 2004 HK$’000 HK$’000 110 – 386 – 496 –
			–

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Securities listed in Hong Kong

Name of investee company Place of incorporation/ registration Number of units/ shares held Note At 31 December 2005 Debt security The Link REIT (i) Hong Kong Unit Trust authorised under section 104 of the Securities and Futures Ordinance 7,500 units Equity security Midland Holdings Limited (ii) Bermuda 650,000 shares	Cost HK$’000 74 2,750 2,824	Market value/Fair value HK$’000 110 2,600
		2,710

(i) Securities directly held by the Company.
(ii) At 31 December 2005, the carrying amount of interests in this company exceeded 10% of total assets of the Group.
(iii) The Group’s interests in these investments were less than 1% as at 31 December 2005.

(b) Unlisted security

Notes Designated as financial assets at fair value through profit or loss on initial recognition Investment in Rise Profits Holdings Limited (“Rise Profits”) (i) Loan to Rise Profits (ii)	Group and Company 2005 2004 HK$’000 HK$’000 – – 386 – 386 –	Group and Company 2005 2004 HK$’000 HK$’000 – – 386 – 386 –
		–

Note:

(i) The Group subscribed for 3 ordinary shares of Rise Profits of HK$1 per ordinary share on 21 July 2005 which represents 30% equity interest in that company. Rise Profits is principally involved in the investment holding of a taxi and its licence in Hong Kong. In the opinion of the directors, Rise Profits is intended to be held temporarily and the directors are actively seeking a buyer to dispose of its entire interest in Rise Profits. In this connection, the investment in Rise Profits is accounted for as an unlisted equity security rather than investment

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

in an associate. With reference to the market price of a taxi and its license quoted by a taxi agent as at 31 December 2005, the directors considered that the carrying value of this investment approximated its fair value at that date.

(ii) The amount due is unsecured, interest free and has no fixed terms of repayment.

19. BORROWINGS

Group 2005 2004 HK$’000 HK$’000 2,565 – – 52	Group 2005 2004 HK$’000 HK$’000 2,565 – – 52	Company 2005 2004 HK$’000 HK$’000 – – – 52	Company 2005 2004 HK$’000 HK$’000 – – – 52
2,565 121 – 121	52 – 14 14	– – – –	52
			– 14
			14
2,686	66	–	66

Bank borrowings are denominated in Hong Kong Dollar, secured by the investment property of the Group (Note 15) and joint and several guarantee by Mr. Zhou Chao and Ms. Huang Song, directors of the Company, which is at nil consideration, and bear interest at variable interest rate.

Finance lease liabilities are effectively secured as the rights to the leased asset which will revert to the lessor in the event of default.

At 31 December 2005, the Group’s bank borrowings (excluding finance lease liabilities) were repayable as follows:

Within one year In the second year In the third to fifth year Wholly repayable within 5 years After the fifth year	2005 HK$’000 121 128 446	2004 HK$’000 – – –
	695 1,991	– –
	2,686	–

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The analysis of the finance lease liabilities is as follows:

Due within one year Due in the second to fifth years Future finance charges on finance leases Present value of finance lease liabilities The present value of finance lease liabilities is as follows: Due within one year Due in the second to fifth years Less: Portion due within one year included under current liabilities Non-current portion included under non-current liabilities	Group and 2005 HK$’000 – –	Company 2004 HK$’000 20 59
	– –	79 (13
	–	66

	– – – –	14 52
		66 (14
	–	52

20. AMOUNTS DUE TO DIRECTORS

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

21. SHARE CAPITAL

Authorised: Ordinary shares of HK$0.01 each at 1 January Increase in ordinary shares of HK$0.01 each on 17 March 2005 (Note 21(c)) Consolidation of five ordinary shares of HK$0.01 each to two ordinary shares of HK$0.025 each on 17 March 2005 (Note 21(c)) Ordinary shares of HK$0.025 each (2004: HK$0.01) at 31 December	Number of shares 200,000,000 800,000,000 (600,000,000) 400,000,000	2005 HK$’000 2,000 8,000 – 10,000	Number of shares 200,000,000 – – 200,000,000	2004 HK$’000 2,000 – –
				2,000

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Issued and fully paid: Ordinary shares of HK$0.01 each at 1 January 2004 Shares issued on 29 March 2004 (Note 21(a)) Shares issued on 4 August 2004 (Note 21(b)) Ordinary shares of HK$0.01 each at 31 December 2004 and 1 January 2005 Consolidation of five ordinary shares of HK$0.01 each to two ordinary shares of HK$0.025 each on 17 March 2005 (Note 21(c)) Issue of ordinary shares of HK$0.025 each on 18 April 2005 (Note 21(d)) Ordinary shares of HK$0.025 each at 31 December 2005	Number of shares 144,000,000 28,800,000 27,200,000	HK$’000 1,440 288 272
	200,000,000 (120,000,000) 80,000,000	2,000 – 2,000
	160,000,000	4,000

