<PAGE>
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 20-F

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004


                       COMMISSION FILE NUMBER: 001-12126

                            ------------------------


                           CHINA ENTERPRISES LIMITED

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                            ------------------------

                                    BERMUDA

                (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                            ------------------------

   8TH FLOOR, PAUL Y. CENTRE, 51 HUNG TO ROAD, KWUN TONG, KOWLOON, HONG KONG.
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


                                                  NAME OF EACH EXCHANGE ON
     TITLE OF EACH CLASS                              WHICH REGISTERED
     -------------------                          ------------------------
             N/A                                           N/A


Securities registered or to be registered pursuant to Section 12(g) of the Act:

                    COMMON STOCK, PAR VALUE $0.01 PER SHARE
                    ---------------------------------------
                                (Title of Class)


Securities for which there is a reporting obligation pursuant to section l5(d)
of the Act:

                                      NONE
                                ----------------
                                (Title of Class)


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

                   Supervoting Common Stock: 3,000,000 shares
                         Common Stock: 6,017,310 shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
[ ] Yes  [X] No

If this is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
[ ] Yes  [X] No

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or l5(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes  [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check
one):
[ ] Large accelerated filer  [ ] Accelerated filer   [X] Non-accelerated filer

Indicate by check mark which financial statement item the registrant has elected
to follow.
[ ] Item 17  [X] Item 18

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes  [X] No
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This annual report contains certain forward-looking statements within the
meaning of Section 21E of the Securities Act of 1934, as amended. These
forward-looking statements are, by their nature, subject to significant risks
and uncertainties, and include, without limitation, statements relating to:

      -     our business strategy;

      -     our ability to finance out business strategy;

      -     our ability to integrate successfully the businesses or assets we
            acquire;

      -     future developments in the tire industry in China and changes in
            government policies;

      -     future developments in the Asian travel industry;

      -     future developments in the real estate industry in China, and

      -     other statements relating to our future business development and
            financial performance.

      The words "anticipate", "believe", "estimate", "expect", "intend", "plan",
"may", "will" and similar expressions, as they relate to us, are intended to
identify certain of such forward-looking statements. We do not intend to update
these forward-looking statements except as required by the U.S. securities laws.

      These forward-looking statements reflect our current views with respect to
future events and are not a guarantee of future performance. They are based upon
various assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, management's examination of historical operating
trends, data contained in the Company's records and other data available from
third parties. Although the Company believes that these assumptions were
reasonable when made, because these assumptions are inherently subject to
significant uncertainties and contingencies which are difficult or impossible to
predict and are beyond the Company's control, there can be no assurance that the
company will achieve or accomplish these expectations or beliefs.

      In addition to these important factors and matters discussed elsewhere
herein, there are a number of important factors that, in the Company's view,
could cause actual results to differ materially from those discussed in the
forward-looking statements, including without limitation, the strength of world
economies and currencies, general market conditions, changes in general domestic
and international political conditions, and other matters described in the "Risk
Factors" included in this annual report or otherwise described from time to time
in the reports the Company files with the Securities and Exchange Commission.

<PAGE>

                            EXCHANGE RATE INFORMATION

      Unless otherwise specified, all references in this document to "U.S.
Dollars", "Dollars", "US$" or "$" are to United States dollars; all references
to "Renminbi" or "Rmb" are to Renminbi, which is the legal tender currency of
the People's Republic of China (the "PRC" or "China"); all references to "HK$"
are to Hong Kong dollars, which is the legal tender currency of the Hong Kong
Special Administrative Region ("Hong Kong"). Translation of amounts from
Renminbi to U.S. Dollars for the convenience of the reader has been made in this
document at US$1.00 to Rmb8.28, the exchange rate quoted by the People's Bank of
China on December 31, 2004. No representation is made that the Renminbi amounts
could have been, or could be, converted into U.S. Dollars at that or at any
other rate. See section "Exchange Control" under "Item 10. Additional
Information" in this annual report for more details.

      References and statements contained in this document regarding China do
not apply to Taiwan nor the Republic of China.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>                                                                                            <C>
PART I
     Item 1  Identity of Directors, Senior Management and Advisers
     Item 2  Offer Statistics and Expected Timetable
     Item 3  Key Information
     Item 4  Information on the Company
     Item 5  Operating and Financial Review and Prospects
     Item 6  Directors, Senior Management and Employees
     Item 7  Major Shareholders and Related Party Transactions
     Item 8  Financial Information
     Item 9  The Offer and Listing
     Item 10 Additional Information
     Item 11 Quantitative and Qualitative Disclosure about Market Risk
     Item 12 Description of Securities Other than Equity Securities

PART II
     Item 13 Defaults, Dividend Arrearages and Delinquencies
     Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds
     Item 15 Controls and Procedures
     Item 16 Reserved
     Item 16A Audit Committee Financial Expert
     Item 16B Code of Ethics
     Item 16C Principal Accountant Fees and Services
     Item 16D Exemptions from the Listing Standards for Audit Committees
     Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 PART III
     Item 17 Financial Statements
     Item 18 Financial Statements
     Item 19 Exhibits

SIGNATURES

EXHIBIT INDEX
</TABLE>

<PAGE>

                                     PART I
                ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
                                  AND ADVISERS

      As China Enterprises Limited (the "Company", which term shall include,
when the context so requires, the subsidiaries of the Company during the
applicable period) is filing this Form as its annual report under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the information called
for by Part I, Item 1 of Form 20-F is not applicable.

<PAGE>

                 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

      As the Company is filing this Form as an annual report under the Exchange
Act, the information called for by Part I, Item 2 of the Form 20-F is not
applicable.

<PAGE>

                             ITEM 3. KEY INFORMATION

SELECTED FINANCIAL DATA

      The following table represents the selected consolidated financial
information of the Company as of and for the years ended December 31, 2000,
2001, 2002, 2003 and 2004.

      The Consolidated Statements of Operating Data for each of the three years
in the period ended December 31, 2004 and the Consolidated Balance Sheet Data as
of December 31, 2003 and 2004 has been derived from the audited consolidated
financial statements (the "Consolidated Financial Statements") included in Item
18 "Financial Statements" of this annual report. The Consolidated Statements of
Operations Data for the years ended December 31, 2000 and 2001 and the
Consolidated Balance Sheet Data as of December 31, 2000, 2001 and 2002, as set
forth below, have been derived from audited consolidated financial statements
not included in this annual report. The selected financial information should be
read in conjunction with, and is qualified in its entirety by reference to, the
respective consolidated financial statements and their accompanying notes
thereto.

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY

(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, THEIR PAR VALUES AND PER SHARE
DATA)

<TABLE>
<CAPTION>
                                                                                 Year ended December 31,
                                                           2000       2001        2002        2003                2004
                                                          (a)(b)     (a)(b)      (a)(b)     (a)(b)(c)           (a)(b)(c)
                                                           Rmb         Rmb         Rmb         Rmb           Rmb         US$
<S>                                                      <C>        <C>         <C>         <C>           <C>         <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

Revenues                                                 1,605,842  2,087,885   2,610,076   2,808,369             -           -
Income (loss) from operations                                8,269     89,461     172,096     100,746       (13,344)     (1,612)
(Loss) profit from continuing operations                   (33,803)    36,425     (62,943)    (56,781)      181,942      21,974
Loss from discontinued operations (a)                      (45,581)  (171,784)   (199,838)     (7,760)            -           -
Net (loss) income                                          (79,384)  (135,359)   (262,781)    (64,541)      181,942      21,974
Net income from operations per share                          0.91       9.92       19.09       11.17         20.18        2.44
Basic and diluted (loss) earnings from continuing
  operations per common share (b)                            (3.73)      4.04       (6.98)      (6.30)        20.18        2.44
Basic and diluted loss from discontinued
  operations per common share (a) & (b)                      (5.02)    (19.05)     (22.16)      (0.86)            -           -
Basic and diluted (loss) earnings per common share (b)       (8.75)    (15.01)     (29.14)      (7.16)        20.18        2.44
Weighted-average number of common share outstanding (b)  9,069,956  9,017,310   9,017,310   9,017,310     9,017,310   9,017,310
</TABLE>

<PAGE>

<TABLE>
<S>                                                      <C>        <C>         <C>           <C>           <C>          <C>
Dividend declared per common share
 - in Rmb                                                     0.66       0.17           -           -             -           -
 - in US$                                                     0.08       0.02           -           -             -           -

CONSOLIDATED BALANCE SHEETS DATA :

Total assets                                             3,326,983  2,978,965   2,880,680     509,666       791,326      95,571
Shareholders' equity                                       952,627    804,197     535,206     472,825       667,981      80,674
Supervoting common stock - par value US$0.01 per share
                                                               244        244         244         244           244          29
Common stock - par value US$0.01 per share                     526        526         526         526           526          64
</TABLE>

Notes:

(a)   The bias tire factory of Double Happiness Tyre Industries Corporation
      Limited ("Double Happiness") was disposed of during 2001, Yantai C.S.I.
      Rubber Co., Limited ("Yantai CSI") and Shandong C.S.I. Synthetic Fiber
      Co., Limited ("Shandong Synthetic") were disposed of during 2002, the
      radial tire factory of Double Happiness, Yinchuan C.S.I. (Greatwall)
      Rubber Co. Limited ("Yinchuan CSI") and CSI Rubber Industries Limited
      ("CSI Rubber") were disposed of during 2003. The Company has thus recorded
      the operating result of Double Happiness, Yantai CSI, Shandong Synthetic,
      Yinchuan CSI and CSI Rubber separately from continued operations as loss
      from discontinued operations retrospectively for 2000 to 2003.

(b)   The calculation of basic and diluted (loss) earnings from continuing
      operations per common share, basic and diluted loss from discontinued
      operations per common share and basic and diluted loss per common share
      from 2000 to 2004 is based on the weighted-average number of common stock
      outstanding during the years ended December 31, from 2000 to 2004. The
      weighted-average number of common stock outstanding for 2000 was 9,069,956
      and for 2001, 2002, 2003 and 2004 was 9,017,310. There were no dilutive
      securities.

(c)   The Company sold a 25% interest in Hangzhou Zhongce Rubber Co., Limited
      ("Hangzhou Zhongce") during 2003, leaving the Company with a minority
      interest in Hangzhou Zhongce as of October 1, 2003. The Company
      consolidated the results of operations of Hangzhou Zhongce for the nine
      months period ended September 30, 2003 and accounted for its share of
      equity in earnings of Hangzhou Zhongce for the period from October 1, 2003
      to December 31, 2003.

EXCHANGE RATE INFORMATION

      The Consolidated Financial Statements are published and denominated in
Renminbi. Translation of amounts from Renminbi to U.S. Dollars for the
convenience of the reader has been made in this document at US$1.00 to Rmb8.28,
the exchange rate quoted by the People's Bank of China on December 31, 2004. For
the purpose of this annual report, the latest practicable date with respect to
share and certain exchange rate information is December 31, 2005. As of
December 31, 2005, the exchange rate quoted by the People's Bank of China
("PBOC") was at US$1.00 to Rmb8.08. No representation is made that the Renminbi
amounts could have been, or could be, converted into U.S. Dollars at that or at
any other rate.

<PAGE>

      The following table sets forth the average unified exchange rates as of
and during the years ended December 31, 2000, 2001, 2002, 2003 and 2004.

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                          -------------------------------------------
                                                          2000    2001       2002    2003        2004
(Rmb equivalent of US$1.00)                                RMB     RMB       RMB      RMB        RMB
<S>                                                      <C>      <C>        <C>     <C>         <C>
At unified exchange rate
     - average rate calculated by using the average
        of the exchange rates on the last day of each
        month during each period
                                                          8.28    8.28       8.28    8.28        8.28
</TABLE>

      The following table sets forth the high and low exchange rates as of and
during the previous six months were as follows:

<TABLE>
<CAPTION>
                                      AT UNIFIED EXCHANGE RATE
                                      ------------------------
(Rmb equivalent of US$1.00)            HIGH               LOW
                                       ----              -----
<S>                                    <C>               <C>
December 31, 2005                      8.08              8.07
November 30, 2005                      8.09              8.08
October 31, 2005                       8.09              8.07
September 30, 2005                     8.10              8.08
August 31, 2005                        8.11              8.10
July 31, 2005                          8.28              8.11
</TABLE>

See "Exchange Control" under "Item 10. Additional Information" of this annual
report for more details.

<PAGE>

RISK FACTORS

Set forth below are certain risk factors that could adversely affect our future
business, operating results or financial condition. You should carefully
consider these risk factors and the other information in this annual report
before making investment decisions involving our shares.

RISKS RELATED TO OUR BUSINESS

The Company May Not Be Able to Implement Successfully Its Business Strategy in
which Case Its Business, Operating Results and Financial Condition Would Suffer

      During the past few years, the Company has diversified its operations into
businesses outside of tire manufacturing. In addition, the Company has disposed
of operations it deemed underperforming. During 2003, the Company reduced its
interest in Hangzhou Zhongce from a majority to a minority position. The Company
is actively seeking new investment opportunities. In June 2004, the Company
entered into a conditional agreement to acquire properties interest in a parcel
of land under construction in Shanghai, China, for the usage of both commercial
and residential purposes. However, the Company may not be able to identify and
consummate new investments and implement successfully its business plan.

      A key part of the Company's business strategy is to expand its operations
through acquiring new businesses and business lines. The acquisition of new
businesses and business lines carries substantial risk and uncertainties.
Depending on the specific acquisition, there may be risks relating to the
acquired business itself, risks relating to the industry in which the business
operates, and risks relating to the Company itself.

The Company May Not Be Able to Finance Acquisitions, Strategic Investments or
Other Expansions of Operations or May Incur Financial Obligations or Liabilities
in Connection with Any Acquisition or Expansion

      Due to the limitation of the Company's existing financial resources, the
Company may experience difficulty in funding acquisitions, investments or
expansion of existing operations. The Company anticipates that it would fund any
such activities through advance of bank loans. The Company could incur an
increase in debt or other liabilities in connection with any acquisition or
other similar matter.

Future Acquisitions or Strategic Investments May Not Be Successful and May Harm
Our Operating Results

      An important element of our strategy is to review prospects for
acquisition or strategic investments that would complement our existing
companies, augment our market coverage and distribution ability or enhance our
technological capabilities. Future acquisitions or strategic investments could
have a material adverse effect on our business and financial results because of
possible charges to financial results for purchased technology, restructuring or
impairment charges related to goodwill or amortization expenses associated with
intangible assets; potential increase in our expenses and working capital
requirement and the incurrence of debt and contingent liabilities; difficulties
in successfully integrating any acquired operations, technologies,

<PAGE>

customers products and businesses with our operations; diversion or our capital
and management's attention to other business concerns; risks of entering markets
or geographic areas in which we have limited prior experience; or potential loss
of key employees of acquired organizations or inability to hire key employees
necessary for expansion.

Diversification May Result in Lowered Responsiveness to Cyclical Changes of
Different Businesses

      Diversification of the Company's businesses will result in assets,
resources and management being committed or allocated to businesses in different
fields. As a result, the Company's flexibility in responding to seasonal changes
or periodic fluctuations in the business cycle in a particular business
operation may be limited.

The Voting Power of the Company's Major Shareholder May Make it Difficult for
the Other Holders to Exercise Influence on Corporate Matters or for the Company
to Engage in Business Combinations that the Public Shareholders May Deem
Desirable

      China Strategic Holdings Limited ("CSH") directly and beneficially holds
all 3,000,000 shares of supervoting common stock and 1,629,200 shares of common
stock and also has an indirect interest equivalent to 349,630 shares of common
stock in the Company. As a result, CSH controls 88.8% of the voting rights of
the outstanding capital stock of the Company and CSH is able to elect a majority
of the Company's board of directors and will have sufficient voting control to
affect corporate transactions without the concurrence of the Company's minority
shareholders. In addition, CSH's voting rights tend to preclude any corporate
action by shareholders or a change in control of the Company unless it is
initiated or supported by CSH.

The Company's Business Focus on the Greater China Region Subjects the Company
and Its Business to the Political, Economic and Other Developments in the Region

      As a result of the Company's traditional business focus on the Greater
China Region, the Company's business and its financial and operating results may
be affected by significant political, economic, social and cultural developments
in the region.

      A substantial portion of the Company's results is derived from its
affiliates, major businesses of which are located in China. These businesses are
dependent in large part on the performance of the Chinese economy, as well as
Chinese government policy. As a result, the future financial condition and
results of operations of the Company could be adversely affected by slowdowns in
the Chinese economy, Chinese macroeconomic policy that de-emphasize the
development of industries which utilize products or services of the Company's
affiliates or other governmental policies, including changes in laws,
regulations or the interpretation thereof; confiscatory taxation; restrictions
on currency conversion, imports or sources of supplies; or the expropriation or
nationalization of private enterprises.

      Although the Chinese government has been pursuing economic reform policies
for approximately two decades, the Chinese government has introduced measures in
certain sectors to avoid overheating of the

<PAGE>

economy, including tightening bank lending policies and increases in bank
interest rates. Any measures or actions taken by the Chinese government to
control industries that utilize products or services of the Company's affiliates
could restrict their business operations and adversely affect the financial
positions of the Company and its affiliates.

      Although the Company believes that the economic reforms and macroeconomic
policies and measures adopted by the Chinese government will continue to have a
positive effect on economic development in China and that the Company and its
affiliates will continue to benefit from these policies and measures, there is
no assurance that the government will continue to pursue such policies or that
such policies may not be significantly altered, especially in the event of a
change in leadership, social or political disruption, or other circumstances
affecting China's political, economic and social life.

      In addition, the Company's financial results are significantly dependent
on the economy in the region. The economy of the Greater China Region differs
significantly from the economies of the United States and Western Europe in such
respects as structure, level of development, growth rate, capital reinvestment,
resource allocation, self-sufficiency, rate of inflation and balance of payments
position, among others. Adverse changes in economic in China, in the policies of
the Chinese government, could have a material adverse effect on the overall
economic growth of China. These developments could adversely affect the
financial condition, results of operations and business of the Company and its
affiliates, by reducing the demand for the products and services of the
Company's affiliates.

      As a member of the World Trade Organization, China's economic activity is
expected to become more and more export driven and China's internal market is
expected to see more competition through imports. The expected change in
economic activity in China and the Greater China Region and a greater
interdependence of the Chinese economy on the general world economy as a result
of such changes could also impact the Company's financial results.

      In addition, the operation of affiliates of the Company may be affected by
the adequacy of supply of, and demand for electricity in, the Greater China
Region. Demand for resources such as electricity continues to increase. In early
2005, the demand for electricity in the Greater China Region exceeded the
available supply. Limitations on, or shortages in, available resources, such as
electricity, could result in lower production of products than anticipated and
could, accordingly, affect the growth of sales and profitability thereof.

RESTRICTIONS ON FOREIGN CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND
USE OUR RESOURCES EFFECTIVELY

     Any future restrictions on currency exchanges may limit our ability to use
resources generated in Renminbi to fund our business activities outside China or
other payments in Hong Kong dollars or other foreign currencies. Although the
PRC government introduced regulations in 1996 to allow greater convertibility of
the Renminbi for current account transactions, significant restrictions still
remain, including primarily the restriction that foreign invested enterprises
may only buy, sell and/or remit foreign currencies at those banks authorized to
conduct foreign exchange business after providing valid commercial documents. In
addition, remittance of foreign currencies abroad and conversion of Renminbi for
capital account items, including direct investment and loans, is subject to
governmental approval in China, and companies are required to open and maintain
separate foreign exchange accounts for capital account items. We cannot be
certain that the Chinese regulatory authorities will not impose more stringent
restrictions on the convertibility of the Renminbi, especially with respect to
foreign exchange transactions.

FLUCTUATIONS IN THE VALUE OF THE RENMINBI COULD NEGATIVELY IMPACT OUR RESULTS OF
OPERATIONS

     Our reporting currency is the Renminbi as a substantial portion of our
investments are denominated in Renminbi. Our remaining assets and liabilities
and all of our operating expenses are denominated in Hong Kong dollars. As a
result, we may be exposed to foreign exchange risk, and our results of
operations may be negatively impacted by fluctuations in the exchange rate of
Renminbi against other currencies. As our major assets and liabilities comprise
a mixture of items that are denominated in Renminbi or Hong Kong dollars, our
business and operating result may be materially affected in the event of a
severe increase or decrease in the value of the Renminbi against other
currencies.