(a) On 10 March 2004, the Company entered into a placing agreement for the placing of 28,800,000 new shares (“Placing Shares”) at a price of HK$0.124 per Placing Share (the “Placement”). The Placing Shares rank pari passu in all respects with the existing issued share capital of the Company.
(b) On 10 June 2004, the Company entered into a subscription agreement to allot and issue 27,200,000 new shares (“Subscription Shares”) to a subscriber in cash at a subscription price of HK$0.10 per Subscription Share. The Subscription Shares rank pari passu in all respects with the existing issued share capital of the Company.
(c) Pursuant to the shareholders’ approval at the extraordinary general meeting held on 17 March 2005, the authorised share capital of the Company was increased from HK$2,000,000 divided into 200,000,000 shares of HK$0.01 each to HK$10,000,000 divided into 1,000,000,000 shares of HK$0.01 each by creation of an additional 800,000,000 unissued shares of HK$0.01 each. On the same date, a share consolidation of every five existing ordinary shares of HK$0.01 par value each into two new ordinary shares of HK$0.025 par value each (“New Shares”) was approved. The New Shares rank pari passu in all respects with the then issued share capital of the Company.
(d) On 28 January 2005, the Company entered into an underwriting agreement for the open offer of 80,000,000 new shares at HK$0.065 per share (“Offer Share”) on the basis of one offer share for every New Share held on record date (“Open Offer”). An ordinary resolution in respect of the Open Offer was passed at the extraordinary general meeting held on 17 March 2005. The Offer Shares rank pari passu in all respects with the existing share capital of the Company. The Open Offer was completed on 18 April 2005.

22. SHARE OPTION SCHEME

The Company has adopted a share option scheme (the “Scheme”) on 23 May 2002. The directors may, at their absolute discretion, make an offer to any participant to take up options. An offer is deemed to have been accepted by the grantee upon the duplicate of the offer letter comprising acceptance of the offer being duly signed by the grantee and paying HK$1 by way of consideration for the grant thereof.

The subscription price for shares in the Company under the Scheme shall be no less than the highest of (i) the closing price of the shares of the Company as stated in the daily quotations sheet of the Stock Exchange on the date on which an option is granted, (ii) the average closing prices of the shares of the Company as stated in the daily quotations sheets of the Stock Exchange for the five business days immediately preceding the date on which an option is granted, and (iii) the nominal value of a share of the Company on the date on which an option is granted.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The total number of shares of the Company which may be issued upon exercise of all options to be granted under the Scheme and any other share option schemes of the Company shall not in aggregate exceed 12,000,000 shares of the Company, being 10% of the total number of shares of the Company in issue as at the date of approval of the Scheme. An option may be exercised during a period to be notified by the directors but may not be exercised after the expiry of 10 years after the date of grant of the option.

The maximum entitlement for any one participant is that the total number of shares issued and to be issued upon exercise of the options granted or to be granted to each participant under the Scheme in any 12-month period must not exceed 1% of the total number of shares in issue of the Company. Any further grant of options in excess of the 1% limit shall be subject to shareholders’ approval in general meeting with such participant and his associates abstaining from voting. The Scheme will remain in force for a period of 10 years from 23 May 2002.

No options have been granted since the adoption of the Scheme.

23. RESERVES – GROUP

Share premium Investment revaluation reserve Accumulated losses	2005 HK$’000 109,115 – (102,631) 6,484	2004 HK$’000 106,426 47 (97,383) 9,090

Movements in the Group’s reserves during the year are set out in the consolidated statement of changes in equity of the financial statements.

Under the Companies Law (Revised) of the Cayman Islands, the share premium of the Company is available for distributions or paying dividends to shareholders subject to the provisions of its Memorandum or Articles of Association and provided that immediately following the distribution or dividend the Company is able to pay its debts as they fall due in the ordinary course of business.

The investment revaluation reserve represents the net unrealised gain on revaluation of available-for-sale financial assets/investments in securities at the balance sheet date.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

24. RESERVES – COMPANY

Share premium HK$’000 101,127 – –	Investment revaluation reserve Accumulated losses HK$’000 HK$’000 53 (90,272) (6) – – (7,084)	Investment revaluation reserve Accumulated losses HK$’000 HK$’000 53 (90,272) (6) – – (7,084)	Total HK$’000 10,908 (6) (7,084)
– 5,731 (432) 106,426 – – – 3,200 (511)	(6) – – 47 (47) – (47) – –	(7,084) – – (97,356) – (4,171) (4,171) – –	(7,090) 5,731 (432)
			9,117 (47) (4,171) (4,218)
			3,200 (511)
109,115	–	(101,527)	7,588

Details of the share premium account and investment revaluation reserve of the Company are set out in note 23 above.

25. NET ASSET VALUE PER SHARE

The calculation of the net asset value per share is based on the net assets of the Group as at 31 December 2005 of HK$10,484,000 (2004: HK$11,090,000) and 160,000,000 (2004: 80,000,000, restated) ordinary shares in issue as at that date after adjusting for the effect of the share consolidation as set out in note 21(c).

26. OPERATING LEASE COMMITMENTS

The total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable by the Group and the Company as follows:

Within one year In the second to fifth years	Group 2005 2004 HK$’000 HK$’000 476 – 130 – 606 –	Company 2005 2004 HK$’000 HK$’000 368 – 125 – 493 –	Company 2005 2004 HK$’000 HK$’000 368 – 125 – 493 –
			–

The Group leases a number of properties under operating leases. The leases run for an initial period of one to two years, without an option to renew the lease terms at the expiry date or at dates as mutually agreed between the Group and respective landlords. None of the leases include contingent rentals.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

27. RELATED PARTY TRANSACTIONS

During the year, the Company had the following related party transactions:

Management fee expenses Haywood Investment Management Limited (note 27(a)) Altus Capital Limited (“Altus”) (note 27(b)) Hua Yu Investment Management Limited (“Hua Yu”) (note 27(c))	2005 HK$’000 – – 369	2004 HK$’000 103 100 –

Note:

(a) The management fee was charged in accordance with the management agreement dated 6 July 1988 (the “Agreement”). Management fees and incentive fees were calculated at 1.5% per annum of the net asset value of the Company at each preceding month end as defined in the Agreement and 10% of the surplus in the net asset value (with appropriate adjustment) over the preceding financial year, respectively, in accordance with the Agreement. The Group entered into an agreement with Haywood Investment Management Limited on 4 March 2004, whereby both parties had conditionally agreed to terminate the above mentioned agreement.

Haywood Investment Management Limited is a company in which Mr. Wong Fong Kim, a former director of the Company, has a 9% beneficial interest.

(b) The Group entered into an agreement with Altus on 4 March 2004, whereby Altus had agreed to provide investment management services to the Company for a period from the effective date of its appointment until 30 December 2005.

The investment management fee was calculated at the higher of 1.5% per annum of the net asset value as at the immediately preceding valuation date on the basis of the actual number of days in the relevant calendar month over a year of 365 days or an amount of not less than HK$30,000 per month,

The Group entered into an agreement with Altus during the year, whereby both parties had conditionally agreed to terminate the above mentioned agreement effective on 1 January 2005.

(c) On 12 May 2005, the Company entered into new investment management agreement with Hua Yu with effect from 20 May 2005 to replace Altus.

Investment management fees to Hua Yu are calculated at 0.375% of the net asset value per quarter, subject to a minimum of HK$150,000 per three months.

28. CONTINGENT LIABILITIES

At 31 December 2005, both the Group and the Company had no material contingent liabilities (2004: Nil).

29. BUSINESS COMBINATIONS

On 27 December 2005, the Group acquired 100% of the share capital of Summit Asset, a property investment company. If the acquisition had occurred on 1 January 2005, the Group’s revenue and loss for the year would have been HK$178,000 and HK$5,473,000 respectively. Details of the net assets acquired of Summit Asset is as follows:

Purchase consideration Cash paid	2005 HK$’000 –

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The assets and liabilities arising from the acquisition are as follows:

	Fair value and
	acquiree’s
	carrying
	amount
	HK$’000
Cash and cash equivalents	3
Investment property	3,860
Other receivables	230
Payables	(1,407)
Borrowings	(2,686)
Net assets acquired	–
Purchase consideration settled in cash	–
Cash and cash equivalents in subsidiary acquired	3
Cash inflow on acquisition	3

30. RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group is exposed to a variety of financial risks which result from both its operating and investing activities. The Group’s risk management is coordinated at its headquarters, in close co-operation with the board of directors, and focuses on actively securing the Group’s short to medium term cash flows by minimising the exposure to financial markets. Long term financial investments are managed to generate lasting returns.

The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant financial risks to which the Group is exposed to are described below.

(a) Foreign currency risk

The Group’s exposure to risk resulting from changes in foreign currency exchange rates is minimal.

(b) Credit risk

Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the balance sheet (or in the detailed analysis provided in the notes to the financial statements). Credit risk, therefore, is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset’s carrying amount.

The Group’s other receivables are actively monitored to avoid significant concentrations of credit risk.

(c) Cash flow and fair value interest rate risks

The Group has no significant interest-bearing assets. The Group’s interest rate risk arises from long term borrowings. The interest rates and terms of repayment of the borrowings are disclosed in note 19.

(d) Fair value

The fair value of the Group’s financial assets and liabilities are not materially different from their carrying amounts because of the immediate or short term maturity of these financial instruments. The fair value of long-term borrowings is not disclosed because the carrying value is not materially different from the fair value.

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. MATERIAL CHANGE

Save as disclosed in the audited full year consolidated financial statements of the Group for the year ended 31 December 2005, the Directors confirm that there were no material change in the financial or trading position or outlook of the Group subsequent to 31 December 2005, being the date to which the last audited financial statements of the Company were made up, up to the Latest Practicable Date.

D. STATEMENT OF INDEBTEDNESS

Borrowings

At the close of business on 31 March 2006, being the latest practicable date for purpose of this indebtedness statement prior to the printing of this circular, the Group had amount due to Mr. Zhou, an executive Director, amounting to approximately HK$1,657,000 and mortgage loan balance amounting to approximately HK$2,656,000. The amount due to Mr. Zhou is non-interest bearing.

The mortgage loan is denominated in Hong Kong Dollar, secured by (i) the investment property of the Group and (ii) joint and several guaranteed by Mr. Zhou and Ms. Huang Song, executive Directors (at nil consideration) and bear interest at variable interest rate with an effective interest rate of 5.5% per annum as at the Latest Practicable Date.

Contingent liabilities

As at 31 March 2006, the Group did not have any material contingent liabilities.

Disclaimer

Save as aforesaid and apart from intragroup liabilities, no companies within the Group had outstanding as at 31 March 2006 in respect of any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, obligation under finance lease contracts, liabilities under acceptance (other than normal trade bills), acceptance credits, mortgages, charges, finance leases or hire purchase commitments guarantees or other material contingent liabilities.

E. WORKING CAPITAL

The Directors are of the opinion that, taking into account the cashflow generated from the operating activities, the financial resources available for the Group, including internally generated funds, the available credit facilities and the estimated net proceeds of the Open Offer, the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

F. UNAUDITED PRO FORMA NET TANGIBLE ASSETS

The following is a statement of the unaudited pro forma net tangible assets of the Group which has been prepared in accordance with Rule 4.29 of the Listing Rules to illustrate the effect of the Open Offer as if it had taken place on 31 December 2005. The unaudited pro forma financial information has been prepared for illustrative purpose only, and because of its nature, it may not give a true picture of the Company’s financial position following the Open Offer.