     The value of the Renminbi is subject to changes in China's governmental
policies and to international economic and political developments. Since January
1, 1994, the PRC government has used a unitary managed floating rate system.
Under this system, the People's Bank of China, or PBOC, publishes a daily based
exchange rate with reference primarily to the supply and demand of Renminbi
against U.S. dollars and other foreign currencies in the market during the
previous day. Authorized banks and financial institutions are allowed to quote
buy and sell rates for Renminbi within a specified band around the central
bank's daily exchange rate. On July 21, 2005, PBOC announced an adjustment of
the exchange rate of the U.S. dollars to Renminbi from 1:8.27 to 1:8.11 and
modified the system by which the exchange rates are determined.

     As the exchange rate of the Hong Kong dollars to the U.S. dollars has been
fixed by the Hong Kong government since 1983 at approximately HK$7.80 to
US$1.00, through the currency-issuing banks in Hong Kong., this adjustment has
resulted in an approximately 2.0% appreciation of the Renminbi against the Hong
Kong dollars. While the international reaction to the Renminbi revaluation has
generally been positive, there remains significant international pressure on the
PRC government to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the Renminbi against
the U.S. dollar and other currencies.

     We may elect to hedge our currency exchange risk when we judge that such
action may be required. In an attempt to lower the costs of expenditures in
foreign currencies, we may enter into forward contracts or option contracts to
buy or sell foreign currencies against the Renminbi through one of our banks. As
a result, we may suffer losses resulting from the fluctuation between the buy
forward exchange rate and the sell forward exchange rate, or from the price of
the option premium.

     As of December 31, 2004, we held no option or future contracts and during
the year we did not purchase or sell any commodity or currency options. We are
continuing to review our hedging strategy and there can be no assurance that we
will not suffer losses in the future as a result of hedging activities.
<PAGE>

Limited Liquidity in the Company's Securities May Make It Difficult to Sell
Shares

      As a foreign private issuer whose business is substantially in the China
and Asian market, the Company has less exposure in the U.S. capital markets than
comparable U.S. issuers. In addition, the Company has a relative small public
float of its securities. These and other general economic, industry or Company
factors may result in low trading volumes or prices of the Company's securities.
Accordingly, shareholders of the Company bear risks regarding the liquidity of
the Company's shares and may not be able to sell shares in desired quantities,
at desired times or desired prices or a combination thereof.

As a Result of Changes in the Company's Assets and Sources of Income, the
Company Could Become an Investment Company for Purposes of the United States
Investment Company Act of 1940

      While the Company believes that through its subsidiaries and affiliates it
is actively engaged in operating businesses, and does not meet the definition of
an investment company for purposes of the United States Investment Company Act
of 1940 (the "1940 Act"), the Company still intended to rent out the property
located in Shanghai, the PRC, in order to receive rental income in the future.
However, it depends on the composition and valuation of the Company's assets and
the sources of the Company's income from time to time, the Company could fall
within the technical definition of the term "investment company" for purposes of
the 1940 Act. We may be deemed to be an investment company under the 1940 Act.
Generally, a company must register under the 1940 Act and comply with
significant restrictions on operations and transactions with affiliates if its
investment securities exceed 40% of the company's total assets, or if it holds
itself out as being primarily engaged in the business of investing, owning or
holding securities. The 1940 Act provides for various exemptions from the
obligation to register thereunder, and we are deemed not to be an investment
company under the 1940 Act. If certain of our investments were to adversely
affect our status under the 1940 Act, we might need to dispose of or acquire
investments to avoid the requirement to register as an investment company on
terms that may not be favourable to us. In addition, if we were deemed to be an
investment company and therefore required to register as such under the 1940
Act, we would be unable to continue operating as we currently do, as a result of
which our market value would be severely harmed.

Changes in Composition of the Company's Assets Could Result in the Company Being
Deemed a "Passive Foreign Investment Company" Which Could Have a Negative Impact
on U.S. Holders

      Special U.S. federal income tax rules apply to U.S. holders of shares of a
non-U.S. corporation that is classified as a Passive Foreign Investment Company
("PFIC"), for U.S. federal income tax purposes. The determination of the PFIC
status of the Company principally depends upon the composition of the Company's

<PAGE>

assets, including goodwill, and the amount and nature of the income of the
Company, from time to time. The Company disposed of most of its operating
subsidiaries, or its majority interest therein, during the past three years. If
we are characterized as PFIC, our U.S. shareholders may suffer adverse tax
consequences, including having gains realized on the sale of our shares taxed at
ordinary income rates, rather than the capital gain rate. In addition, both
gains upon disposition and amounts received as distributions could be subject to
an additional interest charge by the Internal Revenue Service. A determination
that we are a PFIC could also have an adverse effect on the price and
marketability of our shares.

      We do not believe that we were a PFIC for 2004. However, since the
determination of whether we are a PFIC is based upon such factual matters as the
valuation of our assets and, in certain cases, the assets of companies held by
us, there can be no assurance with respect to the position of the Internal
Revenue Service on our status as a PFIC. Our analysis related to 2004 is based,
among others, upon certain assumptions and methodologies with respect to the
various that we have used, the appropriate value of our ownership interest in
companies we held, and the manner in which we have allocated the value among our
active assets and passive assets.

      We cannot assure you that the Internal Revenue Service will not challenge
our assumptions and methodologies. If there were such a challenge, we could be
classified as a PFIC for 2004.

      With respect to 2005 and subsequent years, the tests for determining PFIC
status are applied annually and it is difficult to make accurate predictions of
future income and assets, which are relevant to this determination. The tests
are impacted by changes in value of our group companies which are difficult to
predict. Accordingly, there can be no assurance that we will not become a PFIC
in 2005 or subsequent years.

Increased Demand on Corporate Management Time May Have Potential Distortion on
Overall Group Performance

      As more investment opportunities arise, a significant portion of
management time will be allocated to overseeing and monitoring the operations of
each of the Company's newly acquired subsidiaries and affiliates some of which
may be in industries completely different from the traditional core business of
the Company. This could result in inefficient allocation of managerial resources
in the Company. Moreover, the operation of businesses different from the core
business may require different managerial skills and business acumen. The
Company may not be able to successfully run newly acquired businesses in diverse
industries.

Natural Disasters in the Greater China Region Could Cause Significant Damage to
the Company's Business and Financial Results

<PAGE>

      The products of the Company's affiliates are manufactured at the factories
located in the PRC. During the past years, the PRC has experienced natural
disasters, including floods and fires. A disaster could cause significant damage
to manufacturing factories which may not be adequately covered by insurance
proceeds and could materially and adversely affect our business and financial
results. The disaster relief and assistance in the PRC is not well developed and
there can be no assurance that adequate government assistance would be available
in the absence of sufficient insurance coverage. In addition, any natural
disaster in the region would adversely impact the travel business of an
affiliate of the Company which is focused on the Asia Pacific region.

Our Results Could Be Harmed If We Have To Comply with New Environmental
Regulations

      The operations of our affiliates create some environmentally sensitive
waste that may increase in the future depending on the nature of our
manufacturing operations. The general issue of the disposal of hazardous waste
has received increasing attention from Chinese national and local governments
and foreign governments and agencies and has been subject to increasing
regulation. Currently, relevant Chinese environmental protection laws and
regulations impose fines on discharge of waste materials and empower certain
environmental authorities to close any facility which causes serious
environmental problems. Although it has not been alleged that we have violated
any current environmental regulations by China government officials, there is no
assurance that the Chinese government will not amend its current environmental
protection laws and regulations. Our financial results could be materially and
adversely affected if we were to increase expenditures to comply with
environmental regulations affecting our operations.

Our Insurance Coverage May Not Be Sufficient to Cover the Risks Related to Our
Financial and Losses

      The operations of our affiliates have not experienced any major accidents
in the course of our businesses which have caused significant property damage or
personal injuries. However, there is no assurance that we will not experience
major accidents in the future. Although we have purchased the necessary
insurances, the occurrence of certain incidents such as earthquake, war and
flood, and the consequences resulting from them, may not be covered adequately,
or at all, by insurance policies under which we are protected. We also face
exposure to product liability claims in the event that any of our products is
alleged to have resulted in property damage, bodily injury or other adverse
effects. Losses incurred or payments we may be required to make, may have a
material adverse effect on our results of operation if such losses or payments
are not fully insured.

Possible Volatility of Share Prices Worldwide May Have Significant Effects on
the Company's Share Price

      The trading price of the Company's shares has been and may continue to be
subject to wide fluctuations. Capital markets worldwide have generally
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of the listed companies
themselves. There can be no assurance that trading prices and price earnings
ratios previously experienced by the Company's common shares will be matched and
maintained. Broad market and industry factors may adversely affect the market
price of shares in the Company, regardless of its operating performance.
Shareholders and potential investors of the Company are advised to exercise
caution when dealing in the securities of the Company.

<PAGE>

Legal System Differences between the Greater China Region and the United States
of America Could Impact Investors

      Unlike common law systems in the western world, China has a civil law
system based on written statutes and, therefore, decided legal cases are without
binding legal effect, although they are often followed by judges as guidance. As
the Chinese legal system develops, the promulgation of new laws, changes to
existing laws and the preemption of local regulations by national laws may
adversely affect the interests of foreign investors.

<PAGE>

                       ITEM 4. INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

      The Company was incorporated under the laws of Bermuda on January 28,
1993. From July 15, 1993 to late 2002, the Company's shares were listed on the
New York Stock Exchange, Inc. (the "NYSE"). On November 26, 2002, the Company's
shares began trading on the OTCBB in the United States. The Company is
registered in Hong Kong under the commercial name of "China Tire Holdings
Limited" due to local company registration considerations.

      The principal place of business of the Company is located at 8th Floor,
Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong and its telephone
number is (852) 2372 0130.

IMPORTANT EVENTS OF THE COMPANY'S BUSINESS SINCE THE BEGINNING OF 2004

      On January 13, 2004, Wing On Travel (Holdings) Limited ("Wing On") entered
into agreements (as subsequently amended on March 17 and May 4, 2004) with the
Company and another holder of its convertible notes in relation to the issuance
of new convertible notes. Under the agreements Wing On would issued new
convertible notes to the Company or its nominee for a consideration of HK$155.0
million (Rmb165.2 million), of which HK$84.8 million (Rmb90.0 million), settled
by the cancellation of the Company's current convertible notes of Wing On and
the remaining balance would be satisfied in cash by the Company. The new
convertible notes provide the Company rights to convert the notes into new
shares of Wing On during a period of three years from the date of issue, at the
Company's discretion, at an initial conversion price of HK$0.02 per share of
Wing On, subject to adjustments. On June 8, 2004, the agreements were approved
by Wing On's shareholders that do not have any interest in Wing On's current
convertible notes and the transaction was completed on June 14, 2004.

      On June 16, 2004, the Company, through an indirect wholly-owned
subsidiary, entered into a conditional sale and purchase agreement with an
independent third party, Shanghai Jiu Sheng Investment Company Limited
("Vendor"), for the proposed acquisition by the Company of a parcel of land (the
"Land") and a 24-story building under construction on the Land (the "Building")
located in Shanghai, the PRC (the Land and the Building together referred to as
the "Properties"). The estimated total gross floor space of the Building is
approximately 37,000 square meters, on a parcel of approximately 5,500 square
meters. Subject to zoning approvals, which are a condition to the acquisition,
the Company expects that the first four floors of the Building will be rented
for commercial purposes and the remaining 20 floors will be developed and rented
as serviced apartments.

      The aggregate consideration for the Property is Rmb450 million. The
Company paid the first deposit of Rmb50 million in cash to the Vendor upon
signing of the agreement; and subsequent to the balance sheet date, Rmb8 million
of deposit was additionally advanced by the Company and the aggregate sum paid
by the Company to the Vendor amounted to Rmb58 million as at the date of this
report. Rmb380 million of the consideration will be payable upon the grant and
drawdown of loans to be granted by PRC banks or financial

<PAGE>

institutions and secured by the Properties. The remaining Rmb20 million will be
financed by internal resources of the Company and will be due upon completion of
the transfer of the ownership of the Properties from the seller to the Company.

      However, the conditions stated in the agreement for the change of the use
of the Properties might not be fulfilled within the said period and accordingly
the Vendor and the Company had entered into another agreement dated February 3,
2005 pursuant to which, among other things, (i) the Company will pay, on behalf
of the Vendor, Rmb22 million to the main contractor of the Properties (the "Main
Contractor"); and (ii) the amount paid by the Company in (i) will be deducted
from the sales consideration.

In June 2005, the Company had commenced legal proceedings against the Vendor,
among other things, to demand the Vendor to fulfill its obligations under the
above two agreements and applied to a PRC court an injunction order on the
Properties to stop the Properties from being transferred (the "Injunction
Order"). It had also come to the attention of the Company that one of the three
secured creditors of the Vendor and the Main Contractor had already applied to
and being granted the Injunction Orders and they, together with the other two
secured creditors, had priority over the Company on the Properties. As a
condition precedent to the application of the Injunction Order, the Company had
issued a counter guarantee of Rmb402 million to an institution in the PRC which
provided a guarantee of the same amount to the PRC court on behalf of the
Company.

At the same time, the directors of the Company are also in discussion with the
Vendor for settlement of the above matters; however, there can be no assurance
that such matters can be resolved and settled with the Vendor eventually.
Despite the above developments, the directors of the Company have consulted its
legal counsel and decided to proceed with the acquisition of the Properties in
consideration of the following:

(a) the legal title of the Properties can be transferred to the Company when the
   debts of the Vendor owed to the three secured creditors and the Main
   Contractor are settled by the Company;

(b) the usage of the Properties can be changed to both commercial and
   residential when the Company obtains the legal title to the Properties and
   makes the application to the relevant authority;

(c) the acquisition of the Properties, on a completion basis, is expected to
   bring economic benefits to the Company taking into account of the estimated
   market value of the Properties as of June 30, 2005; and the ability of the
   Company to meet the cash flow requirements to finance the acquisition and
   completion of the Properties, given the current financial position of the
   Company and financial resources available to the Company from internally
   generated funds, advances from its holding companies and/or financial
   institutions.

      The directors of the Company are of the view that the carrying amount of
the deposit is not less than its recoverable amount at the reporting date. A
copy of the agreement is included as Exhibit 4(a)4 to this annual report.

      In October and November, 2004, the Company converted approximately HK$100
million convertible note

<PAGE>

of Wing On into ordinary shares of HK$0.01 each of Wing On at conversion price
of HK$0.020 per share. The interest of Wing On held by the Company was
accordingly increased from approximately 32.2% to approximately 38.6% upon
conversion of the convertible notes into shares of HK$0.01 each in Wing On by
the Company. The Company subsequently disposed of approximately 7.9% interest in
Wing On on the open market for a consideration of approximately HK$45 million
and as a result the Company's interest in Wing On was decreased to approximately
30.3%.

      On November 30, 2004, the Company entered into two placement and
subscription agreements with Wing On and the placing agent pursuant to which the
placing agent agreed to place 6,000 million shares of Wing On at the price of
HK$0.028 per share and the Company agreed to subscribe for up to 6,000 million
new shares of Wing On at the same price of HK$0.028 per share. The placing of
6,000 million shares of Wing On and subscription 3,660 million new shares of
Wing On issued to the Company under the general mandate of Wing On were
completed in December, 2004. The subscription of 2,340 million new shares of
Wing On issued to the Company pursuant to the approval of independent
shareholders of Wing On were completed in January 2005. Upon completion of the
above transactions, the Company held approximately 25.0% interest in Wing On. No
gain or loss was recorded in the transaction.

      On February 4, 2005, the Company further entered into a placing and
subscription agreement with Wing On and the placing agent pursuant to which the
placing agent agreed to place, on a best efforts basis, up to 6,400 million
shares of Wing On at a price of HK$0.022 per Wing On share and the Company would
subscribe for up to 6,400 million new shares of Wing On at the price of HK$0.022
per share. The above transactions were completed in February, 2005. The
Company's interest in Wing On was then decreased to 21.1%. No gain or loss was
recorded in the transaction.

      On April 29, 2005, the Company converted HK$55 million convertible notes
of Wing On into ordinary shares of HK$1.00 each of Wing On at conversion price
of HK$1.97 per share. The interest of Wing On held by the Company was
accordingly increased from approximately 21.1% to 27.74% upon conversion of the
convertible notes into share of HK$1.00 each in Wing On by the Company.

      China Strategic Holdings Limited ("CSH"), the parent company of the
Company, had been informed by two substantial shareholders of China Strategic
Holdings Limited, that they have entered into the share sale agreement with the
offeror on March 10, 2005 pursuant to which and subject to, inter alia, the
implementation of the Group Reorganization as stated below in full, the offeror
agreed to acquire 135,000,000 shares (equivalent to 67,500,000 consolidated
shares of China Strategic Holdings Limited upon the Capital Reorganization
having become effective) from each of two substantial shareholders, which shares
represent approximately an aggregate of 30.6% of the issued share capital of
China Strategic Holdings Limited, for an aggregate consideration of
HK$52,110,000, equivalent to about HK$0.193 per share (or HK$0.386 per
consolidated share).

      CSH announced the following proposals, which the resolutions were approved
and passed at the Extraordinary General Meeting of CSH held on October 6, 2005,
that would result in below:

(i)     China Strategic Holdings Limited continuing to be a public listed
        company with its subsidiaries concentrating on its business of
        manufacturing and trading of battery products, investments in securities
        and property and investment in unlisted investments;

(ii)    all other subsidiaries of China Strategic Holdings Limited carrying on
        sand mining business, property

<PAGE>

        development, and investment holding business (including the Company),
        and all other associates of China Strategic Holdings Limited carrying on
        manufacturing and marketing of tires and business of providing package
        tour, travel and other related services (including the equity investment
        affiliates of the Company) being grouped under Group Dragon Investments
        Limited ("GDI"), a wholly-owned subsidiary of China Strategic Holdings
        Limited, and its subsidiaries; and

(iii)   the distribution in specie of the GDI share to the shareholders of China
        Strategic Holdings Limited whose names appear on the register of members
        of China Strategic Holdings Limited on the record date on the basis of
        one GDI share for one consolidated share of China Strategic Holdings
        Limited.

<PAGE>

PRINCIPAL CAPITAL EXPENDITURES

      Principal capital expenditures, investment and divestitures over the last
three years include the following:

<TABLE>
<CAPTION>
                                                               2002          2003            2004
                                                             RMB'000       RMB'000         RMB'000
<S>                                                          <C>           <C>             <C>
Purchase of property, plant and equipment                    (287,536)     (256,872)               -
Proceeds from disposal of property, plant and equipment        77,320         4,601                -
Investments in and advances to affiliates, net               (180,612)     (197,358)          72,142
Proceeds from disposal of a business component, net               833      (104,128)               -
</TABLE>

      The Company conducts its businesses through subsidiaries and affiliates.
Accordingly, much of the expenditures described above have been made at the
subsidiary level. For a description of the Company's subsidiaries, please refer
to the section "ORGANIZATION STRUCTURE" below.

BUSINESS OVERVIEW

      For the two years ended December 31, 2003, the Company principally engaged
in the manufacturing and trading of tires business. And for the year ended
December 31, 2004, no turnover was derived from the manufacturing and trading of
tires products following the disposal of interest of subsidiaries engaged in
this operation. The Company's tire business was primarily conducted through
Hangzhou Zhongce, which, through September 2003, was a majority-owned subsidiary
of the Company. The Company's consolidated operating results for 2003 were
derived substantially from the performance of Hangzhou Zhongce. Also, in 2002,
the Company began to diversify its business and acquired a significant interest
in Wing On Travel, a Hong Kong based travel company. As described above, in the
middle of 2004, the Company continued its diversification by entering into the
sale and purchase agreement for the Properties. It is the intention of the
management of the Company to continue seeking appropriate investment
opportunities in the hotel and travel related businesses in the PRC in view of
the positive outlook in this sector in the coming future. The Company is
actively seeking new investment opportunities.

      Since the Company does not have any other operating subsidiary up to the
date of this report, the financial results of the Company in fiscal 2004 was
greatly depended on the share of results of its affiliates, including the tire
business and the travel business.

TIRE BUSINESS

During the years 2002 through 2003, the Company was principally engaged in the
tire manufacturing and trading business, through Hangzhou Zhongce; and is mainly
engaged in the manufacture and sale of bias and radial tires. Accordingly,
Hangzhou Zhongce established Hangzhou Sunrise Rubber com., Ltd ("Hangzhou
Sunrise") with three other PRC enterprises in 1998 and vertically acquired Fu
Chun Jiang in 1999 that manufactures radial tire products and a number of raw
materials including tire rubbers and carbon black,

<PAGE>

respectively. During 2003, the Company disposed of its 25% interest in Hangzhou
Zhongce and ceased to consolidate the results of Hangzhou Zhongce and Fu Chun
Jiang (collectively referred to as "Hangzhou Zhongce") and Hangzhou Sunrise was
also ceased to be an affiliate of the Group as of October 1, 2003, following the
completion of the disposal. And as a result of this disposition, the Company
maintains minimal involvement in the manufacturing and trading of tires products
through its 26% held interest in Hangzhou Zhongce, which became a major
affiliate of the Company thereof. For the year ended December 31, 2004, no
turnover of the Group was derived from the tire business engaged in the
manufacturing and marketing of tire products.