This statement is based on the audited consolidated net tangible assets of the Group as at 31 December 2005 as shown in the financial statements of the Group for the year ended 31 December 2005, after giving effect to the pro forma adjustments described in the notes thereto. A narrative description of the pro forma adjustments of the Open Offer that are (i) directly attributable to the transaction; (ii) expected to have a continuing impact on the Group; and (iii) factually supportable, are summarised in the accompanying notes.

The unaudited pro forma net tangible assets of the Group is based on a number of assumptions, estimates and uncertainties. The accompanying unaudited pro forma net tangible assets of the Group does not purport to describe the actual financial position of the Group that would have been attained had the Open Offer been completed on 31 December 2005. The unaudited pro forma net tangible assets of the Group does not purport to predict the future financial position of the Group:

Based on 80,000,000 Offer Shares at the Subscription Price of HK$0.07 each	Audited net tangible assets of the Group as at 31 December 2005 HK$’000 10,484	Estimated net proceeds from the Open Offer HK$’000 (note 1) 4,800	Unaudited pro forma net tangible assets HK$’000 15,284	Unaudited pro forma net tangible assets per Share HK cents (note 2) 6.37

Notes:

The estimated net proceeds from the Open Offer are based on the Subscription Price of HK$0.07 per Offer Share after deduction of the estimated related expenses of approximately HK$0.8 million in connection with the Open Offer.
The calculation of the unaudited pro forma adjusted net tangible assets of the Group per Share is based on 240,000,000 Shares in issue after the completion of the Open Offer.

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

G. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

==> picture [149 x 37] intentionally omitted <==

18 May 2006

The Directors Haywood Investments Limited Room 2206, 22/F Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Dear Sirs

Accountants’ report on the unaudited pro forma net tangible assets To the Directors of Haywood Investments Limited (the “Company”)

We report on the unaudited pro forma net tangible assets of the Company and its subsidiaries (collectively referred to as the “Group”), which has been prepared by the directors for illustrative purposes only, to provide information about how the proposed open offer (“Open Offer”) of the Company might have affected the financial information presented, for inclusion in Appendix I of the Company’s circular dated 18 May 2006 (the (“Circular”). The basis of preparation of the unaudited pro forma net tangible assets is set out in “the section headed “Unaudited pro forma net tangible assets” is set out on page 80 Appendix I to the Circular.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma net tangible assets in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to AG 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29 of the Listing Rules on the unaudited pro forma net tangible assets and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma net tangible assets beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Basis of opinion

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

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma net tangible assets has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma net tangible assets as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The unaudited pro forma net tangible assets is for illustrative purposes only, based on the judgements and assumptions of the directors of the Company, and because of its hypothetical nature, does not give any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2005 or any future date.

Opinion

In our opinion:

a. the unaudited pro forma net tangible asset has been properly compiled by the directors of the Company on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the unaudited pro forma net tangible assets as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully, Grant Thornton Certified Public Accountants Hong Kong

– 82 –

VALUATION REPORT

APPENDIX II

The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this circular received from RHL Appraisal Ltd., an independent valuer, in connection with its valuation as at 12 May 2006 of the property held by the Group.

RHL Appraisal Ltd

HONG KONG

Room 1010, Star House Tsimshatsui, Hong Kong

Surveying Practices - Corporate Valuation and Property Consultancy License No.: C-015672

T +852 2730 6212 F +852 2736 9284 E [email protected] W www.rhl-int.com

18th May 2006

The Board of Directors Haywood Investments Limited Rm. 2206, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Dear Sirs,

Re: Flat B on 39th Floor of Block 5, Coastal Skyline, No. 12 Tung Chung Waterfront Road, Tung Chung, Lantau Island, New Territories, Hong Kong (the “property”)

In accordance with your instructions to value the captioned property in which Haywood Investments Limited (the “Company”) or its subsidiaries (hereinafter together referred to as the “Group”) have interests in Hong Kong, 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 market value of the property as at 12th May 2006 (the “date of valuation”).

Basis of Valuation

Our valuation of the property represents the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”.

Valuation Methodology

We have valued the property by the direct comparison approach assuming sale of the property in its existing state with the benefit of immediate vacant possession and by making reference to comparable sale transactions as available in the relevant market.

– 83 –

VALUATION REPORT

APPENDIX II

Our valuation of the market value has been made on the assumption that the property are to be transferred under normal commercial terms without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the value of the property.

Limiting Conditions

No allowance has been made in our report for any charges, mortgages or amounts owing on the property valued nor for any expenses or taxation which may be incurred in effecting a sale. 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.

In valuing the property interest of the Group in Hong Kong held under the Government Lease expiring before 30th June, 1997, we have taken account of the stipulations contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the question of Hong Kong and the New Territories Leases (Extension) Ordinance 1988 that such leases have been extended without premium until 30th June, 2047 and that a rent of three per cent of the then rateable value is charged per annum from the date of extension.

In valuing the property, 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) published by The Royal Institution of Chartered Surveyors and effective from May 2003; and the HKIS Valuation Standards on Properties (First Edition 2005) published by The Hong Kong Institute of Surveyors effective from 1st January 2005.

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

We have not been provided with copies of the title documents relating to the property but have caused searches to be made at the Hong Kong Land Registry. However, we have not searched the original documents to verify ownership or to ascertain any amendment.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect of the property but have assumed that the site areas shown on the documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations.

We have inspected the exterior for 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.

– 84 –

VALUATION REPORT

APPENDIX II

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also sought confirmation from the Group 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.

Remarks

As advised by the Group, it will have no potential tax liability if the property is disposed of at the amount of valuation.

Unless otherwise stated, all monetary sums stated in this report are in Hong Kong Dollars (HK$).

Our valuation certificate is attached herewith for your attention.

Yours faithfully, for and on behalf of RHL Appraisal Ltd. Tse Wai Leung MFin BSc MRICS MHKIS RPS(GP) Director

Tse Wai Leung is a member of the Royal Institution of Chartered Surveyors, a member of The Hong Kong Institute of Surveyors, a Registered Professional Surveyor in General Practice and a qualified real estate appraiser in the PRC. He is on the list of Property Valuers for Undertaking Valuations for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers of the Hong Kong Institute of Surveyors, Registered Business Valuer under the Hong Kong Business Forum and has over 14 years’ experience in valuation of properties in Hong Kong, in Macau and in the PRC.

– 85 –

VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Property Held by the Group for Investment Purpose

			Market Value in
		Particulars of	existing state as at
Property	Description and tenure	occupancy	12th May 2006
			HK$
Flat B on 39th Floor of	The property comprises a	The property is	3,900,000
Block 5	residential unit on level 39 of	currently vacant.
Coastal Skyline	a 50-storey residential block
No. 12 Tung Chung	built over a single-storey car
Waterfront Road	parking podium within a
Tung Chung	large-scale residential
Lantau Island	development known as
New Territories	“Coastal Skyline”. The subject
Hong Kong	development was completed in
	about September 2002.
84/396, 430th parts or
shares of and in	The gross floor area of the
Tung Chung Town Lot No. 4	property is 1,189 square feet
	or thereabout. The saleable
	area of the property is 951
	square feet or thereabout. The
	bay window appurtenant to the
	property is 47 square feet or
	thereabout.
	The property is held under
	New Grant No. IS8082 for a
	term commencing from 26th
	March 1997 and expiring on
	30th June 2047. The current
	Government Rent payable is
	an amount equal to 3% of the
	rateable value for the time
	being of the property per
	annum.

Notes:

The registered owner of the property is Summit Asset Holdings Limited vide Memorial No. 05102702100029 dated 30th September 2005. The consideration of the property was HK$3,880,000.
The property is subject to a Mortgage in favour of The Hongkong and Shanghai Banking Corporation Limited vide Memorial No. 05102702100030 dated 30th September 2005. The consideration of the property was all monies.
The property is subject to an Occupation Permit No. PR13/2002 vide Memorial No. IS308998 dated 12th September 2002.
The property is subject to a Principal Deed of Mutual Covenant and Management Agreement in favour of MTR Corporation Limited “Managers” vide Memorial No. IS314903 dated 10th April 2003.
The property is subject to a Sub-deed of Mutual Covenant and Management Agreement in favour of MTR Corporation Limited “Managers” vide Memorial No. IS314904 dated 10th April 2003.

– 86 –

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules and the Takeovers Code for the purpose of giving information with regard to the Group. All the Directors jointly and severally accept full responsibility for the accuracy of the information contained in this document and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this document have been arrived at after due and careful consideration and there are no other facts not contained in this document, the omission of which would make any statement in this document misleading.

2. SHARE CAPITAL OF THE COMPANY

(1) Authorised and issued share capital

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

Authorised: 400,000,000 Shares of HK$0.025 each Issued and fully paid up or credited as fully paid up: 160,000,000 Shares of HK$0.025 each	HK$ 10,000,000

	4,000,000

All existing Shares rank equally in all respects, including in particular as to dividend, voting rights and return on capital. The Shares in issue are listed on the Stock Exchange.

All of the Offer Shares, when allotted and issued, will rank pari passu in all respects, including in particular as to dividend, voting rights and return on capital, with all Shares in issue as at the date of allotment and issue of the Offer Shares. All of the Shares and the Offer Shares will be listed on the Stock Exchange. There are no arrangement under which future dividends are waived or agreed to be waived.

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

No part of the share or loan capital of the Company is listed or dealt in, nor is listing or permission to deal in the share or loan capital of the Company being, or proposed to be, sought on any other stock exchange.

(2) Share options

As at the Latest Practicable Date, there was no outstanding option under the share option scheme of the Company adopted on 23 May 2002.

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GENERAL INFORMATION

APPENDIX III

(3) Convertible securities

As at the Latest Practicable Date, there was no outstanding option, warrants or securities convertible or exchangeable into Shares.

3. MARKET PRICES

The table below shows the closing prices of the Shares as recorded on the Stock Exchange on (i) the last day on which dealings took place in each of the six months immediately preceding the date of the Announcement and in each month before the Latest Practicable Date; and (ii) the Latest Practicable Date.

	Closing
	price per
Date	Share
	HK$
31 October 2005	0.068
30 November 2005	0.090
30 December 2005	0.080
27 January 2006	0.066
28 February 2006	0.065
31 March 2006	0.086
30 April 2006	0.083
Last Trading Day	0.083
Latest Practicable Date	0.056

The highest and lowest closing prices of the Shares as quoted on the Stock Exchange during the period between 8 October 2005 to the Latest Practicable Date, being the date six months prior to the Last Trading Day, and ending on the Latest Practicable Date were HK$0.090 on 30 November 2005 and 7 December 2005 and HK$0.051 on 15 May 2006 respectively.

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GENERAL INFORMATION

APPENDIX III

4. DISCLOSURE OF INTERESTS OF THE DIRECTORS

As at the Latest Practicable Date, the interests and short positions of each director and chief executive in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning 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; or (b) were recorded in the register maintained by the Company under Section 352 of the SFO; or (c) were required pursuant to the Code for Securities Transactions by Directors adopted by the Company to be notified to the Company and the Stock Exchange, were as follows:

Ordinary shares of HK$0.025 each in the Company as at the Latest Practicable Date:

				% of issued
				share capital
	Personal	Corporate		of the
	interests	interests	Total	Company
Mr. Zhou	–	42,710,400	42,710,400	26.69%
(Note 1)
Ms. Huang Song	–	42,710,400	42,710,400	26.69%
(Note 1)
Mr. Fong	10,300,000	–	10,300,000	6.44%
(Note 2)

Notes:

(1) 42,710,400 shares are held by Xiyang, a Company in which Mr. Zhou and Ms. Huang Song hold 90% and 10% equity interests respectively.