PRINCIPAL PRODUCTS

Hangzhou Zhongce manufactures and sells a broad line of tire products,
consisting of motor vehicle (bias and radial tire for truck, tractor, passenger
car and motorcycle), bicycle and wheelbarrow tires. This breadth of products
enables Hangzhou Zhongce to serve its diverse customer base in Zhejiang Province
and along the heavily populated and economically prosperous eastern coastal
region of China.

<TABLE>
<CAPTION>
                                                  HANGZHOU ZHONGCE SALES IN UNITS
                                               2002                         JAN TO SEPT 2003
                               -----------------------------------  ---------------------------------
                                                          CHANGE                              CHANGE
                                                           FROM                                FROM
TYPE OF TIRES                    UNITS     % OF TOTAL   PRIOR YEAR     UNITS    % OF TOTAL  PRIOR YEAR
                               ----------  ----------   ----------  ----------  ----------  ----------
<S>                            <C>         <C>          <C>         <C>         <C>         <C>
Motor Vehicle Tires
   Passenger Car                1,018,277     19.30%       29.04%    1,374,624     25.83%     35.00%
   Truck and Light Truck        3,879,185     73.52%        8.29%    3,633,721     68.27%     -6.33%
   Tractor                        348,890      6.61%       31.55%      266,575      5.01%    -23.59%
   Others                          30,282      0.57%       -9.58%       47,458      0.89%     56.72%
                               ----------    ------                 ----------    ------
Total                           5,276,634    100.00%       12.99%    5,322,378    100.00%      0.87%
                               ==========    ======                 ==========    ======

Bicycle Tires                  40,651,193                  14.11%   34,965,304               -13.99%
Wheelbarrow Tires               2,723,131                   8.87%    2,318,035               -14.88%
</TABLE>

<TABLE>
<CAPTION>
                                 HANGZHOU ZHONGCE SALES (SALES TAX EXCLUDED)
                                        2002               JAN TO SEPT 2003
                               ----------------------   ----------------------
                                 SALES                    SALES
                               ----------               ----------
TYPE OF MOTOR VEHICLE TIRES      RMB'000   % OF TOTAL     RMB'000   % OF TOTAL
                               ----------  ----------   ----------  ----------
<S>                            <C>         <C>          <C>         <C>
   Bias Tires                  1,053,238      55.66%      811,003      39.68%
   Radial Tires                  839,017      44.34%    1,232,646      60.32%
                               ---------     ------     ---------     ------
Total                          1,892,255     100.00%    2,043,649     100.00%
                               =========     ======     =========     ======
</TABLE>

<PAGE>

      TRUCK AND PASSENGER VEHICLE TIRES. The rise in commercial activities in
China, improvement in living standard of the Chinese population and change in
governmental policy of China supported the recent increased demand for
commercial vehicles and road transportation in China. These factors stimulated
the sales of motor vehicle tires for Hangzhou Zhongce, especially for passenger
vehicle tires. Truck and light truck tires continue to be the major products of
Hangzhou Zhongce.

      BICYCLE TIRES. Since "Chao Yang" tire, Hangzhou Zhongce's brand name, is
well known in the PRC, Hangzhou Zhongce sold approximately 35 million units of
bicycle tires for the nine-month period ended September 30, 2003, and attained a
leading position in the domestic market. Bicycle remains one of the major modes
of transportation in China and hence the sales of bicycle tires were stable and
provided a steady source of operating income.

MARKETS

      MOTOR VEHICLE TIRES. Hangzhou Zhongce distributes its motor vehicle tires
regionally to a large customer base - Zhejiang Province. Other major commercial
and industrial centers along the eastern coastal region to which Hangzhou
Zhongce sells its products include the city of Shanghai, the provinces of
Jiangsu and Anhui and the provinces of Fujian and Jiangxi. As a result of the
increase in productive capacity, Hangzhou Zhongce has successfully increased its
business in Northern China. During 2001 to 2003, Hangzhou Zhongce started to
expand its sales to other districts of China, primarily, as a result of decrease
in percentage of sales in Eastern China and export sales.

      GEOGRAPHICAL SALES DISTRIBUTION OF MOTOR VEHICLE TIRE - 2002 AND 2003

<TABLE>
<CAPTION>
                                   % OF REVENUE
                               ----------------------
                                 2002        2003
REGION                         JAN ~ DEC   JAN ~ SEPT
<S>                            <C>         <C>
Eastern China (l)                33.5%        32.9%
Northern China (2)               21.5%        22.0%
Western China (3)                 5.3%         5.8%
Southwestern China (4)            6.3%         6.1%
Southern China (5)               11.9%        12.2%
Export (6)                       21.5%        21.0%
                                -----        -----
Total                           100.0%       100.0%
                                =====        =====
</TABLE>

(1)   Eastern China refers to the provinces of Shandong, Jiangsu, Anhui,
      Zhejiang, Jiangxi, Fujian and Shanghai.

(2)   Northern China refers to the provinces of Heilongjiang, Jilin, Liaoning,
      Hebei, Shanxi, Henan, Inner Mongolia, Beijing and Tianjin.

(3)   Western China refers to the provinces of Gansu, Qinghai, Shannxi, Xinjiang
      and Ningxia.

(4)   Southwestern China refers the provinces of Sichuan, Yunnan, Guizhou and
      Tibet.

(5)   Southern China refers to the provinces of Taiwan, Hubei, Hunan, Guangxi
      and Guangdong.

(6)   Export sales are primarily to the Middle East, Philippines, Singapore, the
      United States and Canada.

<PAGE>

      The primary market for Hangzhou Zhongce's products is the replacement tire
market which accounted for over 90% of the domestic sales of Hangzhou Zhongce.
The Company estimates that, on average, tires are replaced more frequently in
China than in any other developed country because of poor road conditions,
frequent overloading of vehicles and the high daily usage rate of vehicles. As
is typical in the China tire market, Hangzhou Zhongce does not have long term
supply contracts with its customers, who customarily place orders for the
following year at the end of each year. Accordingly, Hangzhou Zhongce focuses
much of its marketing effort on developing new distribution opportunities in the
replacement market and strengthening existing relationships with large customers
and distributors.

      Hangzhou Zhongce sells its motor vehicle tires and bicycle tires under its
brand name "Chao Yang" and in 2003 had five primary channels for distributing
its motor vehicle tires: (a) direct sales to Original Equipment Manufacturer
customers, (b) sales through an authorized wholesaler, (c) auto repair shops,
(d) Hangzhou Zhongce's retail sales offices, and (e) exports. The enterprise has
3 retail sales offices in 3 provinces and central municipalities, primarily
situated in cities adjacent to the Zhejiang province.

      Sino-foreign equity joint venture enterprises are free to set prices for
their products without government control. Hangzhou Zhongce adjusts its prices
in response to market conditions. Based on quality and type of tire, radial
tires are sold for prices higher than those for bias tires of comparable size.

      Hangzhou Zhongce offers a "Triple Coverage" warranty for its tires,
guaranteeing repair, return or replacement of defective tires. In 2003, Hangzhou
Zhongce's tire manufacturing defect rate was 0.91%, compared to the national
average of 0.50% and the customer return rate was 1.67%.

      BICYCLE TIRES. Hangzhou Zhongce sells bicycle tires primarily in the
Zhejiang Province, Shanghai and surrounding provinces. Its customer base is
mainly in the replacement market. Hangzhou Zhongce believes that it has strong
relationships with its customers. As with the motor vehicle tire market,
Hangzhou Zhongce does not have long term supply contracts with customers, who
customarily place orders for the following year at the end of each year.

      The Company does not believe that seasonality has a significant impact on
its tire business.

<PAGE>

RAW MATERIALS

      A typical bias tire is manufactured, on cost basis, from a mix of
approximately 25% natural rubber, 12% synthetic rubber, 31% nylon cord, 10%
carbon black, 4% steel thread and 18% other materials. A typical radial tire is
manufactured, on cost basis, from a mix of approximately 22% natural rubber, 5%
synthetic rubber, 9% carbon black, 43% steel cord and 21% other materials. As
indicated below, prices of key raw materials increased during 2003.

                          RAW MATERIAL COSTS: 2002-2003

<TABLE>
<CAPTION>
                               2002                                     2003
                           -----------                              -----------
                             AVERAGE                                  AVERAGE
                              COST                                     COST
                           PER TON (1)                              PER TON (1)
<S>                        <C>                                      <C>
Natural Rubber                6,450                                    9,180
Synthetic Rubber              7,450                                   10,150
Carbon Black                  3,560                                    3,680
Nylon Cord                   18,250                                   19,850
Steel Thread                  3,760                                    4,180
Steel Cord                   17,570                                   16,540
</TABLE>

-------------
(1)   In thousands Rmb.

      Hangzhou Zhongce currently pays for their imported raw materials with
Renminbi by purchasing such materials through large Chinese import-export
companies. Imports sourced directly from foreign suppliers are subject to import
duties and must be purchased with foreign currency. However, by exporting its
tires, Hangzhou Zhongce is exempted from paying import duties and earns foreign
currency in an amount sufficient to balance the amount expended on raw material
imports. Because of the lower prices generally quoted by export agencies and
international tire distributors, domestic sales usually provide higher margins
than export sales.

      Part of the rubber and carbon black consumed during the year was supplied
by Fu Chun Jiang. However, the volume was insignificant as compared to those
outsourced from other suppliers and importers.

ENVIRONMENTAL ISSUES

      In China, the local provincial and municipal governments enforce pollution
control regulations. If a company was found to be in violation of such
regulations, it would be given a period of time to remedy the problem. Should it
fail to do so, the government could force a shutdown of the operations until
such time as that company is in compliance of the regulations.

      Hangzhou Zhongce believes that their products and manufacturing and other
operations are in compliance, in all material respects, with existing applicable
laws relating to air, water and noise pollution.

<PAGE>

TRAVEL BUSINESS

      In 2002, the Company diversified into the travel business through an
investment in Wing On. The travel industry in the Asia Pacific region had a
difficult time in the first half of 2003. The global travel in the region was
affected by, among other factors, hostilities such as the Iraqi war, concerns
over terrorism and the Severe Acute Respiratory Syndrome ("SARS"). The
unemployment rate of Hong Kong was persistently high. Wing On's tour operations
and transportation business were harshly attenuated for several months.

      In response to the issues facing the industry, Wing On shifted its
business focus. An increased emphasis was placed on local tours in financial
year 2003. Special promotions and initiatives were launched to rebuild public
confidence in travel in the region. In addition, Wing On introduced new targeted
adventure, photography tours and other tours. At the same time, in order to
achieve greater operational efficiencies and cost savings, Wing On implemented
restructuring changes during the financial year 2003. Several of its less
profitable local branches and overseas offices were closed and its loss-making
transportation business was sold.

      Despite these adverse factors, the industry recovered rapidly during the
second half of the year 2003 following the control of epidemic, the subsequent
lifting of various World Health Organization travel advisories, the launch of
the Individual Visit Scheme by the Chinese government, pursuant to which Chinese
citizens in selected cities can more easily travel to Hong Kong, and the
implementation of the Closer Economic Partnership Arrangement by the Chinese
government. Wing On improved its results in 2003.

      For the year 2004 under review, Wing On continued to benefit from the
upward rebound to travel business of Hong Kong after the negative impacts
brought by the outbreak of SARS subsided over the corresponding period.
Following the policy trend in the PRC, it is likely the limit on foreign holding
in a company operating with outbound travel license be gradually opened up. In
fact, with the gradual easing of restrictions on the individual mainland
visitors traveling to Hong Kong, the Company expects a great increase in
arrivals once more parts of the PRC are opened up to individual travelers, that
directly benefit the local economy. Consequently, Wing On continues to explore
and develop the hotel and tourist market in the PRC.

      Throughout 2004, Hong Kong's economy was picked up together with many
countries around the world. Although the Indian Ocean tsunami did have an impact
on travelers' sentiment, overall performance of the travel industry was quite
promising over the year. Turnover and the profit before taxation of Wing On for
the year ended December 31, 2004 attained HK$1,722.2 million (equivalent to
Rmb1,832.2 million) and HK$37.8 million (equivalent to Rmb40.2 million)
respectively (2003: HK$1,416.2 million (equivalent to Rmb1,506.7 million) and a
loss of HK$373.1 million (equivalent to Rmb396.9 million) respectively).

<PAGE>

ORGANIZATIONAL STRUCTURE

      The Company is part of a group of companies whose ultimate parent company
is CSH (the "CSH Group"). See "Major Shareholders" in "Item 7. Major
Shareholders and Related Party Transactions" of this annual report for more
details.

      The chart below illustrates the simplified position of the Company within
the CSH Group at December 31, 2004.

                                       CSH
                              (Listed in Hong Kong)
                           (Incorporated in Hong Kong)
                              (Investment Holding)

                                     55.22%

                                   The Company
                                (Traded on OTCBB)
                            (Incorporated in Bermuda)

               26.0%                            19.58%

       Hangzhou Zhongce                                 Wing On

     (Incorporated in PRC)                        (Listed in Hong Kong)
     (Tire Manufacturing)                        (Incorporated in Bermuda)
                                                  (Investment Holding)

      The Company itself is a holding company, which has majority interests in a
number of subsidiaries and international entities as of December 31, 2004. The
principal subsidiaries of the Company are Container Limited ("Container"),
Century Lead Limited ("Century Lead"), Capital Canton Limited ("Capital
Canton"), Easy Legend Limited ("Easy Legend"), Manwide Holdings Limited
("Manwide"), Million Good Limited ("Million Good"), Sincere Ocean Limited
("Sincere Ocean"), Supreme Solution Limited ("Supreme Solution"), Wealth Faith
Limited ("Wealth Faith"), Great Windfall Agents Limited ("Great Windfall"),
Honest Map Limited ("Honest Map"), Leading Returns Limited ("Leading Returns"),
Ventures Kingdom Limited ("Ventures Kingdom"), which all subsidiaries are the
British Virgin Islands ("BVI") incorporated companies, and The Rosedale Luxury
Hotel & Suites Limited ("Rosedale"), which is incorporated in the PRC.


<PAGE>
           CONSOLIDATED PRINCIPAL SUBSIDIARIES AS OF DECEMBER 31, 2004

<TABLE>
<CAPTION>
                                                                                        COMPANY'S
                                COUNTRY OF                                        OWNERSHIP INTEREST
CONSOLIDATED SUBSIDIARY        INCORPORATION   PRINCIPAL ACTIVITIES               DIRECTLY  INDIRECTLY
                                                                                  --------  ----------
<S>                            <C>             <C>                                <C>       <C>
Container                           BVI        Investment holding                   100%         -
Century Lead                        BVI        Investment holding                   100%         -
Capital Canton                      BVI        Investment holding                   100%         -
Easy Legend                         BVI        Investment holding                   100%         -
Manwide                             BVI        Investment holding                   100%         -
Million Good                        BVI        Investment holding                   100%         -
Sincere Ocean                       BVI        Investment holding                   100%         -
Supreme Solution                    BVI        Investment holding                   100%         -
Wealth Faith                        BVI        Investment holding                   100%         -
Great Windfall                      BVI        Investment holding and financing     100%         -
Honest Map                          BVI        Investment holding and financing     100%         -
Leading Returns                     BVI        Investment holding and financing     100%         -
Ventures Kingdom                    BVI        Investment holding and financing     100%         -
Rosedale                            PRC        Property holding                     100%         -
</TABLE>

      Through September 20, 2003, Hangzhou Zhongce, a PRC incorporated company,
was also a majority-owned subsidiary of the Company. Please see Exhibit Number 8
for all subsidiaries of the Company.

PROPERTY, PLANT AND EQUIPMENT

BERMUDA

      The registered office of the Company is located at Clarendon House, 2
Church Street, Hamilton, HM11, Bermuda. Only corporate administrative matters
are conducted at this office, through the Company's agent, Butterfield Corporate
Services Limited. The Company neither owns nor leases property in Bermuda.

HONG KONG

      The Company's principal executive office is located at 8th Floor, Paul Y.
Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong. The Company shares the
office with CSH and the Company has agreed to reimburse CSH for administrative
services rendered on behalf of the Company on a cost plus 5% basis. See "Item 7.
Major Shareholders and Related Party Transactions" in this annual report for
more details.

<PAGE>

              ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Except for statements of historical facts, this section contains forward-looking
statements involving risks and uncertainties. You can identify these statements
by forward-looking words including "expect", "anticipate", "believe", "seek",
"estimate", "intends", "should" or "may". Forward-looking statements are not
guarantees of our future performance or results and our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under the section of this
Report entitled Item 3. Key Information - "Risk Factors." This section should be
read in conjunction with our Consolidation Financial Statements included as Item
18 of this Report.

OPERATING RESULTS

OVERVIEW

      The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto contained in "Item 18.
Financial Statements" of this Annual Report.

      The forward-looking statements in this Item 5 are not guarantees of future
performance. They involve both risk and uncertainty. Several important factors
could cause our actual results to differ materially from those anticipated by
these statements. Many of those factors are macroeconomic in nature and are,
therefore, beyond the control of our management. Please see the "Forward-Looking
Information" in this Annual Report for more details.

      The Company has historically been engaged in the tire manufacturing and
trading and related business. During 2001, the Company decided to reengineer its
operations to improve its financial performance. The Company began to dispose of
loss-making subsidiaries and tried to diversify its business.

      In early 2002, the Company acquired a substantive stake in Wing On,
diversifying its business into the travel industry. In fiscal 2003, the Company
further completed its disposals of three loss-making subsidiaries, Yinchuan CSI
and the Company's remaining interests in Double Happiness and ceased to account
for the results of operations and the assets and liabilities of these
subsidiaries from their respective disposal dates.

      In order to realize part of its investment, the Company entered into a
contract to sell a 25% interest in Hangzhou Zhongce on June 15, 2003. As a
result, the Company reduced its interest in Hangzhou Zhongce from a majority to
a minority position; and maintains minimal involvement in the manufacturing and
trading of tires products through its 26% held interest in Hangzhou Zhongce. The
sale was completed in September 2003 and

<PAGE>

Hangzhou Zhongce became an affiliate of the Group at that time. The Company's
Directors considered the disposal as an attractive opportunity for the Company
to realize part of its investment. The Company also considered the introduction
of an investor in Hangzhou Zhongce to be beneficial to both its future
development in the PRC and hence its future value to the Company. The Company
consolidated the results of operations of Hangzhou Zhongce for the nine months
period end September 30, 2003 and shared equity earnings of Hangzhou Zhongce for
the period from October 1, 2003 to December 31, 2003.

      After the completion of the above-mentioned restructuring activities, the
Company is concentrating on its investments in major affiliates, Hangzhou
Zhongce and Wing On.

      With its changing political and socio-economic landscape, it is imperative
that the Company expands its vision to encompass investments in other high
growth industries in the region. Going forward, the Company intends to actively
search for potential investments in the PRC with emphasis on achieving a
diversified portfolio. Since the signing of the Closer Economic Partnership
Arrangement, economic exchanges between Hong Kong and the Mainland China have
gained in momentum. The Company believes that, in part as a result of this
development, the economy of the PRC will grow at an increased rate.

TIRE BUSINESS

      During the year 2004, Hangzhou Zhongce continued to benefit from the
growth in tire market in the PRC and recorded significant improvement in
turnover. The results of Hangzhou Zhongce improved to a lesser extent as
compared to turnover due to the significant increase in the price of raw
materials. Nevertheless, Hangzhou Zhongce recorded an operating income of
approximately Rmb250 million during fiscal 2004.

TRAVEL BUSINESS

      Wing On was mainly engaged in the business of providing package tours,
travel and other related services in Hong Kong. Its major affiliates are engaged
in the operation of hotels. Over 90% of Wing On's operations were derived from
Hong Kong whereas the majority of its assets are located in Hong Kong and the
PRC.

      Throughout 2004, the Hong Kong economy has successfully recovered from the
impacts of SARS that happened in 2003. Despite the increased interest rates in
many other countries, local rates remained considerably low. The robust growth
in demand ended the prolonged six-year deflationary period. All these factors
encouraged consumer confidence and boosted their rate of spending. Although the
Indian Ocean tsunami did have an impact on travelers' sentiment, overall
performance of the travel industry was quite promising over the year under
review, statistics show both inbound arrivals and outbound departures increased
greatly.