(2) 10,300,000 shares are held by Ms. Kam Lai Iong, spouse of Mr. Fong.

None of the Directors or their respective associates has or had any direct or indirect interest in any assets acquired or disposed of by or leased to or by or proposed to be acquired or disposed of by or leased to or by any member of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Company were made up.

None of the Directors or any of their respective associates had any business or interest that directly or indirectly competes or may compete with the business of the Group or had or might have any other conflict of interest.

Save for the Underwriting Agreement, none of the Directors is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group. Save for the Underwriting Agreement, the Underwriter has not entered into any material contract in which any Director has a material personal interest.

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GENERAL INFORMATION

APPENDIX III

None of the Directors was or will be given any compensation for loss of office or otherwise in connection with the Open Offer, the Underwriting Agreement and/or the Whitewash Waiver. There is no agreement or arrangement between any Director and any other person which is conditional on or dependent upon the outcome of the Open Offer and/ or the Whitewash Waiver or otherwise connected with the Open Offer and/or the Whitewash Waiver.

5. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, according to the register of interests in long positions and short positions kept by the Company pursuant to Divisions 2 and 3 of Part XV and section 336 of the SFO and so far as the Directors were aware, no persons had a long position or short position in the Shares, underlying shares or debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was interested, directly or indirectly, 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.

6. SHAREHOLDINGS AND DEALINGS

(a) Save for the 42,710,400 Shares held by Xiyang, none of the Underwriter, his concert parties and any of their respective directors owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, and none of them had dealt for value in any such securities during the period starting six months prior to 27 April 2006 (being the date of the Announcement) and ending on the Latest Practicable Date.
(b) No person with whom the Underwriter or his associates or their respective concert parties had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, and none of them had dealt for value in any such securities during the period starting six months prior to 27 April 2006 (being the date of the Announcement) and ending on the Latest Practicable Date.
(c) Neither WALLBANCK BROTHERS Securities (Hong Kong) Limited and Grant Thornton nor any other advisers to the Company as specified in class (2) of the definition of associate (excluding exempt principal traders) in the Takeovers Code, their respective ultimate holding companies, nor any of their respective subsidiaries or fellow subsidiaries owned or controlled any Shares, convertibles securities, warrants, options or derivatives of the Company as at the Latest Practicable Date.
(d) At no time during the period commencing six months prior to 27 April 2006 (being the date of the Announcement) and ending on the Latest Practicable Date was any member of the Group a party to any arrangement to enable the Directors and their associates to acquire benefits by means of the acquisition of the Shares or any other body corporate.

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GENERAL INFORMATION

APPENDIX III

(e) As at the Latest Practicable Date, there was no agreement, arrangement or understanding between the Underwriter or any of his concert parties and other persons in relation to the transfer, charge or pledge of the Offer Shares that may be subscribed by the Underwriter or any of his concert parties under the Underwriting Agreement.
(f) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate in the Takeovers Code.

7. SERVICE CONTRACTS

None of the Directors has a service contract with the Company or any of its subsidiaries or associated companies which is not terminable within one year without payment of compensation other than statutory compensation.

8. EXPERTS

The following are the qualifications of the experts who have been named in this document or have given opinions, letters or advice which are contained in this document:

Name	Qualification
WALLBANCK BROTHERS	a licensed corporation to carry out types 4, 6 and 9
Securities (Hong Kong)	regulated activities (advising on securities, advising on
Limited	corporate finance and asset management) under the
	SFO
Grant Thornton	Certified Public Accountants
RHL Appraisal Ltd.	Chartered Surveyors

As at the Latest Practicable Date, neither of WALLBANCK BROTHERS Securities (Hong Kong) Limited, Grant Thornton nor RHL Appraisal Ltd. had any beneficial interest in the share capital of 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 or had 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 Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

On 18 May 2006, each of WALLBANCK BROTHERS Securities (Hong Kong) Limited, Grant Thornton and RHL Appraisal Ltd. has given and has not withdrawn its written consent to the issue of this document with the inclusion herein of its letter and/or references to its names, in the form and context in which it respectively appears.

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GENERAL INFORMATION

APPENDIX III

9. LITIGATION

Neither the Company nor any other member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is at present known to the Directors to be pending or threatened against any member of the Group as at the Latest Practicable Date.

10. PROCEDURE BY WHICH A POLL MAY BE DEMANDED PURSUANT TO THE ARTICLES OF ASSOCIATION OF THE COMPANY

Pursuant to the articles of association of the Company, at any general meeting, a resolution put to vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(i) by the chairman of the meeting; or
(ii) by at least five Shareholders present in person or by proxy and entitled to vote;
(iii) any Shareholder or Shareholders present in person or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to attend and vote at the meeting; or
(iv) any Shareholder or Shareholders present in person or by proxy and holding Shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

Unless a poll is so demanded and the demand is not withdrawn, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried unanimously or by a particular majority, or lost shall be conclusive, and an entry to that effect in the Company’s book containing the minutes of proceedings of meetings of the Company shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.

11. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by members of the Group after the date falling two years prior to the Announcement and up to the Latest Practicable Date and are or may be material:

(i) the underwriting agreement dated 28 January 2005 as amended by a supplemental underwriting agreement dated 4 February 2005 entered into among the Company, Mr. Lee Wing On, Samuel, Kingston Securities Limited and Orient Securities Limited in relation to an open offer of 80,000,000 Shares on the basis of one offer Share for every one Share held as announced by the Company on 7 February 2005;

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GENERAL INFORMATION

APPENDIX III

(ii) the investment management agreement entered into between the Company and Hua Yu Investment Management Limited (“Hua Yu”) on 12 May 2005 for the replacement of Altus Capital Limited by Hua Yu as the Company’s investment manager effective from 20 May 2005 as announced by the Company on 24 May 2005; and
(iii) the Underwriting Agreement and the Deed.

Save as disclosed above, there are no other contracts (not being contracts in the ordinary course of business) being entered into by the members of the Group after the date falling two years prior to the Announcement and up to the Latest Practicable Date, which are or may be material.

12. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

– 93 –

GENERAL INFORMATION

APPENDIX III

13. CORPORATE INFORMATION

Company Secretary and Qualified Accountant

Mr. Chu Kin Wang, Peleus, FCPA, FCCA, ACIS

Authorised Representatives

Mr. Chu Kin Wang, Peleus Flat 1, 10/F, Tower D Galaxia, 3 Lung Poon Street Diamond Hill Kowloon, Hong Kong

Mr. Phang Yul Cher Yeow Flat 1004, Hong Tak House Tsz Hong Estate Tsz Wan Shan Kowloon, Hong Kong

Principal Banker

Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong

DBS Bank (Hong Kong) Limited 16/F, The Center 99 Queen’s Road Central Hong Kong

Hong Kong Branch Share Registrar

Secretaries Limited 26/F, Tesbury Centre 28 Queen’s Road East Hong Kong

Principal Share Registrar

Butterfield Fund Services (Cayman) Limited Butterfield House 68 Fort Street P.O. Box 705 George Town Grand Cayman Cayman Islands

– 94 –

GENERAL INFORMATION

APPENDIX III

Auditors

Grant Thornton Certified Public Accountants 13th Floor Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

Financial Advisers to the Company

South China Capital Limited 28th Floor, Bank of China Tower 1 Garden Road Central Hong Kong

Ample Capital Limited Unit B, 9th Floor Two Chinachem Plaza 135 Des Voeux Road Central Hong Kong

Independent Financial Adviser to the Independent Board Committees

WALLBANCK BROTHERS Securities (Hong Kong) Limited Room 1005B Tower 1, Lippo Centre 89 Queensway Admiralty Hong Kong

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours on any weekday (except for public holidays) at the head office and principal place of business of the Company at Unit 2206, 22/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong up to and including 14 July 2006, and will also be available on the websites of the Company at http://www.apex-cap.com/ and the Commission at http://www.sfc.hk/ until (and including) the date of the EGM:

(1) the memorandum and articles of association of the Company and Xiyang;
(2) the annual reports of the Company for the three years ended 31 December 2005;
(3) the letters from the Independent Board Committees, the texts of which are set out on pages 23 to 24 of this document;

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GENERAL INFORMATION

APPENDIX III

(4) the letter from WALLBANCK BROTHERS Securities (Hong Kong) Limited, the text of which is set out on pages 25 to 46 of this circular;
(5) the report on unaudited pro forma financial information from Grant Thornton, the text of which are reproduced in Appendix I to this circular;
(6) the valuation report prepared by RHL Appraisal Ltd. set out in Appendix II to this circular;
(7) the letters from WALLBANCK BROTHERS Securities (Hong Kong) Limited, Grant Thornton and RHL Appraisal Ltd. stating they have given and have not withdrawn their consent to the issue of this circular with the inclusion herein of their letters and/or references to their respective names; and
(8) the material contracts referred to the section headed “Material Contracts” in this appendix and the respective circular (if applicable) in relation to the material contracts.

– 96 –

NOTICE OF EGM

==> picture [288 x 74] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 905)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Haywood Investments Limited (the “Company”) will be held at Conference Room 204, 2/F, 4 Harbour Road, Wanchai, Hong Kong at 3:00 p.m. on Friday, 23 June 2006 for the purpose of considering and, if thought fit, passing the following resolutions of the Company:

1. ORDINARY RESOLUTION 1

“ THAT subject to the passing of the resolution 2 below and conditional upon: (a) the Listing Committee of The Stock Exchange of Hong Kong Limited granting or agreeing to grant (subject to allotment) and not having revoked the grant of, the listing of and permission to deal in the Offer Shares (as defined below) to be allotted and issued to the shareholders of the Company (the “ Shareholders ”) pursuant to the terms and conditions of the Open Offer (as defined below); (b) the registration of all documents relating to the Open Offer required by law to be registered with the Registrar of Companies in Hong Kong on or before 29 June 2006 and or such later date as the Company and Mr. Zhou Chao (the “ Underwriter ”) may agree; and (c) the obligations of the Underwriter under the underwriting agreement (the “ Underwriting Agreement ”) dated 7 April 2006, as amended by a supplemental underwriting agreement dated 18 April 2006, entered into between the Company and the Underwriter becoming unconditional and the Underwriting Agreement not being terminated in accordance with the terms thereof prior to 4:00 p.m. on the third business day after the last day for acceptance of Offer Shares,
(i) the issue by way of open offer (the “ Open Offer ”) of 80,000,000 new Shares (the “ Offer Shares ”) to the Shareholders whose names appear on the register of members of the Company on 23 June 2006 (excluding those Shareholders with registered addresses outside Hong Kong) in the proportion of one Offer Share for every two Shares then held pursuant to and in accordance with the terms and conditions set out in the circular dated 18 May 2006 despatched by the Company to the Shareholders (the “ Circular ”), a copy of which had been produced to the meeting marked “A” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved;
(ii) the Directors be and are hereby authorised to make such exclusions or other arrangements in relation to overseas Shareholders as they deem necessary or expedient having regard to any restrictions or obligations under the articles of association of the Company or the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong; and
(iii) the Directors be and are hereby authorised to do all such acts and things as they consider necessary or expedient in connection with the Open Offer.”