      As a result, Wing On has largely benefited from such growth which resulted
in the achievement of a net profit of approximately HK$35.4 million (equivalent
to Rmb37.6 million) for the year ended December 31, 2004, compared with a net
loss of approximately HK$371.0 million for the year ended December 31, 2003
(equivalent to Rmb393.6 million). Following the SARS and the policy trend in the
PRC, it is likely the limit on foreign holding in a company operating with
outbound travel license will be gradually opened up, the number of

<PAGE>

business and leisure travelers increased sharply for both the outbound and
inbound market, Wing On's business was largely benefited from such growth.

POTENTIAL NEW BUSINESS

      The Company entered into a conditional agreement for the acquisition of a
property situated in Shanghai, the PRC and the property being erected thereon
which comprises two levels of underground car parks and a 24-storey building for
a consideration of Rmb450 million. It is anticipated that the Properties will be
used for commercial and service apartment rental purposes.

      With the increasing number of international events, such as Formula One
racing and other international exhibitions and conferences being held in
Shanghai on a regular basis, the Company believes that demand for
short-term/long-term residential accommodations will continue to increase. The
Company is optimistic that the acquisition could broaden the sources of income
for the Company and strengthen its asset base. As the Company is currently in
legal proceedings with the Vendor of the Properties over the completion of the
acquisition and the acquisition is still subject to the satisfaction of various
conditions, the financial results of the Company for the financial year 2004
comprised solely of the Company's share of the earnings and financial results of
its affiliates in the tire and travel businesses.

CRITICAL ACCOUNTING POLICIES

      The preparation of our financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and judgments that affect our
reported amounts of assets and liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates and assumptions based upon historical experience and
various other factors and circumstances. Management believes that our estimates
and assumptions are reasonable under the circumstances; however, actual results
may vary from these estimates and assumptions under different future
circumstances. We have identified the following critical accounting policies
that affect the more significant judgments and estimates used in the preparation
of our consolidated financial statements. For further discussion of our
significant accounting policies, refer to Note 2 - "Summary of Significant
Accounting Policies" to the Consolidated Financial Statements.

      The following critical accounting policies affect the more significant
judgments and estimates used in the preparation of the Company's consolidated
financial statements.

<PAGE>

INCOME TAXES

      The Company records a valuation allowance to reduce its deferred tax
assets to the amount that the Company believes is more likely than not to be
realized. In the event the Company was to determine that it would be able to
realize its deferred tax assets in the future in excess of its recorded amount,
an adjustment to the deferred tax asset would increase income in the period such
determination was made. Likewise, should the Company determine that it would not
be able to realize all or part of its net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination was made.

DERIVATIVES EMBEDDED IN CERTAIN DEBT SECURITIES

      Convertible notes of Wing On held by the Company contain features that
enable the Company to, at its discretion, make cash payments to Wing On to
convert the debt securities into common stock of Wing On. These features
represent embedded derivatives which are required to be accounted for separately
from the related debt securities. The estimated fair value of these features is
valued using a simulation model that incorporates factors such as the current
price of common stock of Wing On, its volatility, and time to expiration.
Changes in the estimated fair value of the assets represented by these factors
are adjusted to the consolidated statements of operations. The adjustments will
be required until the features are either triggered or expire. The recorded
value of these assets can fluctuate significantly based on changes in the value
of the common stock of Wing On.

FOREIGN EXCHANGE RISK

     Our reporting currency is the Renminbi as a substantial portion of our
investments are denominated in Renminbi. Our remaining assets and liabilities
and all of our operating expenses are denominated in Hong Kong dollars. As a
result, we may be exposed to foreign exchange risk, and our results of
operations may be negatively impacted by fluctuations in the exchange rate of
Renminbi against other currencies. As our major assets and liabilities comprise
a mixture of items that are denominated in Reminbi or Hong Kong dollars, our
business and operating result may be materially affected in the event of a
severe increase or decrease in the value of the Renminbi against other
currencies.

      In the last five years, the exchange rate between the Renminbi and U.S.
dollars has varied by less than one-tenth of one percent. However, on July 21,
2005, the PBOC adjusted the exchange rate of U.S. dollars to Renminbi from
1:8.28 to 1:8.11 resulting in an approximately 2% appreciation in the value of
the Renminbi against the U.S. dollars. As the exchange rate of the Hong Kong
dollars to the U.S. dollars has been fixed by the Hong Kong government since
1983 at approximately HK$7.80 to US$1.00, through the currency-issuing banks in
Hong Kong, this adjustment has resulted in an approximately 2.0% appreciation of
the Renminbi against the Hong Kong dollars. On July 23, 2005, the PBOC adjusted
the exchange rate of Hong Kong dollars to Renminbi from 1:1.0638 to 1:1.0478
following the Renminbi no longer pegged to the U.S. dollars. For more details,
see Risk Factors -- "Restrictions on Foreign Currency Exchange May Limit Our
Ability to Receive and Use Our Resources Effectively," and "Fluctuations in the
Value of the Renminbi Could Negatively Impact Our Results of Operations."

ACCOUNTING PRONOUNCEMENTS

A detailed discussion of accounting policies adopted and recent accounting
pronouncements not yet adopted by the Company can be found in Note 2 - "Summary
of Significant Accounting Policies" of the Consolidated Financial Statements
included in "Item 18. Financial Statements" of this annual report.

RESULTS OF OPERATION

The following table presents selected consolidated financial information stated
as a percentage of net revenues for the years ended December 31, 2002, 2003 and
2004 (certain amounts may not calculate due to rounding and amounts may not add
due to rounding).

Selected Consolidated Statement of Income Data as a Percentage of Revenue

<TABLE>
<CAPTION>
                                                                  2002                   2003                   2004
<S>                                                              <C>                    <C>                     <C>
Revenues:                                                        100.00%                100.00%                    -
Cost of revenues                                                 (86.23%)               (89.11%)                 n/a
Gross Profit                                                      13.77%                 10.89%                  n/a
Selling, general and administrative expenses                      (7.36%)                (7.31%)                 n/a
Interest income                                                    1.55%                  0.33%                  n/a
Interest expenses                                                 (2.07%)                (1.18%)                 n/a
Provision for income taxes                                        (0.68%)                (0.38%)                 n/a
Net loss                                                         (10.07%)                (3.82%)                 n/a
</TABLE>

<PAGE>

2004 compared to 2003

The Company

      The Company disposed a 25% equity interest of Hangzhou Zhongce during the
financial year 2003. Due to this disposal, the Company ceased to consolidate
their financial results and the Company has no other revenue generating
subsidiaries; therefore, no revenue was generated from the fiscal year 2004.

      Selling, general and administrative expenses decreased 93.5% to Rmb13.3
million in fiscal year 2004 as compared with Rmb205.2 million in fiscal year
2003. The decrease was mainly due to the partial disposal of the Company's 51%
interest in Hangzhou Zhongce in September 2003 and accordingly had ceased to
consolidate their financial results for the fiscal year 2004.

      Operating loss from continuing operations amounted to Rmb13.3 million in
fiscal year 2004 as compared with operating profit of Rmb100.7 million in fiscal
year 2003 in consequence of the deconsolidation effect of Hangzhou Zhongce for
the full fiscal year 2004 upon the disposal of a major interest in September
2003. The Rmb13.3 million on operating loss from continuing operations mainly
represented administrative expenses incurred for the year ended December 31,
2004.

      Interest expenses decreased from Rmb33.0 million in fiscal year 2003 to
Rmb0.6 million in fiscal year 2004 is in consequence of the deconsolidation
effect of Hangzhou Zhongce for the full fiscal year 2004 upon the disposal of a
major interest in September 2003. Profit from continuing operations for the year
ended December 31, 2004 increased to Rmb181.9 million compared to a loss of
Rmb56.8 million for the last year. The profit for the fiscal year 2004 consisted
primarily of a profit upon an increase in fair value of the call option
associated with the convertible note of Wing On totaling Rmb60.0 million and the
Company's share of profit of Hangzhou Zhongce and Wing On in an amount of
Rmb104.5 million.

      For the year ended December 31, 2004, the Company recorded a consolidated
net profit of Rmb181.9 million, or Rmb20.18 per share. By comparison, the net
loss and the net loss per share in 2003 was Rmb64.5 million and Rmb7.16,
respectively.

Tire Business

      For the year ended December 31, 2004, Hangzhou Zhongce recorded a
consolidated turnover of approximately Rmb5,131 million, an increase of
approximately 32.9% as compared to the same period in 2003 of approximately
Rmb3,860 million. The audited consolidated net profit for the year ended
December 31, 2004 decreased from approximately Rmb106.3 million for the last
corresponding period to approximately Rmb105.3 million for the current year.

Travel Business

      For the year ended December 31, 2004, Wing On recorded a consolidated
turnover of approximately HK$1,722 million (equivalent to Rmb1,832 million), an
increase of approximately 21.6% as compared to the same period in 2003 of
approximately HK$1,416 million (equivalent to Rmb1,503 million). The audited
consolidated net profit for the year ended December 31, 2004 increased from net
loss of approximately HK$371.0 million (equivalent to Rmb393.6 million) for the
last corresponding period to net profit of

<PAGE>

approximately HK$35.4 million (equivalent to Rmb37.6 million) for the current
year.

2003 compared to 2002

      On September 30, 2003, the Company completed the sale of a 25% equity
interest in a major operating subsidiary, Hangzhou Zhongce. As a result of this
transaction, the Company's equity interest in Hangzhou Zhongce was reduced from
51% to 26%, and Hangzhou Zhongce became an equity method affiliate of the
Company. The Company consolidated results of the operations of Hangzhou Zhongce
up to September 30, 2003 in its consolidated financial statements for the year
ended December 31, 2003, and accounted for Hangzhou Zhongce's results thereafter
using the equity method of accounting.

      The Company completed its disposal of most of its operating subsidiaries
during 2003 and as a result, the operating performance of the Company for the
year was mainly generated through those subsidiaries before their disposition
during the nine-month period ended September 30, 2003.

      Consolidated revenues arising from continuing operations amounted to
Rmb2.81 billion, representing a 7.7% increase over the fiscal year 2002 revenues
of Rmb2.61 billion. This was mainly due to an increase in sales volume,
especially in the radial tire market. The demand for radial tire has remained
high since 2001 and Hangzhou Zhongce continued to increase its productive volume
of radial tires. The sales amount of radial tires increased by 47% in nine-month
period ended September 30, 2003 as compared to that of the whole year 2002. The
group sold a total of 5.3 million units of vehicle tires, 35.0 million units of
bicycle tires and 2.3 million units of wheelbarrow tires in the nine-month
period ended September 30, 2003. This nine-month period represents the period of
2003 during which Hangzhou Zhongce was part of the Company's consolidated group.

      The Company's gross margin from continuing operations decreased from 13.8%
for the year 2002 to 10.9% for the year 2003. The decrease was mainly due to the
increase in cost of raw materials, such as synthetic rubber and natural rubber,
which was caused by the drop in supply of rubber in the year 2003.

      The Company's gross profit decreased by 14.8% from Rmb359.3 million for
the year 2002 to Rmb306.0 million for the year 2003. The decrease was due to the
increase in cost of raw materials and increase in warranty claims and sales
rebates. It also related to the deconsolidation effect of Hangzhou Zhongce for
the period of October 1, 2003 to December 31, 2003.

      The selling and administrative expenses increased to Rmb205.2 million in
2003 versus Rmb192.2 million in fiscal year 2002 due to an increase in amount of
sales and sales related expenses, e.g., cost of delivery.

      Operating income from continuing operations decreased to Rmb100.7 million
in fiscal year 2003 as compared with Rmb172.1 million in fiscal year 2002. It
represented the operating income of Hangzhou Zhongce for a nine-month period in
2003 instead of a whole year in 2002.

      Interest expense decreased by 38.8% from Rmb54.0 million for the year 2002
to Rmb33.0 million for the year 2003. This decrease was mainly due to the
decrease in loans obtained from third parties during the year and a lower
interest rates in 2003.

<PAGE>

      Loss from continuing operations increased to Rmb56.8 million in 2003
compared to Rmb62.9 million in 2002. Loss from discontinued operations decreased
to Rmb7.8 million in the fiscal year 2003 from Rmb199.8 million in fiscal year
2002 and was mainly contributed by the loss on disposal of Yinchuan CSI and CSI
Rubber. The decrease in such loss was due to an impairment write down for
long-lived assets of Yinchuan CSI of Rmb174.4 million in 2002 but no similar
loss was recognized for the discontinued operations in 2003.

      For the year ended December 31, 2003, the Company recorded a consolidated
net loss of Rmb64.5 million. The consolidated net loss decreased by 75.4%
compared with Rmb262.8 million in 2002. This improvement resulted mainly from
divestitures of non-performing assets and businesses in 2002 and early 2003.

IMPACT OF INFLATION

      Inflation and deflation in the PRC and Hong Kong has not had a material
effect on our past business. During the times of inflation, the affiliated
companies of the Company have generally been able to increase the price of their
products or services in order to keep pace with inflation.

TAX REGULATIONS

      For the impact of tax regulations on the Company, see Note 13 to the
Consolidated Financial Statements of the Company included in "Item 18. Financial
Statements".

LIQUIDITY AND CAPITAL RESOURCES

      In 2004, the net cash used in operating activities was approximately
Rmb12.9 million compared with Rmb104.8 million provided by operating activities
in 2003. The net cash provided by investing activities and used in financing
activities in 2004 was approximatley Rmb18.4 million and Rmb27.7 million,
respectively; compared with Rmb595.1 million used in investing activities and
Rmb309.3 million provided by financing activities in 2003. The principal reason
for these significant changes in each type of cash flows was due to the
deconsolidation effect of Hangzhou Zhongce for the full fiscal year 2004 upon
disposal of a majority interest in September 2003.

      The Company primarily used its cash and cash equivalents, banking
facilities and the cash flows from notes receivable to fund its capital
expenditures, investment in and advances to affiliates and subscription of note
receivables under both short and long terms bases. Other than the subscription
of a new convertible note from Wing On described in Item 4 of this Form 20-F, no
transactions, arrangements and other relationships with unconsolidated entities
or other persons that are reasonably likely to affect materially the liquidity
or the availability of or requirement for capital resources of the Group had
been entered into during the year. In management's opinion, the working capital
is sufficient for the Company's present requirements.

      The Company's working capital requirements for continuing operations
significantly decreased in 2004 following the disposal of the Hangzhou Zhongce
Group in 2003. For the year ended December 31, 2004, the Company had no
expenditures for the purchase of property, plant and equipment, compared with
Rmb256.9 million for the year ended December 31, 2003. The Company financed
these expenditures by the cash flows from operations, short-term bank loans and
cash on hand.

<PAGE>

      In addition, cash and cash equivalents of the Company from continuing
operations decreased from Rmb63.6 million at December 31, 2003 to Rmb41.4
million at December 31, 2004 of which Rmb0.3 million (US$35,100) were U.S.
dollar deposit.

      There are no material restrictions, including foreign exchange controls,
on the ability of the Company's subsidiaries to transfer funds to the Company in
the form of cash dividends, loans, advances or product/material purchases.

      For related party information, please see "Item 7. Major Shareholders and
Related Party Transactions" in this annual report. In the opinion of management,
these related party transactions have no material effect on the Company's
liquidity or cash flows.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

      Over the last few years, cash flow financing the operations of the Company
was principally obtained from internally generated funds and bank borrowings.
The Company had working capital of Rmb117.1 million and Rmb81.5 million as of
December 31, 2004 and 2003, respectively.

      On June 16, 2004, the Company entered into a conditional agreement with an
independent third party in relation for the proposed acquisition of the
Properties for a total consideration of Rmb450 million. The Company paid the
deposit of Rmb50 million was paid by Manwide on behalf of the Company upon
signing of the agreement and accordingly Rmb8 million of deposit was paid by the
Company. Rmb380 million of the consideration will be payable upon the grant and
drawdown of loans to be granted by PRC banks or financial institutions and
secured by the Properties. The remaining Rmb20 million will be financed by
internal resources of the Company and will be due upon completion of the
transfer of the ownership of the Properties from the sellers to the Company.

<PAGE>

TREND INFORMATION

      Following its sale of a portion of its interest in Hangzhou Zhongce in
2003, the Company does not have a majority-owned operating subsidiary as of the
date of this report. Currently, the Company`s financial results is largely
dependent on its portion of the earnings and other results of affiliated
companies, Hangzhou Zhongce and Wing On.

      Year 2004 has affirmed the Company's consistent positive outlook for to
the economy in China. The on-going investment strategy in China is expected to
be maintained in the future. As China has already attained rich and fruited
development in 2004, the Company is confident to the further growth in the
economy of China and Hong Kong in time to come. Having positioned itself as a
conglomerate investor in China, the Company would, however, maintain its
prevalent conservative and cautious investment posture in the coming year and to
contribute its effort to explore new investment opportunities.

OFF-BALANCE SHEET ARRANGEMENT

      For the year of 2004, the Company did not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on the Company's financial condition, changes in financial conditions,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources. Additionally, the Company did not undertake any guarantee as
of December 31, 2004.

<PAGE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

      The directors, executive officers and senior management of the Company as
of December 31, 2004 are identified below.

DIRECTORS AND SENIOR MANAGEMENT

<TABLE>
<CAPTION>
NAME                      AGE        POSITION                                                             EMPLOYED SINCE
<S>                       <C>        <C>                                                                  <C>
Allan Yap                 50         Chairman, Chief Executive Officer and Director of the Company              2001 (1)
Chan Ling, Eva            40         Deputy Chairman and Director of the Company                                2004 (1)
Dorothy Law               36         Director                                                                   2000
Richard Whittall          47         Independent Director and Audit Committee Member of the Company             2000
David Edwin Bussmann      52         Independent Director and Audit Committee Member of the Company             2000 (2)
Lien Kait Long            57         Director                                                                   1999
Chow Chun Man, Jimmy      36         Chief Financial Officer                                                    2003
</TABLE>

----------
(1)   Dr. Allan Yap and Ms. Chan Ling, Eva are also executive directors of CSH

(2)   Mr. David Edwin Bussmann is also an independent non-executive director of
      CSH

BRIEF BIOGRAPHY OF DIRECTORS AND SENIOR MANAGEMENT

      Dr. Yap, Allan, aged 50, is the chairman, chief executive officer and
director of the Company. He obtained the honorary degree of Doctor of Laws and
has over 23 years' experience in finance, investment and banking. Dr. Yap is the
managing director of Hanny Holdings Limited ("Hanny") and the vice chairman of
CSH and an executive director of Wing On. Dr. Yap is also the chairman and chief
executive officer of Burcon NutraScience Corporation ("Burcon"), a company whose
shares are listed on the TSX Venture Exchange and the Frankfurt Stock Exchange,
and an executive chairman of PSC Corporation Limited and Intraco Limited, both
public listed companies in Singapore. He is also the chairman of MRI Holdings
Limited, a company whose shares are listed on Australian Stock Exchange. Dr.
Yap, Allan, was appointed as a chairman, chief executive officer and director of
the Company on December 1, 2004.

      Ms. Chan Ling, Eva, aged 40, is the deputy chairman and a director of the
Company. She has 17 years' experience in auditing, accounting and finance in
both international accounting and finance in both international accounting firms
and listed companies. Ms. Chan is a member of the Institute of Chartered
Accountants in Australia, a fellow member of the Association of Chartered
Certified Accountants and also a member of the Hong Kong Institute of Certified
Public Accountants. She is a director of China Strategic Holdings Limited and
MRI Holdings Limited. Ms. Chan is also a director of major subsidiaries of Wing
On. Ms. Chan Ling, Eva was appointed as a director of the Company on December 1,
2004.

      Ms. Law, Dorothy, aged 36, is a director of the Company. She received her
Bachelor of Commerce and Bachelor of Laws degrees from the University of British
Columbia in Canada. Ms. Law is a Barrister and

<PAGE>

Solicitor licensed to practice law in British Columbia and has also been
admitted as a Solicitor of the High Court of Hong Kong. Ms. Law is also a
director of Burcon and corporate counsel of Hanny.

      Mr. David Edwin Bussmann, aged 52, is an independent director and an audit
committee member of the Company and an independent non-executive director of
CSH. Mr. Bussmann has more than 23 years experience in the investment and
finance field, and is very familiar with investment issues related to China, as
well as sectors such as technology, real estate, and direct investment. He
previously worked at Salomon Brothers, Citibank, Bank of America and Prudential
Asia.

      Mr. Richard Whittall, aged 47, is an independent director and the chairman
of the audit committee of the Company. He is the President of Watershed Capital
Partners Inc., an investment banking firm, based in Vancouver, British Columbia,
Canada. Mr. Whittall has 20 years experience in investment banking advising
domestic and international companies in the areas of fund raising, mergers,
acquisitions, divestitures and strategic business alliances. Mr. Whittall
currently serves as a president of Watershed Capital Partners Inc. and director
of a number of public and private companies, including, Maximizer Software Inc.,
Glacier Ventures International Corp., Canadian General Investments Limited and
Canadian World Fund Limited.

      Mr. Lien Kait Long, aged 57, is a director of the Company. Mr. Lien holds
a bachelor's degree in commerce and is a member of Institute of Certified Public
Accounts of Singapore and the CPA Australia. He has over 34 years' experience in
finance, accounting, investment and banking. He is also a director of MRI
Holdings Limited, a company whose shares are listed on the Australian Stock
Exchange. Mr. Lien is also director of Jishan Holdings Limited, Mediastream
Limited, 8Telecom International Holdings Co. Ltd, companies listed on the
Singapore Exchange Securities Trading Limited.

      Mr. Chow Chun Man, Jimmy, aged 36, has been appointed as the Chief
Financial Officer on September 24, 2003. Mr. Chow holds a Bachelor Degree in
Accountancy and is a member for both of the Australian Society of Certified
Practicing Accountants and the Hong Kong Society of Accountants. He has over 13
years' of experiences in auditing, financial reporting and corporate finance.

      Dr. Chan Kwok Keung, Charles resigned as a director and the chairman of
the Company on December 1, 2004.

      There is no family relationship between any director or executive officer
listed above and any other director or executive officer listed above. None of
the directors or executive officers was elected or appointed pursuant to an
arrangement or understanding with any third party.

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

      For the year ended December 31, 2004, the aggregate amount of compensation
and bonuses paid by the Company and its subsidiaries as a compensation to all
directors and executive officers, for service in all capacities, was
approximately Rmb1 million (US$0.12 million). The grant of bonuses is determined
at the discretion of the board of directors.

<PAGE>

BOARD PRACTICES

      All directors of the Company will hold office until the next annual
meeting of the shareholders and their successors are elected and qualified.
During the annual general meeting of the Company held on December 22, 2005, all
six existing members were re-appointed to the board of directors of the Company.

      No director of the Company entered into any service contract nor entitled
to any benefits upon termination of employment with the Company.

      The audit committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the selection of our auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of the auditors and our
accounting practices. As of July 2, 2005, the audit committee of the Company
consists of Mr. Richard Whittall and Mr. David Edwin Bussmann.

EMPLOYEES

      The Company disposed of Yinchuan CSI during 2003 and Hangzhou Zhongce
became an affiliate of the Company in September 2003. As of December 31, 2004,
there were no employees in the Company. Pursuant to a management and
administrative services agreement between the Company and CSH in 1993 and
renewed for a term of three years in 2000 and 2003, CSH provides certain
management and administrative services to the Company. See Note 18(c) to
Consolidated Financial Statements in "Item 18 Financial Statements" for more
details.

<PAGE>

SHARE OWNERSHIP

      No director or member of senior management of the Company beneficially
owns one percent or more of the shares of the Company.

SUMMARY OF THE OPTION SCHEME

      The Company's shareholders approved an Executive Share Option Scheme (the
"Option Scheme") at the 1994 Annual General Meeting. The Option Scheme
authorized the granting of options to purchase up to 910,000 shares of the
Company's common stock to officers, directors who are also full-time employees
and other key full or part-time employees of the Company and its subsidiaries.
The Option Scheme terminated on June 6, 2004 pursuant to its terms. There were
no options outstanding under the Option Scheme at January 1, 2004 and at the
time of termination of the Option Scheme.

As of December 31, 2004, none of the Company's directors, officers or their
associates had any personal, family, corporate or other interests in any shares
of the Company or any of its associated corporations.

<PAGE>

            ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

      Based on filings on Schedule 13G under the Exchange Act, as of July 2,
2004, the following persons beneficially owned shares representing 5% or more of
the issued share capital of the Company.

<TABLE>
<CAPTION>
NAME OF HOLDER                                                    NUMBER OF SHARES HELD                   PERCENTAGE OF CLASS
<S>                                                               <C>                                     <C>
CSH(1)                                                                        4,978,830                                 55.2%
Forstmann-Leff Associates, LLC(2)                                             1,337,295                                14.8%
</TABLE>

----------
(1)   Includes 3,000,000 shares of supervoting common stock, each share having
      10 votes on resolutions of shareholders, and 1,978,830 shares of common
      stock, each share having 1 vote on resolutions of shareholders. There has
      been no change in the percentage ownership of CSH during the past three
      years. Dr. Chan Kwok Keung, Charles is deemed to be the beneficial owner
      of the interest in shares held by CSH as defined by General Instructions F
      for preparing the Form 20-F. Dr. Chan's interest represents 3,000,000
      super-voting shares and 1,978,830 common shares, representing 55.2%
      effective equity interest and 88.8% effective voting rights, of the
      Company beneficially held by CSH directly and indirectly. Dr. Chan is the
      Chairman of CSH. Through indirect wholly owned subsidiaries, Dr. Chan owns
      33.6% of ITC, of which he is also a Chairman. As of July 2, 2004, ITC
      indirectly owns 20.5% interest in Hanny, which owns 29.4% of CSH. ITC,
      through wholly owned direct and indirect subsidiaries, also owns 55.1% of
      Paul Y. which indirectly owns 29.4% of CSH.

(2)   Represents shares of common stock; includes 489,400 shares of common stock
      held by FLA International Fund, Ltd., representing 5.4% of the outstanding
      capital stock of the Company. According to the disclosure in the Schedule
      13G and amendments thereto, Forstmann-Leff Associates, LLC, is a
      registered investment advisor under the Investment Advisers Act of 1940.
      FLA Advisers L.L.C., which also reported beneficial ownership of the
      1,337,295 shares, is also a registered investment adviser under such Act.
      The members of Forstmann-Leff Associates, LLC's Investment Committee, are
      the managers of FLA Advisers L.L.C. FLA Advisers L.L.C. is the investment
      advisor to FLA International Fund, Ltd. The entities reported that various
      of their clients have the right to receive, or the power to direct the
      receipt of dividends from or the proceeds from the sale of, the common
      stock. According to the Schedule 13G and amendments thereto, no client
      held interests greater than 5% other than FLA International Fund, Ltd.

      For the years ended December 31, 2002 and 2001, Forstmann-Leff Associates,
      LLC, FLA Asset Management LLC, FLA Advisers L.L.C. and FLA International
      Fund, Ltd reported jointly on Schedule 13G, reporting in the aggregate
      beneficial ownership of 1,439,495 and 1,459,095 shares, respectively, as
      of the end of such years.

      According to the shareholders list, dated December 1, 2005, provided to
the Company by its transfer agent, there are 78 shareholders (representing all
issued common stock of 6,017,310 shares) of record of the Company's common
stock. Among them, 77 holders of the Company's common stock (holding 6,017,110

<PAGE>

common shares) are resident in the United States. All issued supervoting common
stock is held by CSH, the major shareholder of the Company which was
incorporated in Hong Kong.

RELATED PARTY TRANSACTIONS

DUE FROM/TO RELATED COMPANIES

      The amounts due from related companies primarily arise from sales of tires
and are unsecured, non-interest bearing and repayable at the end of credit
periods granted ranging from 90 days to 180 days. Historically, the Company has
not experienced losses related to these receivables with the exception of an
allowance for doubtful accounts amounting to Rmb27,000,000 charged to the
consolidated statement of operations during fiscal 2001. The management reviewed
the recoverability of these receivables during fiscal 2002 and recognized a net
recovery of Rmb5,016,000 in the consolidated statement of operations for fiscal
2002.

      As of December 31, 2002, the loans from related companies represented
funds advanced to the Company and were unsecured, non-interest bearing and had
no fixed repayment terms. As of December 31, 2003 and 2004, as a result of the
disposition of its subsidiaries in the PRC, the Company had no amounts due
from/to related companies.

DUE FROM ULTIMATE PARENT COMPANY

The amounts due from ultimate parent company are unsecured, non-interest bearing
and have no fixed terms of repayment, in the aggregate amount of approximately
Rmb4,030,000 and Rmb37,426,000 for the years ended December 31, 2003 and 2004,
respectively.

DUE TO FELLOW SUBSIDIARY

      The amount due to fellow subsidiary is unsecured, non-interest bearing and
have no fixed terms of repayment, in the aggregate amount of Rmb50,000,000 as of
December 31, 2004, compared with nil balance as of December 31, 2003. The fellow
subsidiary has confirmed not to demand repayment of the amount within one year
from December 31, 2004.

MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

      Pursuant to a management and administrative services agreement between the
Company and CSH in 1993 and renewed in 1997, 2000 and 2003, in each case for a
term of three years, CSH provides certain management services to the Company for
an annual fee of US$30,000 (Rmb248,000). In addition, the Company has agreed to
reimburse CSH for administrative services not covered by the management and
administrative services agreement rendered on behalf of the Company on a cost
plus 5% basis, in the aggregate amount of approximately Rmb4,731,000,
Rmb5,708,000 and Rmb6,192,000 for the years ended December 31, 2002, 2003 and
2004, respectively.

SALES TO/PURCHASES FROM RELATED PARTIES

      Hangzhou Zhongce recorded sales to related companies of approximately
Rmb209,112,000 and Rmb194,971,000 that have been reflected in the Company's
consolidated financial statements for the years ended December 31, 2002 and the
nine months ended September 30, 2003, respectively.

      Hangzhou Zhongce paid to an affiliate subcontracting charges of
approximately Rmb199,373,000 and Rmb277,470,000 for tire processing that have
been reflected in the Company's consolidated financial statements for the years
ended December 31, 2002 and the nine months ended September 30, 2003,

<PAGE>

respectively.

      These transactions were carried out after negotiations between Hangzhou
Zhongce and the respective related companies in the ordinary course of business
and on the basis of the estimated market value as determined by the management
of Hangzhou Zhongce.

RELATED PARTY GUARANTEES

      During 2002, Hangzhou Zhongce undertook to guarantee, without charge,
certain bank loan facilities of approximately Rmb160,000,000 and Rmb7,900,000
granted by certain banks to an affiliate in the PRC and a related party
respectively. The guarantees remain outstanding, although Hangzhou Zhongce has
not been called to perform under them.

<PAGE>

                          ITEM 8. FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

      See the Consolidated Financial Statements to the Company included in "Item
18. Financial Statements" of this annual report. See also "Item 17. Financial
Statements" of this annual report for financial statements of Wing On and
Hangzhou Zhongce, included pursuant to the requirements of Article 3-09 of
Regulation S-X.

DIVIDEND POLICY

      On July 3, 2001, the board of directors of the Company announced that the
Company would suspend the declaration and payment of any quarterly dividend
until the profitability of the Company and its subsidiaries reached an
acceptable level. During 2002, 2003 and 2004, no dividend was declared or paid
by the Company. Any future determination to pay a dividend to shareholders of
the Company will also depend on the Company's results of operations and
financial condition, and other factors deemed relevant by its board of
directors.

      Applicable Chinese laws and regulations require that, before a
Sino-foreign equity joint venture enterprise (such as each PRC Subsidiary)
distributes profits to investors, it must: (1) satisfy all tax liabilities; (2)
provide for losses in previous years; and (3) make allocations, in proportions
determined at the sole discretion of the board of directors, to a general
reserve fund, an enterprise expansion fund and a staff welfare and incentive
bonus fund.

      During 2002, no distribution of dividends was made from any subsidiary.

      The board of directors of Hangzhou Zhongce declared a dividend of
Rmb39,220,000 for the year ended 2002, which was paid in June 2003. As a result
of its percentage ownership interest in Hangzhou Zhongce, the Company received a
dividend payment of Rmb20,002,200.

SIGNIFICANT CHANGES

      On 4th February, 2005, the Company entered into a placing and subscription
agreement with Wing On and the place agent pursuant to which the placing agent
agreed to place, on a best efforts basis, up to 6,400 million shares of Wing On
at a price of HK$0.022 per Wing On share and the Company would subscribe for up
to 6,400 million new shares of Wing On at the price of HK$0.022 per share. The
above transactions were completed in February 2005. The Company's interest in
Wing On was decreased to 21.1%.

      On April 29, 2005, the Company converted HK$55 million convertible note of
Wing On into ordinary shares of HK$1.00 each of Wing On at conversion price of
HK$1.97 per share. The interest of Wing On held by the Company was accordingly
increased from approximately 21.1% to 27.74% upon conversion of the convertible
notes into share of HK$1.00 each in Wing On by the Company.

<PAGE>

                               ITEM 9. THE LISTING

      Shares of the Company's common stock traded on the NYSE under the symbol
"CSH" from 1993 to late 2002. However, the trading was suspended on September
27, 2002 by the NYSE for the failure of the Company to meet the NYSE's
continuing listing standards. Effective December 30, 2002, the common stock of
the Company was removed from listing on the NYSE.

      Since November 26, 2002, the Company's common stock has traded on the
OTCBB under the stock symbol "CSHEF". The OTCBB is a regulated quotation service
that displays real-time quotes, last sale prices and volume information in OTC
equity securities for companies which are registrants with the SEC.

      The following table set forth, for the periods indicated the high and low
closing sale prices of the common stock as reported by NYSE from January 1, 2000
to September 27, 2002 and by the OTCBB from November 26, 2002 to December 31,
2004.

<TABLE>
<CAPTION>
YEAR ENDED                                                                    HIGH                               LOW
                                                                              ----                              ----
<S>                                                                           <C>                               <C>
December 31, 2004                                                             6.90                              1.03
December 31, 2003                                                             3.50                              0.25
December 31, 2002                                                             2.00                              0.20
December 31, 2001                                                             2.90                              0.71
December 31, 2000                                                             9.38                              2.00
</TABLE>

      The following table sets forth the high and low closing sale prices for
the common stock as reported during each of the quarters in the two-year period
ended December 31, 2004 and each of the most recent period.

<TABLE>
<CAPTION>
QUARTER ENDED                                                                 HIGH                               LOW
                                                                              ----                              ----
<S>                                                                           <C>                               <C>
December 31, 2005                                                             1.70                              0.31
September 30, 2005                                                            2.30                              1.10
June 30, 2005                                                                 1.82                              1.45
March 31, 2005                                                                2.10                              1.65
December 31, 2004                                                             2.60                              1.03
September 30, 2004                                                            3.10                              1.75
June 30, 2004                                                                 3.55                              2.20
March 31, 2004                                                                6.90                              2.55
December 31, 2003                                                             3.50                              1.70
September 30, 2003                                                            2.00                              1.35
June 30, 2003                                                                 2.35                              0.30
March 31, 2003                                                                0.55                              0.25
</TABLE>

      The following table sets forth the high and low closing sale prices for
the common stock as reported during each of the most recent six months.

<TABLE>
<CAPTION>
MONTH ENDED                                                                   HIGH                               LOW
                                                                              ----                              ----
<S>                                                                           <C>                               <C>
December 31, 2005                                                             0.90                              0.31
November 30, 2005                                                             1.70                              0.90
October 31, 2005                                                              1.45                              1.10
September 30, 2005                                                            1.54                              1.37
August 31, 2005                                                               2.30                              1.10
July 31, 2005                                                                 1.75                              1.55
</TABLE>

<PAGE>

                         ITEM 10. ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

      For a summary of the Company's Memorandum and Articles of Association see
Item 10 of the Company's Form 20-F for the year ended 2001 to which specific
reference is made.

MATERIAL CONTRACTS

      The following is a summary of material contracts, other than contracts
entered into in the ordinary course of business, to which the Company or any
subsidiary of the Company is a party, for the two years immediately preceding
the filing of this report.

      Contract for disposal dated January 8, 2003 between Ningxia Yinchuan
Rubber Manufacturing, the Chinese joint venture partner of Yinchuan CSI, as a
buyer and the Company as a seller for the sale of seller's interest in Yinchuan
CSI, a 51% owned subsidiary of the seller, for cash consideration of
Rmb35,000,000.

      Contract for disposal dated June 15, 2003 between Hangzhou Industrial &
Commercial Trust & Investment Co. Ltd., an independent third party not connected
with any directors, substantial shareholders or chief executive of the Company
or any of its subsidiaries, as a buyer and the Company as a seller for the sale
a 25% interest in Hangzhou Zhongce for cash consideration of Rmb164,659,657.

      Contract for subscription of 2% convertible note dated January 13, 2004
between Wing On and the Company for the issue of 2% convertible note to the
Company or its nominee for a consideration of HK$155,000,000 by Wing On, of
which HK$84.8 million will be settled by the cancellation of the Company's
current convertible note issued by Wing On and the remaining balance will be
satisfied in cash by the Company. The new convertible note entitles the Company
to convert into new shares of Wing On during a period from the date of issue of
the new convertible note at an initial conversation price of HK$0.02 per share
of Wing On, subject to adjustment.

      Contract for acquisition dated June 16, 2004 between Shanghui Jiu Sheng
Investment Company Limited, an independent third party, as a seller and the
Company as a buyer for the acquisition of seller's interest in the Properties,
for cash consideration of Rmb450,000,000.

      Two contracts for placing and subscription dated November 30, 2004 among
the Company, Wing On and the placing agent pursuant to which the placing agent
agreed to place 6,000 million shares of wing at the price of HK$0.028 per share
and the Company would subscribe for up to 6,000 million new shares of Wing On at
the same price of HK$0.028 per share.

      Contract for placing and subscription dated February 4, 2005 among the
Company, Wing On and the placing agent pursuant to which the placing agent
agreed to place 6,400 million shares of Wing On at the price of HK$0.022 per
share and the Company would subscribe 6,400 million new shares of Wing On at the
same price of HK$0.022 per share.

<PAGE>

EXCHANGE CONTROLS

CERTAIN FOREIGN ISSUER CONSIDERATIONS

      The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority, Foreign Exchange Control, whose
permission for the issue of shares of common stock of the Company has been
obtained.

      The transfer of shares between persons regarded as resident outside
Bermuda for exchange control purposes and the issue of shares to or by such
persons may be effected without specific consent under the Exchange Control Act
of 1972 and regulations thereunder. Issues and transfers of shares involving any
person regarded as resident in Bermuda for exchange control purposes require
specific prior approval under the Exchange Control Act of 1972.

      There are no limitations on the rights of non-Bermuda owners of the
Company's common stock to hold or vote their shares. Because the Company has
been designated as a non-resident for Bermuda exchange control purposes, there
are no restrictions on its ability to transfer funds in and out of Bermuda or to
pay dividends to United States residents who are holders of the Company's common
stock, other than in respect of local Bermuda currency.

      In accordance with Bermuda law, share certificates are only issued in the
names of corporations or individuals. In the case of an applicant acting in a
special capacity (for example, as an executor or trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.

      The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.

      As an exempted company, the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudan, but
as an exempted company the Company may not participate in certain business
transactions, including: (1) the acquisition or holding of land in Bermuda
(except that required for business and held by way of lease or tenancy for terms
of not more than 21 years) without the express authorization of the Bermuda
legislature; (2) the taking of mortgages on land in Bermuda to secure an amount
in excess of US$50,000 without the consent of the Minister of Finance of
Bermuda; (3) the acquisition of securities created or issued by, or any interest
in, any local company or business, other than certain types of Bermuda
government securities or securities of another exempted company, partnership or
other corporation resident in Bermuda but incorporated abroad; or (4) the
carrying on of business of any kind in Bermuda, except in furtherance of the
business of the Company carried on outside Bermuda or under a license granted by
the Minister of Finance of Bermuda.

      The Bermuda government actively encourages foreign investment in exempted
entities like the Company

<PAGE>

that are based in Bermuda but do not operate in competition with local business.
In addition to having no restrictions on the degree of foreign ownership, the
Company is subject neither to taxes on its income or dividends nor to any
foreign controls in Bermuda. In addition, there is no capital gains tax in
Bermuda, and profits can be accumulated by the Company, as required, without
limitation.

TAXATION

      The following discussion is a summary of certain anticipated tax
consequences of an investment in the Company's common stock under Bermuda tax
laws and United States Federal income tax laws. The discussion does not deal
with all possible tax consequences relating to an investment in the common stock
and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities, insurance
companies and tax-exempt entities) may be subject to special rules. In
particular, the discussion does not address the tax consequences under State,
local and other laws (e.g., non-Bermuda, non-United States Federal tax laws).
This discussion is based upon laws and relevant interpretations thereof in
effect as of the date of this Annual Report, all of which are subject to change.