– 97 –

NOTICE OF EGM

2. ORDINARY RESOLUTION 2

“ THAT subject to the passing of the resolution 1 above, the whitewash waiver (the “ Whitewash Waiver ”) applied by the Underwriter to the executive director of the corporate finance division of the Securities and Futures Commission for waiving the obligation of the Underwriter and persons acting in concert with him to extend a general offer to acquire the issued shares of the Company (the “ Share(s) ”) (excluding the Shares which are owned by the Underwriter and persons acting in concert with him) under Rule 26 of the Hong Kong Code on Takeovers and Mergers arising from acting as the underwriter to the Open Offer be and is hereby approved and that the directors of the Company be and are hereby authorised to do all things and acts and sign all documents which they consider desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Whitewash Waiver.”

3. SPECIAL RESOLUTION 1

“ THAT:

(i) the English name of “Haywood Investments Limited” be and is hereby changed to “Apex Capital Limited” and the Chinese name of “ ” be and is hereby adopted in place of “ ” for identification purpose in the Cayman Islands and registration purpose under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong); and
(ii) the Directors be and are hereby authorised to do all such acts and things and execute all such documents they consider necessary or expedient to give effect to the change in the English and Chinese names of the Company.”

By Order of the Board Phang Yul Cher Yeow Director

Hong Kong, 18 May 2006

Registered Office: Ugland House P.O. Box 309 George Town Grand Cayman Cayman Islands

Head office and principal place of business in Hong Kong: Rm. 2206, Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

– 98 –

NOTICE OF EGM

Notes:

Any member of the Company entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one person as his proxy to attend and vote instead of him. A proxy need not be a member of the Company but must be present in person to represent the member.
Where there are joint registered holders of any Share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such Shares as if he is solely entitled thereto, but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members in respect of such Share shall alone be entitled to vote in respect thereof.
A form of proxy for use at the meeting is enclosed with the Circular.
The form of proxy and 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 Secretaries Limited, Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or adjourned meeting (as the case may be) and in default the form of proxy shall not be treated as valid. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the meeting or at any adjourned meeting (as the case may be) should they so wish. If a member who has lodged a form of proxy attends the meeting, his form of proxy will be deemed to have been revoked.

– 99 –

AI assistant

Walnut Capital Limited — Proxy Solicitation & Information Statement 2006

49552_rns_2006-05-18_e6868a31-9485-43e8-b549-78ba101e990d.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

South China Capital Limited

WALLBANCK BROTHERS Securities (Hong Kong) Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON THE LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE OPEN OFFER

(Stock Code: 905)

INTRODUCTION

THE OPEN OFFER

Issue statistics

Qualifying Shareholders

Closure of register of members

The Subscription Price

LETTER FROM THE BOARD

Status of the Offer Shares

Certificates for the Offer Shares

Rights of the Excluded Shareholders

Application for excess Offer Shares

Independent Shareholders’ approval at the EGM

Application for listing

Undertaking by Xiyang

The Underwriting Agreement

The Deed

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

Conditions of the Underwriting Agreement

Shareholding structure of the Company

Reasons for the Open Offer and use of proceeds

LETTER FROM THE BOARD

Fund raising activities of the Company during the past 12 months

WARNING OF RISKS OF DEALINGS IN THE SHARES

BUSINESS REVIEW AND PROSPECTS OF THE GROUP

THE WHITEWASH WAIVER

INFORMATION ON AND INTENTION OF THE UNDERWRITER

PROPOSED CHANGE IN COMPANY NAME

THE EGM

RECOMMENDATIONS

LETTER FROM THE BOARD

FURTHER INFORMATION

PROPOSED OPEN OFFER OF NEW SHARES ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD ON RECORD DATE

APPLICATION FOR WHITEWASH WAIVER

WALLBANCK BROTHERS Securities (Hong Kong) Limited

PROPOSED OPEN OFFER TO QUALIFYING SHAREEHOLDERS AT HK$0.07 PER OFFER SHARE ON THE BASIS OF ONE OFFER SHARE FOR EVERY TWO SHARES HELD PAYABLE IN FULL ON APPLICATION AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS CONSIDERED

1. Reasons for the Open Offer

(b) Reasons for the Open Offer and use of proceeds

(c) Alternative financings to the Open Offer

2. Principal terms of the Open Offer

(a) Basis of the Open Offer

(b) Share price performance

Share price performance

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Liquidity

Trading volume

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) Other principal terms of the Open Offer

3. Underwriting arrangement

4. Undertaking by Xiyang

5. Potential dilution effect on the Shareholders

6. Financial effect of the Open Offer

(a) Effect on net tangible assets

(b) Effect on gearing ratio

(c) Effect on cash position

7. Application for Whitewash Waiver

RECOMMENDATION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

A. SUMMARY OF FINANCIAL RESULTS AND ASSETS AND LIABILITIES FOR THE LAST THREE YEARS ENDED 31 DECEMBER 2005

B. AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Walnut Capital Limited Proxy Solicitation & Information Statement 2006