BERMUDA TAXATION

      The Company is incorporated in Bermuda. Under current Bermuda law, the
Company is not subject to tax on income or capital gains, and no Bermuda
withholding tax will be imposed upon payments of dividends by the Company to its
shareholders. Furthermore, the Company has received from the Minister of Finance
of Bermuda under the Exempted Undertakings Tax Protection Act of 1966, as
amended, an undertaking that, in the event that Bermuda enacts any legislation
imposing any tax computed on profits or income, including any dividend or
capital gains withholding tax, or computed on any capital assets appreciation
thereof, or any tax in the nature of an estate, duty or inheritance tax, the
imposition of such tax will not be applicable to the Company or any of its
operations, nor to the shares, debentures or other obligations of the Company,
until March 28, 2016. This undertaking does not, however, prevent the imposition
of property taxes on Company-owned real property or leasehold interests in
Bermuda.

      The United States does not have a comprehensive income tax treaty with
Bermuda.

      As an exempted company, the Company is liable to pay to the Bermuda
government an annual registration fee calculated on a sliding-scale basis by
reference to its assessable capital, that is, its authorized capital plus any
share premium.

UNITED STATES FEDERAL INCOME TAXATION

Taxation of Shareholders

      The following discussion addresses the United States Federal income
taxation of a United States person (i.e., a United States citizen or resident,
corporation or partnership organized under the laws of the United States or any
state thereof, or an estate or trust subject to United States tax on all of its
income regardless of source) (a "U.S. Investor") making an investment in the
common stock. The summary does not address the United States

<PAGE>

tax treatment of certain types of investors (e.g., individual retirement and
other tax deferred accounts, life insurance companies and tax-exempt
organizations) or of persons other than a U.S. Investor, all of whom may be
subject to tax rules that differ significantly from those summarized below. If
the U.S. investor holds its common stock through a foreign branch or other
foreign business unit, the following discussion may not be accurate in all
respects as to such investor. Investors are advised to consult their own tax
advisors with respect to their particular circumstances and with respect to the
effects of State, local or foreign tax laws to which they may be subject. In
addition, future changes to United States tax laws could have an effect on the
United States Federal income tax consequences of the purchase, ownership and
disposition of common stock.

      A U.S. Investor receiving a distribution in respect of the common stock
will be required to include such distribution in gross income as a taxable
dividend to the extent such distribution is paid from earnings and profits of
the Company as determined under United States Federal income tax principles.
Distributions in excess of the earnings and profits of the Company first will be
treated, for United States Federal income tax purposes, as a nontaxable return
on capital to the extent of the U.S. investor's tax basis in the common stock
and then as gain from the sale or exchange of a capital asset, provided that the
common stock constitutes a capital asset in the hands of the U.S. investor.
Dividends received on the common stock will not be eligible for the corporate
dividends-received deduction. Any amount treated as a dividend for United States
Federal income tax purposes generally will constitute foreign source "passive
income" (or, in the case of certain holders, "financial services income") and
will not be eligible for the dividends received deduction generally allowed to
corporate shareholders for dividends received from United States domestic
corporations. Except for corporations that own 10% or more of the common stock
of the Company, no shareholder will be entitled to claim a foreign tax credit
against United States Federal income tax for any tax paid by the Company or any
entity in which the Company invests, directly or indirectly. For reporting
purposes, any dividends that are paid in any currency other than U.S. dollars
must be translated into U.S. dollars at the spot rate on the date the dividends
are accrued or received by the U.S. Investor, regardless of whether the dividend
receipt is in fact converted into U.S. dollars.

      With certain exceptions, gain or loss on the sale or exchange of the
common stock will be treated as capital gain or loss (if the common stock is
held as a capital asset). Such capital gain or loss will be long-term capital
gain or loss if the U.S. Investor has held the common stock for more than one
year at the time of the sale or exchange. Gains realized upon the disposition of
common stock will be domestic source gain for purposes of the United States
foreign tax credit limitation. Under existing authorities, the source of any
loss on the sale of common stock is not clear in all cases. While the source of
a loss arguably would be domestic source, the United States Internal Revenue
Service might contend that the loss should be treated as foreign source. U.S.
Investors should consult their own tax advisors regarding the foreign tax credit
limitation consequences of selling Common Stock at a loss.

      The "personal holding company" ("PHC"), "foreign personal holding company"
("FPHC"), "controlled foreign corporation" ("CFC"), and "passive foreign
investment company" ("PFIC") rules under United States Federal income tax law
could apply to the Company and U.S. investors who own Common Stock. However,
based on the current and anticipated ownership of the Company and the Company's
current and anticipated ownership of assets, the Company believes that neither
the taxation of the Company nor any of its shareholders will be affected by any
of those rules. However, no assurances can be given as to the company's future
PHC,

<PAGE>

FPHC, CFC or PFIC status.

UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING

      The receipt of dividends on the common stock by a holder of the common
stock (a) made by mail or wire transfer to an address in the United States, (b)
made by a paying agent, broker or other intermediary in the United States or (c)
made by a United States broker or a "United States-related" broker to such
holder outside the United States may be subject to United States information
reporting requirements. Holders of common stock who are not United States
persons ("Non-U.S. Holders") generally would be exempt from these reporting
requirements, but may be required to comply with certification and
identification procedures in order to prove their exemption. Treasury
regulations currently in effect do not require backup withholding with respect
to dividends paid by a foreign corporation such as the Company. The United
States Treasury Department is considering, however, whether to extend the backup
withholding rules to dividends from foreign corporations.

      The payment of the proceeds of the disposition of common stock by a holder
to or through the United States office of a broker generally will be subject to
information reporting and backup withholding at a rate of 28% unless the holder
either certifies its status as a non-U.S. holder under penalties of perjury or
otherwise establishes an exemption. The payment of the proceeds of the
disposition by a holder of common stock to or through a non-U.S. office of a
broker will generally not be subject to backup withholding and information
reporting. Information reporting (but not "backup" withholding) may apply,
however, to such a holder who sells a beneficial interests in Common Stock
through a non-United States branch of a United States broker, or through a
non-United States office of a "United States-related" broker, in either case
unless the holder establishes an exemption or the broker has documentary
evidence in its files of the holder's status as a non-U.S. holder. For purposes
of these rules, a "United States-related" broker is a broker or other
intermediary that is a controlled foreign corporation for United States Federal
income tax purposes or that is a person 50% or more of the gross income from all
sources of which, over a specified three-year period, is effectively connected
with a United States trade or business.

      Any amounts withheld under the backup withholding rules from a payment to
a holder should be refunded (or credited against the holder's United States
Federal income tax liability, if any), provided that the required information is
furnished to the United States Internal Revenue Service.

DOCUMENTS ON DISPLAY

      The Company is subject to certain of the information reporting
requirements of the Exchange Act. The Company, as a "foreign private issuer", is
exempt from the rules and regulations under the Exchange Act prescribing the
furnishing and content of proxy statements, and the officers, directors and
principal shareholders of the Company are exempt from the reporting and
"short-swing" profit recovery provisions contained in Section 16 of the Exchange
Act, with respect to their purchase and sale of the Company's shares. In
addition, the Company is not required to file reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are
registered under the Exchange Act. However, the Company does file with the SEC
an annual report on Form 20-F containing consolidated financial statements
audited by an independent accounting firm. The Company also furnishes as an
interim report on Form 6-K containing

<PAGE>

unaudited financial information after the end of a six-month period in a year.

      You may read and copy any document the Company files with the SEC at its
public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You
may also obtain copies of the documents at prescribed rates by writing to the
Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C.
20549. The SEC also maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of this web site is http://www.sec.gov.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference facilities.

<PAGE>

       ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The Company is exposed to fluctuations in interest rates and currency
exchange rates primarily with respect to borrowings. Under its current policies,
the Company does not use interest rate derivative instruments to manage exposure
to interest rate changes.

EXCHANGE RATE INFORMATION

      The Consolidated Financial Statements are prepared in Rmb. The financial
statements of foreign subsidiaries are translated into Rmb in accordance with
Statement of Financial Accounting Standards No. 52.

      The Hong Kong dollar is tied to and allowed to fluctuate within a narrow
range against the value of the U.S. dollar. Historically, there has been no
material fluctuation in the exchange rate between the Rmb and the U.S. dollar,
restrictions was set on the flow of Rmb between the PRC and the United States.
Starting from July 21, 2005, the PRC reformed the exchange rate regime by moving
into a managed floating exchange rate regime based on market supply and demand
with reference to a basket of other currencies. Rmb will no longer be pegged to
the U. S. dollar, and the Rmb exchange rate will be improved with greater
flexibility thereafter.

      Fluctuations in the value of foreign currencies cause U.S. dollar
translated amounts to change in comparison with previous periods. However, the
fluctuation in exchange rates did not have material effect on the financial
position of the Company in the past three years.

FOREIGN CURRENCY RISK

     As our major assets and liabilities comprise a mixture of items that are
denominated in Renminbi or Hong Kong dollars, our business and operating result
may be materially affected in the event of a severe increase or decrease in the
value of the Renminbi against other currencies. If Renminbi appreciated against
the Hong Kong dollars, our operating expenses and net income may be affected
depending upon the then composition of our assets and liabilities.

     Historically, both Hong Kong dollars and Renminbi are peg to the U.S.
dollars. As a result, exchange rate of the Hong Kong dollars to Renminbi
fluctuated within a narrow range. However, on July 21, 2005, the PBOC adjusted
the exchange rate of U.S. dollars to Renminbi from 1:8.27 to 1:8.11, resulting
in an approximately 2% appreciation in the value of Renminbi against the U.S.
dollars.  As Hong Kong dollars are peg to the U.S. dollars, such adjustment has
effectively resulted in an approximately 2% appreciation in the value of
Renminbi against the Hong Kong dollars. For more details, see "RISK FACTORS -
FLUCTUATIONS IN THE VALUE OF THE RENMINBI COULD NEGATIVELY IMPACT OUR RESULTS OF
OPERATIONS".


      As of December 31, 2004, the Company had no open forward contracts or
option contracts. The Company's cash on hand as of December 31, 2004 was Rmb16.6
million of which Rmb0.3 million equivalents (US$35,100) were held in U.S. dollar
deposit.

INTEREST RATE FLUCTUATIONS

The Company's interest income is sensitive to change in interest rates. The
Company had a short-term payable of Rmb27.7 million as of December 31, 2003. The
borrowing bore floating rate of interest. As the borrowing was immaterial to the
Company, any fluctuation in the interest rate had no material impact on the
Company's interest expenses.

The Company did not have any short-term or long-term debt as of December 31,
2004.

The Company will be exposed to interest rate fluctuations on any new borrowings
under any new loan facility and any change in interest rate could affect its
results of operations and cash flows.

<PAGE>

         ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      As the Company is filing this Form as its annual report under the Exchange
Act, the information called for by Part I, Item 12 of Form 20-F is not
applicable.

<PAGE>

                                     PART II
            ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

      There has been no material default in the payment of principal or interest
or other material default requiring disclosure pursuant to this item. There have
been no arrears in the payment of dividends or other material delinquency
requiring disclosure pursuant to this item.

<PAGE>

  ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
                                    PROCEEDS

      There has been no material modification to the rights of security holders
required to be disclosed pursuant to this item.

<PAGE>

                        ITEM 15. CONTROLS AND PROCEDURES

      Our Chief Executive Officer and our Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and
procedures, as defined in Exchange Act Rule 13a-14(c), 13a-15(e) and 15d-15(e),
as of the end of the period covered by this Form 20-F, have concluded that, as
of such date, the Company's disclosure controls and procedures were effective.

      During 2004, there were no changes in the Company's internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

<PAGE>

                                ITEM 16. RESERVED

<PAGE>

                   ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

      As the Company's common stock is not currently listed on a U.S. national
securities exchange, the Company is not obligated to have an audit committee of
the board of directors. The Company has, however, had an Audit Committee for
many years and continues to do so. The Company's Board of Directors has
determined that the two members of the Audit Committee, Mr. Richard Whittall and
Mr. David Edwin Bussmann, do not qualify as "audit committee financial experts"
as defined by Item 401(h) of Regulation S-K adopted pursuant to the Exchange
Act. The Company is currently in the process of seeking a qualified financial
expert for the audit committee. Each of Mr. Whittall and Mr. Bussmann are
independent directors of the Company.

<PAGE>

                             ITEM 16B CODE OF ETHICS

      The Company has adopted a Code of Ethics for the Chief Executive and
Senior Financial Officers, which applies to the Company's principal executive
officer and to its principal financial and accounting officers. A copy of the
Code of Ethics is attached as Exhibit 14.1 to this Annual Report on Form 20-F.

<PAGE>

                 ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte Touche Tohmatsu has served as our independent registered public
accounting firm for each of the three fiscal years in the period ended December
31, 2004, for the audit of the consolidated financial statements of the Company
appearing in this annual report.

      The following table presents the aggregate fees for professional services
and other services rendered by Deloitte Touche Tohmatsu in 2004 and 2003.

<TABLE>
<CAPTION>
                                 2004                    2003
                               US$'000                  US$'000
                               -------                  -------
<S>                            <C>                      <C>
Audit Fees                       315                      306
Audit-Related Fees                 -                        -
Tax Fees (1)                       -                        2
All Other Fees                     -                        -
                               -----                    -----
Total                            315                      308
                               =====                    =====
</TABLE>

(1)   Tax Fees include fees billed for tax compliance services, including the
      preparation and submission of tax returns and the supporting tax
      computation to the Inland Revenue Department of Hong Kong.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

      The Audit Committee members are responsible for the review on the quality
and performance of external auditors. The Audit Committee has adopted a policy
regarding pre-approval of audit and permissible non-audit services provided by
our independent auditors.

      Under the Policy, the Audit Committee pre-approves all auditing services.
The engagement of Deloitte Touche Tohmatsu as independent registered public
accounting firm has been approved by the Audit Committee. If the Audit Committee
approves an audit service within the scope of the engagement of the audit
service, such audit service is deemed to have been pre-approved.

The aggregate amounts of all tax services provided to the Company by Deloitte
Touche Tohmatsu in 2004 and 2003 that were approved by the audit committee where
pre-approval was not required (de minimis exception) represent 0.008% and 0.007%
of total amounts of fees paid by the Company to Deloitte Touche Tohmatsu in 2004
and 2003, respectively.

<PAGE>

       ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

      As the Company's common stock is not listed on a U.S. national securities
exchange, the information called for by Part II, Item 16D of the Form 20-F is
not applicable.

<PAGE>

      ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                                   PURCHASERS

      The Company has not made any repurchases of its equity securities during
the period covered by this report.

<PAGE>

                                    PART III
                          ITEM 17. FINANCIAL STATEMENTS

See "Item 18. Financial Statements" of this annual report for the Company's
Consolidated Financial Statements.

      Pursuant to Article 3-09 of Regulation S-X of the Exchange Act, separate
financial statements of significant unconsolidated companies of the Company
prepared in accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP") or reconciled to U.S. GAAP must be filed
as part of the Company's Form 20-F. For the year ended December 31, 2002, 2003
and 2004, Wing On was a significant affiliate of the Company in accordance with
Article 3-09 of Regulation S-X and for the year ended December 31, 2003,
Hangzhou Zhongce changed from a subsidiary to a significant affiliate of the
Company under Article 3-09 of Regulation S-X and remains as a significant
affiliate of the Company for the year ended December 31, 2004. Wing On prepared
its financial statements in accordance with accounting principles generally
accepted in Hong Kong ("Wing On Statements") and Hangzhou Zhongce prepared its
statutory financial statements in accordance with the accounting principles and
the relevant financial regulations as established by the Ministry of Finance of
the PRC ; however, for the purposes of complying with Article 3-09 of Regulation
S-X, Hangzhou Zhongce prepared separate financial statements in accordance with
U.S. GAAP ("Hangzhou Zhongce Statements").

      Pursuant to Article 3-09 of Regulation S-X, Wing On Statements for the two
years ended December 31, 2004 and 2003 and the nine months period ended
December 31, 2002, including a reconciliation to U.S. GAAP, are set out as
follows.

<PAGE>










                               WING ON TRAVEL (HOLDINGS) LIMITED
                               ---------------------------------
                               (incorporated in Bermuda with limited liability)

                               Report and Financial Statements
                               For the two years ended 31 December 2004 and 2003
                               and the nine-month period ended 31 December 2002



<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


REPORT AND FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED 31 DECEMBER 2004 AND 2003
AND THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2002
-------------------------------------------------



<TABLE>
<CAPTION>
CONTENTS                                                                 PAGE(S)
--------                                                                 -------


<S>                                                                      <C>
REPORT OF INDEPENDENT REGISTERED PUBLIC
  ACCOUNTING FIRM                                                           1


CONSOLIDATED INCOME STATEMENTS                                            2 & 3


CONSOLIDATED BALANCE SHEETS                                               4 & 5


CONSOLIDATED STATEMENTS OF CHANGES IN
  SHAREHOLDERS' EQUITY                                                      6


CONSOLIDATED CASH FLOW STATEMENTS                                         7 - 9


NOTES TO THE FINANCIAL STATEMENTS                                        10 - 69
</TABLE>


<PAGE>






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS OF WING ON TRAVEL (HOLDINGS) LIMITED
--------------------------------------------------------------
(incorporated in Bermuda with limited liability)

We have audited the accompanying consolidated balance sheets of Wing On Travel
(Holdings) Limited and its subsidiaries (the "Company") as of 31 December 2004
and 2003 and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the two years ended 31 December 2004
and 2003 and the nine-month period ended 31 December 2002, all expressed in Hong
Kong dollars. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of 31 December 2004
and 2003 and the results of their operations and their cash flows for the two
years ended 31 December 2004, 2003 and the nine-month period ended 31 December
2002 in conformity with accounting principles generally accepted in Hong Kong.

Accounting principles generally accepted in Hong Kong vary in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net profit for the year ended 31 December 2004 and net loss for
the year ended 31 December 2003 and the nine-month period ended 31 December 2002
and the determination of shareholders' equity and financial position at 31
December 2004 and 2003, to the extent summarized in note 55.




Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong, 26 April 2005 (21 September 2005 as to Note 52(e and f))



                                                                             -1-
<PAGE>




WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

CONSOLIDATED INCOME STATEMENTS
FOR THE TWO YEARS ENDED 31 DECEMBER 2004 AND 2003
AND THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                              1.1.2004         1.1.2003          1.4.2002
                                                                                 to               to                to
                                                              NOTES          31.12.2004       31.12.2003        31.12.2002
                                                              -----          ----------       ----------        ----------
                                                                               HK$'000          HK$'000           HK$'000


<S>                                                           <C>            <C>              <C>               <C>
Turnover                                                        4             1,722,177         1,416,235        1,323,286

Direct operating costs                                                       (1,426,652)       (1,258,481)      (1,170,593)
                                                                              ---------         ---------        ---------

Gross profit                                                                    295,525           157,754          152,693

Other operating income                                          6                20,784            22,536           16,925

Distribution costs                                                              (51,039)          (38,809)         (30,974)

Administrative expenses                                                        (210,944)         (202,699)        (195,613)

Net unrealized holding loss on other
  investments                                                                      (127)           (2,849)            (733)

Reversal of impairment loss (impairment
  loss recognized) in respect of leasehold
  land and buildings                                           15                 4,511              (301)         (12,281)

Release of negative goodwill arising on
  acquisition of subsidiaries                                  23                 1,863                 -                -

Impairment loss recognized in respect of
  investments in securities                                    21                (5,659)          (26,974)               -

Impairment loss recognized in respect of
  properties under construction                                15                (1,100)           (2,400)          (1,000)

Surplus arising from revaluation of
  investment property                                          16                     -                 7                -

Loss on disposal of investment securities                                             -           (30,633)               -

Loss on disposal of other investments                                                 -              (465)               -

Loss on disposal of interest in a co-operative
  joint venture                                                20                     -           (20,000)               -

Amortization of goodwill arising on
  acquisition of subsidiaries                                  22                     -              (496)            (165)

Allowance for short term investment deposit                                           -                 -          (23,000)

Allowance for advances to service suppliers                     7                     -                 -         (162,122)
                                                                              ---------         ---------        ---------


Profit (loss) from operations                                   8                53,814          (145,329)        (256,270)

Finance costs                                                  10               (53,711)          (25,045)         (12,708)

Gain (loss) on disposal of associates                          17                37,930           (23,471)               -

Share of results of associates                                                     (195)         (114,788)         (33,463)

Impairment loss recognized in respect of
  interest in an associate                                     17                     -           (31,717)               -

Loss on disposal of discontinued operation                     43                     -           (32,697)               -

Loss on deemed disposal/disposal of
  subsidiaries                                                 44                     -                 -           (1,712)
                                                                              ---------         ---------        ---------


Profit (loss) before taxation                                                    37,838          (373,047)        (304,153)

Taxation credit                                                12                    23             2,075              669
                                                                              ---------         ---------        ---------


Profit (loss) before minority interests                                          37,861          (370,972)        (303,484)

Minority interests                                                               (2,484)                -            1,236
                                                                              ---------         ---------        ---------


Net profit (loss) for the year/period                                            35,377          (370,972)        (302,248)
                                                                              =========         =========        =========

Dividends                                                      13                     -                 -                -
                                                                              =========         =========        =========
</TABLE>




                                                                             -2-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------



<TABLE>
<CAPTION>
                                                                              1.1.2004         1.1.2003          1.4.2002
                                                                                 to               to                to
                                                              NOTE           31.12.2004       31.12.2003        31.12.2002
                                                              ----           ----------       ----------        ----------
                                                                               HK$'000          HK$'000           HK$'000
                                                                                              (Restated)        (Restated)

<S>                                                           <C>            <C>              <C>               <C>
Earnings (loss) per share

  Basic                                                        14                  0.18            (2.03)            (1.83)
                                                                              =========         =========        =========

  Diluted                                                      14                  0.13               N/A              N/A
                                                                              =========         =========        =========
</TABLE>


--------------------------------------------------------------------------------

See notes to consolidated financial statements.



                                                                             -3-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

CONSOLIDATED BALANCE SHEETS
AT 31 December 2004 AND 2003
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     NOTES                   2004                  2003
                                                                     -----                   ----                  ----
                                                                                            HK$'000               HK$'000

<S>                                                                  <C>                   <C>                    <C>
Non-current assets

  Property, plant and equipment                                       15                   1,738,801                70,213

  Investment property                                                 16                       3,400                 1,400

  Interest in associates                                              17                       1,989               221,467

  Other long term investment                                          19                           -                70,500

  Investments in securities                                           21                      93,789                99,258

  Goodwill                                                            22                      50,215                     -

  Negative goodwill                                                   23                     (72,651)                    -

  Investment deposits                                                 24                     221,695                     -

  Club debentures, at cost                                                                       713                     -
                                                                                           ---------               -------

                                                                                           2,037,951               462,838
                                                                                           ---------               -------

Current assets

  Property held for sale, at cost                                                                 98                     -

  Inventories                                                         25                       5,807                   667

  Amounts due from related companies                                  26                       6,522                 2,928

  Amounts due from associates                                         27                         391                11,732

  Trade and other receivables                                         28                     276,500               350,838

  Consideration receivable on disposal of
    an associate and interest in a co-operative
    joint venture                                                                                  -               108,000

  Loan receivables                                                    29                     131,000                54,950

  Investments in securities                                           21                       2,778                 2,847

  Tax recoverable                                                                                 31                    36

  Pledged bank deposits                                               47                       6,800                   390

  Trading cash balances                                               30                         246                   416

  Bank balances and cash                                                                     134,317               111,709
                                                                                           ---------               -------

                                                                                             564,490               644,513
                                                                                           ---------               -------

Current liabilities

  Trade and other payables                                            31                     234,441               239,191

  Loans from related companies                                        32                     260,778                 8,000

  Amounts due to associates                                           27                      11,327                12,134

  Amounts due to related companies                                    33                      17,598                13,009

  Obligations under finance leases - amount due
    within one year                                                   34                         378                     -

  Borrowings - amount due within one year                             35                      57,066                28,230

  Convertible notes                                                   36                           -               254,125
                                                                                           ---------               -------

                                                                                             581,588               554,689
                                                                                           ---------               -------

Net current (liabilities) assets                                                             (17,098)               89,824
                                                                                           ---------               -------

Total assets less current liabilities (c/f)                                                2,020,853               552,662
                                                                                           ---------               -------
</TABLE>



                                                                             -4-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


<TABLE>
<CAPTION>
                                                                     NOTES                   2004                  2003
                                                                     -----                   ----                  ----
                                                                                            HK$'000               HK$'000


<S>                                                                  <C>                   <C>                    <C>
Total assets less current liabilities (b/f)                                                2,020,853               552,662
                                                                                           ---------               -------

Minority interests                                                                           312,171                29,778
                                                                                           ---------               -------

Non-current liabilities

  Loans from related companies                                        32                     112,098               223,312

  Obligations under finance leases - amount due
    after one year                                                    34                          93                     -

  Borrowings - amount due after one year                              35                     300,395                 6,251

  Convertible notes                                                   36                      55,000                     -

  Promissory note                                                     37                     365,000                     -

  Deferred taxation                                                   38                     243,354                     -
                                                                                           ---------               -------

                                                                                           1,075,940               229,563
                                                                                           ---------               -------

Net assets                                                                                   632,742               293,321
                                                                                           =========               =======


Capital and reserves

  Share capital                                                       39                     322,267               183,167

  Reserves                                                            41                     310,475               110,154
                                                                                           ---------               -------

Shareholders' funds                                                                          632,742               293,321
                                                                                           =========               =======
</TABLE>


--------------------------------------------------------------------------------

See notes to consolidated financial statements.



                                                                             -5-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE TWO YEARS ENDED 31 DECEMBER 2004 AND 2003
AND THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                        Total equity
                                                                                                        ------------
                                                                                                           HK$'000


<S>                                                                                                     <C>
At 1 April 2002                                                                                             640,009
                                                                                                            -------

Exchange difference arising on translation of financial statements of
  operations outside Hong Kong                                                                                 (322)

Share of translation reserve of an associate                                                                    (65)
                                                                                                            -------

Amount of loss not recognized in the income statement                                                          (387)
                                                                                                            -------

                                                                                                            639,622

Issue of shares                                                                                             322,560

Repurchase of shares                                                                                         (5,896)

Reserves released on deemed disposal and disposal of subsidiaries                                               538

Net loss for the period                                                                                    (302,248)
                                                                                                            -------

At 31 December 2002 and 1 January 2003                                                                      654,576
                                                                                                            -------

Exchange difference arising on translation of financial statements of
  operations outside Hong Kong                                                                                 (286)

Surplus arising from revaluation of investment property                                                         163

Share of translation reserve of an associate                                                                     73
                                                                                                            -------

Amount of net loss not recognized in the income statement                                                       (50)
                                                                                                            -------

                                                                                                            654,526
Transfer of goodwill reserve to investments in securities on
  reclassification of investments                                                                             9,767

Net loss for the year                                                                                      (370,972)
                                                                                                            -------

At 31 December 2003 and 1 January 2004                                                                      293,321
                                                                                                            -------

Exchange difference arising on translation of financial statements of
  operations outside Hong Kong                                                                                 (757)

Surplus arising from revaluation of investment property                                                       2,000
                                                                                                            -------

Amount of net gain not recognized in the income statement                                                     1,243
                                                                                                            -------

                                                                                                            294,564

Issue of shares                                                                                             303,648

Realization of translation reserve on liquidation of a subsidiary                                              (847)

Net profit for the year                                                                                      35,377
                                                                                                            -------

At 31 December 2004                                                                                         632,742
                                                                                                            =======
</TABLE>


--------------------------------------------------------------------------------

See notes to consolidated financial statements.




                                                                             -6-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

CONSOLIDATED CASH FLOW STATEMENTS
FOR THE TWO YEARS ENDED 31 DECEMBER 2004 AND 2003
AND THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                              1.1.2004         1.1.2003          1.4.2002
                                                                                 to               to                to
                                                                             31.12.2004       31.12.2003        31.12.2002
                                                                             ----------       ----------        ----------
                                                                               HK$'000          HK$'000           HK$'000


<S>                                                                          <C>              <C>               <C>
Cash flows from operating activities

  Profit (loss) before taxation                                                  37,838          (373,047)        (304,153)

  Adjustments for:

    Share of results of associates                                                  195           114,788           33,463

    Depreciation and amortization of property,
      plant and equipment                                                        26,938            24,575           18,575

    Interest income                                                              (3,381)           (1,150)         (10,679)

    Interest expenses                                                            53,578            22,586           11,858

    Finance lease charges                                                           133             2,459              850

    Loss on disposal of property, plant and
      equipment                                                                     220            28,587            2,042

    (Gain) loss on disposal of associates                                       (37,930)           23,471                -

    Loss on disposal of discontinued operations                                       -            32,697                -

    Loss on disposal of investment securities                                         -            30,633                -

    Loss on disposal of interest in a co-operative
     joint venture                                                                    -            20,000                -

    Loss on disposal of other investments                                            11               465                -

    Allowance for irrecoverable trade debts                                       1,262                 -           22,813

    Impairment loss recognized in respect of
      investments in securities                                                   5,659            26,974                -

    Impairment loss recognized in respect of
      properties under construction                                               1,100             2,400            1,000

    Impairment loss recognized in respect of
      interest in an associate                                                        -            31,717                -

    (Reversal of impairment loss) impairment
      loss recognized in respect of leasehold land
      and buildings                                                              (4,511)              301           12,281

    Release of negative goodwill arising on
      acquisition of subsidiaries                                                (1,863)                -                -

    Net unrealized holding loss on other investments                                127             2,849              733

    Amortization of goodwill arising on acquisition
      of subsidiaries                                                                 -               496              165

    Surplus arising from revaluation of investment
      property                                                                        -                (7)               -

    Loss on deemed disposal/disposal of subsidiaries                                  -                 -            1,712

    Allowance for short term investment deposit                                       -                 -           23,000

    Allowance for advances to service suppliers                                       -                 -          162,122
                                                                                -------           -------          -------

Operating cash flows before movement in working
  capital                                                                        79,376            (9,206)         (24,218)
                                                                                -------           -------          -------

</TABLE>


                                                                             -7-
<PAGE>




WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


<TABLE>
<CAPTION>
                                                                              1.1.2004         1.1.2003          1.4.2002
                                                                                 to               to                to
                                                              NOTES          31.12.2004       31.12.2003        31.12.2002
                                                              -----          ----------       ----------        ----------
                                                                               HK$'000          HK$'000           HK$'000

<S>                                                           <C>            <C>              <C>               <C>
Movement in working capital

  Decrease in inventories                                                           254               540              254

  Increase in amounts due from related companies                                 (3,594)           (1,972)         (11,989)

  Decrease (increase) in amounts due from
    associates                                                                    1,916            (7,282)          (1,267)

  Decrease (increase) in trade and other receivables                            139,499           (46,582)          (9,153)

  Decrease (increase) in trading cash balances                                      170               747             (469)

  (Decrease) increase in trade and other payables                              (111,100)           26,950           (6,305)

  (Decrease) increase in amounts due to associates                                 (807)          (13,354)           7,372

  (Decrease) increase in amounts due to related
    companies                                                                   (77,065)            1,340            4,443
                                                                                -------           -------          -------

                                                                                (50,727)          (39,613)         (17,114)
                                                                                -------           -------          -------


Cash generated from (used in) operations                                         28,649           (48,819)         (41,332)

Interest paid                                                                   (53,578)          (12,429)          (8,616)

Finance lease charges paid                                                         (133)           (2,459)            (850)

Taxation in other jurisdictions refunded                                             28               724               99
                                                                                -------           -------          -------


Net cash used in operating activities                                           (25,034)          (62,983)         (50,699)
                                                                                -------           -------          -------


Cash flows from investing activities

  Payment for investment deposits                                              (221,695)                -          (99,400)

  Acquisition of associates and advances                                        (82,135)                -                -

  Acquisition of subsidiaries                                  42               (47,387)                -                -

  Net cash outflow of loans advanced to certain
    companies and individuals                                                   (36,050)           (9,678)         (22,272)

  Purchase of property, plant and equipment                                     (18,669)          (23,028)          (3,489)

  (Increase) decrease in pledged bank deposits                                   (6,410)              412            1,217

  Purchase of other investments                                                     (58)           (5,571)          (6,008)

  Purchase of investment securities                                                  (1)                -                -

  Proceeds from disposals of associates and
    advances                                                                    188,988            13,219                -

  Refund of other long term investment                                           70,500                 -                -

  Proceeds from disposal of property, plant and
    equipment                                                                     9,908            41,611              900

  Interest received                                                               3,381             1,150            6,368

  Proceeds from disposal of other investments                                        12             4,860                -

  Investment in an associate                                                          -               (82)        (300,217)

  Acquisition of additional interest in a subsidiary                                  -                 -          (10,169)

  Disposal of discontinued operation (net of
    cash and cash equivalents disposed of)                     43                     -            26,911                -

  Repayment of loan receivables                                                       -                 -           10,000

  Deemed disposal/disposal of subsidiaries
    (net of cash and cash equivalents disposed of)             44                     -                 -           (1,448)

  Short term investment deposits refunded                                             -                 -            5,000
                                                                                -------           -------          -------

Net cash (used in) from investing activities                                   (139,616)           49,804         (419,518)
                                                                                -------           -------          -------
</TABLE>



                                                                             -8-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

<TABLE>
<CAPTION>

                                                                              1.1.2004         1.1.2003          1.4.2002
                                                                                 to               to                to
                                                              NOTE           31.12.2004       31.12.2003        31.12.2002
                                                              ----           ----------       ----------        ----------
                                                                               HK$'000          HK$'000           HK$'000


<S>                                                           <C>            <C>              <C>               <C>
Cash flows from financing activities

  Net cash inflow from loans from related
    companies                                                                   141,564           224,838            6,474

  Proceeds from issue of new shares for cash,
    net of expenses of HK$3,832,000
    (1.1.2003 to 31.12.2003: HK$nil and
    1.4.2002 to 31.12.2002: HK$2,915,000)                                        98,648                 -          206,685

  Proceeds from issue of convertible notes                                       70,200                 -          370,000

  New bank loans and other loans raised                                           5,569            61,096          150,000

  Repayment of bank loans and other loans                                       (89,599)         (209,909)        (139,024)

  Redemption of convertible notes                                               (64,325)                -                -

  Repayment of obligations under finance leases                                  (1,182)           (4,619)          (7,376)

  Repurchase of shares                                                                -                 -           (5,896)
                                                                                -------           -------          -------

Net cash from financing activities                                              160,875            71,406          580,863
                                                                                -------           -------          -------

Net (decrease) increase in cash and cash
  equivalents                                                                    (3,775)           58,227          110,646

Cash and cash equivalents at beginning of the
  year/period                                                                   111,709            53,793          (56,969)

Effect of foreign exchange rate changes                                          (1,798)             (311)             116
                                                                                -------           -------          -------

Cash and cash equivalents at end of the
  year/period                                                  46               106,136           111,709           53,793
                                                                                =======           =======          =======
</TABLE>


--------------------------------------------------------------------------------

See notes to consolidated financial statements.



                                                                             -9-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED 31 DECEMBER 2004 AND 2003
AND THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------


1.   GENERAL

     Wing On Travel (Holdings) Limited (together with its subsidiaries the
     "Company") is an exempted company incorporated in Bermuda with limited
     liability. Its shares are listed on The Stock Exchange of Hong Kong Limited
     (the "Stock Exchange").

     The Company is an investment holding company. Its subsidiaries are
     principally engaged in the business of providing package tours, travel and
     other related services and hotel operations.

     The financial statements for the current and prior period cover the
     twelve-month year ended 31 December 2004 and 2003. The corresponding
     amounts shown for the income statement, statement of changes in
     shareholders' equity, cash flow statement and related notes cover a
     nine-month period from 1 April 2002 to 31 December 2002 and therefore may
     not be comparable with amounts shown for the current and prior year.

     These financial statements have been prepared for the special purpose of
     filing with the United States Securities and Exchange Commission for the
     express purpose of complying with Article 3 - 09 of Regulation S - X of the
     Securities Act 1933. This filing requirement is based on the Company being
     a significant investee of China Enterprises Limited ("CEL").


2.   POTENTIAL IMPACT ARISING FROM THE RECENTLY ISSUED ACCOUNTING STANDARDS

     In 2004, the Hong Kong Institute of Certified Public Accountants issued a
     number of new or revised Hong Kong Accounting Standards and Hong Kong
     Financial Reporting Standards (hereinafter collectively referred to as "new
     HKFRSs") which are effective for accounting periods beginning on or after 1
     January 2005. The Company has not early adopted these new HKFRSs in the
     financial statements for the two years ended 31 December 2004 and 2003 and
     the nine-month period ended 31 December 2002.

     The Company has commenced considering the potential impact of these new
     HKFRSs but is not yet in a position to determine whether these new HKFRSs
     would have a significant impact on how its results of operations and
     financial position are prepared and presented. These new HKFRSs may result
     in changes in the future as to how the results and financial position are
     prepared and presented.




                                                                            -10-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES

     The financial statements have been prepared under the historical cost
     convention, as modified for the revaluation of certain properties and
     investments in securities. The financial statements have been prepared in
     accordance with accounting principles generally accepted in Hong Kong.

     The principal accounting policies are as follows:

     Basis of consolidation

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

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

     All significant inter-company transactions and balances within the Company
     are eliminated on consolidation.

     Goodwill

     Goodwill represents the excess of the cost of acquisition over the
     Company's interest in the fair value of the identifiable assets and
     liabilities of a subsidiary or an associate at the date of acquisition.

     Goodwill arising on acquisition prior to 1 April 2001 continues to be held
     in reserves and will be charged to the income statement at the time of
     disposal of the relevant subsidiary or associate, or at such time as the
     goodwill is determined to be impaired.

     Goodwill arising on acquisition after 1 April 2001 is capitalized and
     amortized on a straight line basis over its useful economic life. Goodwill
     arising on acquisition of an associate is included within the carrying
     amount of the associate. Goodwill arising on the acquisition of
     subsidiaries is presented separately in the balance sheet.

     Negative goodwill

     Negative goodwill represents the excess of the Company's interest in the
     fair value of the identifiable assets and liabilities of a subsidiary or an
     associate at the date of acquisition over the cost of acquisition.

     Negative goodwill arising on acquisition prior to 1 April 2001 continues to
     be held in reserves, and will be credited to income at the time of disposal
     of the relevant subsidiary or associate.

     Negative goodwill arising on the acquisition of an associate after 1 April
     2001 is deducted from the carrying value of that associate. Negative
     goodwill arising on the acquisition of subsidiaries after 1 April 2001 is
     presented separately in the balance sheet as a deduction from assets.

     Negative goodwill is released to income based on an analysis of the
     circumstances from which the balance resulted. To the extent that the
     negative goodwill is attributable to losses or expenses anticipated at the
     date of acquisition, it is released to income in the period in which those
     losses or expenses arise. The remaining negative goodwill is recognized as
     income on a straight line basis over the remaining average useful life of
     the identifiable acquired depreciable assets. To the extent that such
     negative goodwill exceeds the aggregate fair value of the acquired
     identifiable non-monetary assets, it is recognized as income immediately.



                                                                            -11-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Revenue recognition

     Income from tour and travel services is recognized upon the departure date
     of each tour. Income from other travel related services is recognized when
     the services are rendered.

     Hotel revenue from rooms and other ancillary services are recognized when
     the services are rendered.

     Income from transportation services is recognized when the services are
     rendered.

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

     Rental income, including rental invoiced in advance from properties under
     operating leases, is recognized on a straight line basis over the term of
     the relevant lease.

     Dividend income from investments is recognized when the shareholders'
     rights to receive payment have been established.

     Income from disposal of investments is recognized when the risks and
     rewards of the ownership of the investments have been transferred.

     Property, plant and equipment

     Hotel properties

     Hotel properties are stated at cost less accumulated impairment loss. Cost
     comprises land costs, development costs, borrowing cost capitalized in
     accordance with the Company's accounting policy and other direct cost
     attributable to the property. No depreciation or amortization is provided
     on hotel property. It is the Company's policy to maintain these assets in a
     continual state of sound repair and maintenance and to extend and make
     improvements thereto from time to time, and accordingly the directors
     consider that given the estimated life of this asset any depreciation would
     be insignificant.

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

     Other property, plant and equipment

     Property, plant and equipment other than hotel properties and properties
     under construction are stated at cost or valuation less accumulated
     depreciation or amortization and any identified impairment loss.

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



                                                                            -12-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Property, plant and equipment - continued


     Other property, plant and equipment - continued

     Depreciation and amortization is provided to write off the cost or
     valuation of property, plant and equipment other than hotel properties and
     properties under construction over their estimated useful lives, using the
     straight line method, at the following rates per annum:


<TABLE>

<S>                                              <C>
     Leasehold land                              Over the remaining unexpired terms of the leases

     Buildings                                   2% or over the remaining unexpired terms of the
                                                    leases, whichever is shorter

     Furniture and fixtures                      10% - 20%

     Leasehold improvements                      10% - 20% or the term of the lease
                                                     or land use rights, if shorter

     Motor vehicles                              8.33% - 20%

     Office equipment and machinery              20%

     Vessels                                     5%
</TABLE>

     Assets held under finance leases are depreciated over their estimated
     useful lives on the same basis as owned assets.

     Properties under construction are stated at cost less impairment loss. Cost
     includes all development expenditure and other direct costs attributable to
     such projects. Properties under construction are not depreciated until
     completion of construction. Cost on completed properties is transferred to
     other categories of property, plant and equipment.

     Investment properties

     Investment properties are completed properties which are held for their
     investment potential, any rental income being negotiated at arm's length.

     No depreciation is provided in respect of investment properties which are
     held under leases with unexpired terms, including the renewable period, of
     more than twenty years. Investment properties are stated at their open
     market values based on a professional valuation at the balance sheet date.

     Any surplus or deficit arising on revaluation of investment properties is
     credited or charged to the investment property revaluation reserve unless
     the balance of this reserve is insufficient to cover a deficit, in which
     case the excess of the deficit over the balance on the investment property
     revaluation reserve is charged to the income statement.

     On subsequent sale of an investment property, any revaluation surplus
     thereon is included in the determination of the gain or loss on disposal.



                                                                            -13-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Impairment

     At each balance sheet date, the Company reviews the carrying amounts of its
     assets to determine whether there is any indication that those assets have
     suffered an impairment loss. If the recoverable amount of an asset is
     estimated to be less than its carrying amount, the carrying amount of the
     asset is reduced to its recoverable amount. An impairment loss is
     recognized as an expense immediately, unless the relevant asset is carried
     at a revalued amount, in which case the impairment loss is treated as a
     revaluation decrease.

     Where an impairment loss subsequently reverses, the carrying amount of the
     asset is increased to the revised estimate of its recoverable amount, but
     so that the increased carrying amount does not exceed the carrying amount
     that would have been determined had no impairment loss been recognized for
     the asset in prior years. A reversal of an impairment loss is recognized as
     income immediately, unless the relevant asset is carried at a revalued
     amount, in which case the reversal of the impairment loss is treated as a
     revaluation increase.

     Interest in associates

     An associate is an enterprise over which the Company is in a position to
     exercise significant influence, including participation in financial and
     operating policy decisions.

     The consolidated income statement includes the Company's share of the
     post-acquisition results of its associates for the year. In the
     consolidated balance sheet, the interest in associates is stated at the
     Company's share of net assets of the associates less any negative goodwill
     on acquisition in so far as it has not already been released to income and
     any identified impairment loss.

     Other long term investment

     Other long term investment is stated at cost less impairment loss.

     Investments in securities

     Investments in securities are recognized on a trade-date basis and are
     initially measured at cost.

     At subsequent reporting dates, debt securities that the Company has the
     expressed intention and ability to hold to maturity (held-to-maturity
     securities) are measured at amortized cost, less any impairment loss
     recognized to reflect irrecoverable amounts. The annual amortization of any
     discount or premium on the acquisition of a held-to-maturity security is
     aggregated with other investment income receivable over the terms of the
     investment so that the revenue recognized in each period represents a
     constant yield on the investment.

     Investments other than held-to-maturity securities are classified as
     investment securities and other investments.

     Investment securities, which are securities held for an identified
     long-term strategic purpose, are measured at subsequent reporting dates at
     cost, as reduced by any impairment loss that is other than temporary.

     Other investments are measured at fair value, with unrealized gains and
     losses included in net profit or loss for the year.



                                                                            -14-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Club debenture

     Club debenture is stated at cost less any identified impairment loss.

     Properties held for sale

     Properties held for sale are stated at the lower of cost and net realizable
     value. Cost comprises all costs of purchase. Net realizable value is
     calculated at the actual or estimated selling price less related costs of
     marketing and selling.

     Inventories

     Inventories are stated at the lower of cost and net realizable value. Cost
     is calculated using the weighted average cost method.

     Taxation

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

     The tax currently payable is based on taxable profit for the year/period.
     Taxable profit differs from net profit as reported in the income statement
     because it excludes items of income or expense that are taxable or
     deductible in other periods and it further excludes items that are never
     taxable or deductible.

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

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

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

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



                                                                            -15-
<PAGE>



WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Retirement benefit schemes

     The retirement benefit costs charged in the income statement represent the
     contributions payable in respect of the current year/period to the
     state-managed retirement benefit schemes and the Company's defined
     contribution schemes.

     Stock-based compensation

     The Company operates a share option scheme where its directors or employees
     are granted options to acquire shares of the Company at specified exercise
     prices. No compensation costs are recognized in the income statement.

     Leases

     Leases are classified as finance leases whenever the terms of the leases
     transfer substantially all the risks and rewards of ownership of the leased
     assets to the Company. Assets held under finance leases are capitalized at
     their fair value at the date of acquisition. The corresponding principal
     portions of leasing commitments are shown as obligations under finance
     leases. The finance costs, which represent the difference between the total
     leasing commitments and the original principal outstanding at the inception
     of the leases, are charged to the income statement over the period of the
     relevant leases so as to produce a constant periodic rate of charge on the
     remaining balances of the obligations for each accounting period.

     All other leases are classified as operating leases and their rentals
     payable or receivable are charged or credited to the income statement on a
     straight line basis over the term of the relevant lease.

     Foreign currencies

     Transactions in foreign currencies are translated at the approximate rates
     prevailing on the dates of the transactions. Monetary assets and
     liabilities denominated in foreign currencies are re-translated at the
     rates ruling on the balance sheet date. Gains and losses arising on
     exchange are included in the income statement.

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

     Foreign currency risk

     The Company conducts business in a number of foreign countries, with
     certain transactions denominated in currencies other than the functional
     currency of the respective subsidiary conducting the business. The purpose
     of the Company's foreign currency management is to manage the effect of
     exchange rate fluctuations on certain foreign currency denominated
     revenues, costs and eventual cash flows.



                                                                            -16-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


3.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Concentration of credit risk

     Financial instruments that potentially expose the Company to concentration
     of credit risk consist primarily of cash and cash equivalents, and trade
     receivables. The Company places its cash and cash equivalents with
     financial institutions with high-credit ratings and quality.

     The Company conducts credit evaluation of customers and generally does not
     require collateral or other security from its customers. The Company
     establishes an allowance for doubtful accounts primarily based upon the age
     of the receivables and factors surrounding the credit risk of specific
     customers.

     Fair value of financial instruments

     The carrying amounts of cash and cash equivalents, trade receivables and
     trade payables approximate their fair values due to the short-term maturity
     of these instruments.


4.   TURNOVER

     Turnover represents the amounts received and receivable from outside
     customers, less trade discounts and returns during the year/period. An
     analysis of the Company's turnover is as follows:


<TABLE>
<CAPTION>
                                              1.1.2004          1.1.2003         1.4.2002
                                                 to                to               to
                                             31.12.2004        31.12.2003       31.12.2002
                                             ----------        ----------       ----------
                                               HK$'000           HK$'000          HK$'000

<S>                                          <C>               <C>              <C>
     Travel and related services               1,532,143        1,291,906       1,185,560

     Hotel and leisure services                  190,034                -               -

     Transportation services                           -          124,329         137,726
                                               ---------        ---------       ---------

                                               1,722,177        1,416,235       1,323,286
                                               =========        =========       =========
</TABLE>


                                                                            -17-






<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

5.   BUSINESS AND GEOGRAPHICAL SEGMENTS

     Business segments

     During the year, for management purposes, the Company was organized into
     two operating divisions - travel and related services, and hotel and
     leisure services. In 2003, the Company was also involved in the business of
     transportation services that was discontinued in October 2003. These
     divisions are the basis on which the Company reports its primary segment
     information.

     Principal activities are as follows:

<TABLE>
<CAPTION>
                                                       Travel and         Hotel and
                                                         related           leisure
                                                        services          services        Elimination      Consolidated
                                                        --------          --------        -----------      ------------
                                                         HK$'000           HK$'000          HK$'000           HK$'000

     <S>                                                 <C>                <C>           <C>                 <C>
     For the year ended 31 December 2004

     TURNOVER
     External sales                                      1,532,143          190,034                -         1,722,177
     Inter-segment sales                                      -               1,234           (1,234)                -
                                                         ---------          -------           ------         ---------
     Total                                               1,532,143          191,268           (1,234)        1,722,177
                                                         =========          =======           ======         =========

     Inter-segment sales are charged at
       prevailing market price.

     RESULTS
     Segment results                                        49,349           33,701                -            83,050
                                                         =========          =======           ======

     Interest income                                                                                             3,381
     Net unrealized holding loss on other
       investments                                                                                                (127)
     Impairment loss recognized in respect
       of investments in securities                                                                             (5,659)
     Unallocated corporate expenses                                                                            (26,831)
                                                                                                             ---------
     Profit from operations                                                                                     53,814
     Finance costs                                                                                             (53,711)
     Gain on disposal of associates                         37,930                -                -            37,930
     Share of results of associates                           (195)               -                -              (195)
                                                                                                             ---------
     Profit before taxation                                                                                     37,838
     Taxation credit                                                                                                23
                                                                                                             ---------
     Profit before minority interests                                                                           37,861
     Minority interests                                                                                         (2,484)
                                                                                                             ---------
     Net profit for the year                                                                                    35,377
                                                                                                             =========
</TABLE>


                                                                          - 18 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

5.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Business segments - continued

<TABLE>
<CAPTION>
                                                              Travel and             Hotel and
                                                                related               leisure
                                                               services              services            Consolidated
                                                               --------              --------            ------------
                                                                HK$'000               HK$'000               HK$'000

     <S>                                                         <C>                 <C>                   <C>
     As at 31 December 2004

     ASSETS
     Segment assets                                              728,181             1,697,328             2,425,509
     Interest in associates                                        1,989                     -                 1,989
     Unallocated corporate assets                                                                            174,943
                                                                                                           ---------
     Consolidated total assets                                                                             2,602,441
                                                                                                           =========

     LIABILITIES
     Segment liabilities                                         198,949                62,723               261,672
     Unallocated corporate liabilities                                                                     1,395,856
                                                                                                           ---------
     Consolidated total liabilities                                                                        1,657,528
                                                                                                           =========

     OTHER INFORMATION
     Capital additions                                             5,221             1,696,828             1,702,049
     Goodwill arising from acquisition of
       subsidiaries                                               50,215                     -                50,215
     Depreciation and amortization of
       property, plant and equipment                               4,204                22,734                26,938
     Impairment losses recognized                                  6,759                     -                 6,759
     Reversal of impairment loss in respect
       of leasehold land and buildings                            (4,511)                    -                (4,511)
     Loss (profit) on disposal of property,
       plant and equipment                                           365                  (145)                  220
     Allowance for irrecoverable trade debts                       1,262                     -                 1,262
                                                                 =======               =======             =========
</TABLE>



                                                                          - 19 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

5.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Business segments - continued

<TABLE>
<CAPTION>
                                                       Continuing       Discontinued
                                                        operation         operation
                                                       ----------      --------------
                                                       Travel and
                                                         related       Transportation
                                                        services          services        Elimination      Consolidated
                                                       ----------      --------------     -----------      ------------
                                                         HK$'000           HK$'000          HK$'000           HK$'000

     <S>                                                 <C>                <C>               <C>            <C>
     For the year ended 31 December 2003

     TURNOVER
     External sales                                      1,291,906          124,329                -         1,416,235
     Inter-segment sales                                      -               5,248           (5,248)                -
                                                         ---------          -------           ------         ---------
     Total                                               1,291,906          129,577           (5,248)        1,416,235
                                                         =========          =======           ======         =========

     Inter-segment sales are charged
     at prevailing market price.

     RESULTS
     Segment results                                       (60,207)         (20,169)               -           (80,376)
                                                         =========          =======           ======

     Interest income                                                                                             1,150
     Loss on disposal of investments in
       securities                                                                                              (31,098)
     Net unrealized holding loss on other
       investments                                                                                              (2,849)
     Unallocated corporate expenses                                                                            (32,156)
                                                                                                             ---------
     Loss from operations                                                                                     (145,329)
     Finance costs                                                                                             (25,045)
     Loss on disposal of associates                        (23,471)               -                -           (23,471)
     Share of results of associates                       (114,788)               -                -          (114,788)
     Impairment loss recognized in respect
       of interest in an associate                         (31,717)               -                -           (31,717)
     Loss on disposal of discontinued
       operation                                                 -          (32,697)               -           (32,697)
                                                                                                             ---------
     Loss before taxation                                                                                     (373,047)
     Taxation credit                                                                                             2,075
                                                                                                             ---------
     Loss before minority interests                                                                           (370,972)
     Minority interests                                                                                              -
                                                                                                             ---------
     Net loss for the year                                                                                    (370,972)
                                                                                                             =========
</TABLE>




                                                                          - 20 -

<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

5.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Business segments - continued

<TABLE>
<CAPTION>
                                                              Continuing           Discontinued
                                                               operation             operation
                                                              ----------          --------------
                                                              Travel and
                                                                related           Transportation
                                                               services              services            Consolidated
                                                              ----------          --------------         ------------
                                                                HK$'000               HK$'000               HK$'000

     <S>                                                         <C>                  <C>                  <C>
     As at 31 December 2003

     ASSETS
     Segments                                                    676,963                     -               676,963
     Interest in associates                                      221,467                     -               221,467
     Unallocated corporate assets                                                                            208,921
                                                                                                           ---------
     Consolidated total assets                                                                             1,107,351
                                                                                                           =========

     LIABILITIES
     Segment liabilities                                         245,147                     -               245,147
     Unallocated corporate liabilities                                                                       539,105
                                                                                                           ---------
     Consolidated total liabilities                                                                          784,252
                                                                                                           =========

     OTHER INFORMATION
     Capital additions                                             7,947                15,081                23,028
     Depreciation and amortization of
       property, plant and equipment                               4,935                19,640                24,575
     Loss on disposal of property, plant
       and equipment                                              28,419                   168                28,587
     Loss on disposal of interest in a
       co-operative joint venture                                 20,000                     -                20,000
     Impairment losses recognized                                 29,675                     -                29,675
     Amortization of goodwill arising on
       acquisition of subsidiaries                                     -                   496                   496
                                                                 =======               =======             =========
</TABLE>




                                                                          - 21 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

5.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Business segments - continued

<TABLE>
<CAPTION>
                                                       Continuing       Discontinued
                                                        operation         operation
                                                       ----------      --------------
                                                       Travel and
                                                         related       Transportation
                                                        services          services        Elimination      Consolidated
                                                       ----------      --------------     -----------      ------------
                                                         HK$'000           HK$'000          HK$'000           HK$'000

     <S>                                                 <C>                <C>               <C>            <C>
     For the period from 1 April 2002
     to 31 December 2002

     TURNOVER
     External sales                                      1,185,560          137,726                -         1,323,286
     Inter-segment sales                                         -            6,768           (6,768)                -
                                                         ---------          -------           ------         ---------
     Total                                               1,185,560          144,494           (6,768)        1,323,286
                                                         =========          =======           ======         =========

     Inter-segment sales are charged
     at prevailing market price.

     RESULTS
     Segment results                                      (227,740)          (7,786)               -          (235,526)
                                                         =========          =======           ======
     Interest income                                                                                            10,679
     Net unrealized holding loss on other
       investments                                                                                                (733)
     Unallocated corporate expenses                                                                            (30,690)
                                                                                                             ---------
     Loss from operations                                                                                     (256,270)
     Finance costs                                                                                             (12,708)
     Share of results of associates                        (33,463)               -                -           (33,463)
     Loss on deemed disposal/disposal of
       subsidiaries                                         (1,712)               -                -            (1,712)
                                                                                                             ---------
     Loss before taxation                                                                                     (304,153)
     Taxation credit                                                                                               669
                                                                                                             ---------
     Loss before minority interests                                                                           (303,484)
     Minority interests                                                                                          1,236
                                                                                                             ---------
     Net loss for the period                                                                                  (302,248)
                                                                                                             =========
</TABLE>



                                                                          - 22 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


5.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Geographical segments

     No geographical segment information in respect of the Company's operations
     has been presented as over 90% of the Company's operations were derived
     from Hong Kong.

     The analysis of carrying amount of segment assets and additions to
     property, plant and equipment and intangible assets analyzed by the
     geographical area in which the assets are located is as follows:

<TABLE>
<CAPTION>
                                                                                                  Additions to
                                                                                               property, plant and
                                                              Carrying amount                     equipment and
                                                             of segment assets                  intangible assets
                                                         -------------------------          -------------------------
                                                           2004              2003             2004              2003
                                                         ---------          -------         ---------          -------
                                                          HK$'000           HK$'000          HK$'000           HK$'000

     <S>                                                 <C>                <C>             <C>                <C>
     The People's Republic of China
       (excluding Hong Kong) (the "PRC")                 1,372,774          248,358         1,074,210                -
     Hong Kong                                           1,040,390          300,522           677,865           23,028
     South-east Asia                                       120,914          180,433               137                -
     Japan and Korea                                        64,710          155,771                 -                -
     Others                                                  1,664              800                52                -
                                                         ---------          -------         ---------          -------
                                                         2,600,452          885,884         1,752,264           23,028
                                                         =========          =======         =========          =======
</TABLE>



6.   OTHER OPERATING INCOME

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000

     <S>                                                           <C>                   <C>                   <C>
     An analysis of the Company's other
     operating income is as follows:

     Exchange gain                                                    135                   335                   168
     Insurance claims received                                      2,208                     -                     -
     Interest income                                                3,381                 1,150                10,679
     Net income on sale of computer program
       source code                                                      -                 3,000                     -
     Recovery of overseas sales tax                                     -                 8,242                     -
     Sundry income                                                 15,060                 9,809                 6,078
                                                                   ------                ------                ------
                                                                   20,784                22,536                16,925
                                                                   ======                ======                ======
</TABLE>



                                                                          - 23 -

<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

7.   ALLOWANCE FOR ADVANCES TO SERVICE SUPPLIERS

     The Company makes advances to its overseas tour operators for financing
     their provision of tourist services to the Company in their destination
     points. The allowance made in the nine-month period ended 31 December 2002
     represented the amounts due from those operators with whom the Company did
     not have further business and the directors consider that their
     recoverability was remote.


8.   PROFIT (LOSS) FROM OPERATIONS

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000

     <S>                                                           <C>                   <C>                   <C>
     Profit (loss) from operations has been arrived at
       after charging:

     Allowance for irrecoverable trade debts                         1,262                    -                 22,813
     Auditors' remuneration                                          2,878                1,792                  1,598
     Cost of inventories recognized as expenses                     20,490                2,005                  2,701
     Depreciation and amortization on:
       Owned assets                                                 26,289               19,689                 14,622
       Assets held under finance leases                                649                4,886                  3,953
     Information technology development expenses                         -                1,136                    844
     Loss on disposal of other investments                              11                  465                      -
     Loss on disposal of property, plant and
       equipment                                                       220               28,587                  2,042
     Minimum lease payments paid in respect
       of rented premises                                           12,913               12,459                 19,850
     Staff costs *                                                 128,023               80,194                125,272

     and after crediting:

     Rental income from investment property
       and premises within the hotel properties
       less expenses of HK$79,000
       (1.1.2003 to 31.12.2003: HK$nil and
       1.4.2002 to 31.12.2002: HK$nil)                              12,993                  109                     82
     Rental income from motor vehicles                                  74                    -                      -
                                                                   =======               ======                =======
</TABLE>


     *    The amount includes retirement benefit scheme contributions (net of
          forfeiture) of HK$5,910,000 (1.1.2003 to 31.12.2003: HK$1,879,000 and
          1.4.2002 to 31.12.2002: HK$4,615,000).



                                                                          - 24 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

9.   DIRECTORS' REMUNERATION AND HIGHEST PAID EMPLOYEES

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000
     <S>                                                           <C>                   <C>                   <C>
     Emoluments to executive directors
       Fees                                                             -                     -                     -
       Salaries and other benefits (Note)                           3,554                 1,500                 4,513
       Compensation for loss of office                                 -                     -                  2,600
       Retirement benefit scheme contributions                         24                    97                   389
                                                                   ------                ------                ------
                                                                    3,578                 1,597                 7,502
                                                                   ------                ------                ------

     Emoluments to non-executive directors
       Fees                                                             -                     -                     -
       Salaries and other benefits                                  2,923                 1,980                 1,286
       Retirement benefit scheme contributions                         45                   210                   137
                                                                   ------                ------                ------
                                                                    2,968                 2,190                 1,423
                                                                   ------                ------                ------

     Emoluments to independent non-executive
       directors
       Fees                                                            30                   200                     -
                                                                   ------                ------                ------
                                                                    6,576                 3,987                 8,925
                                                                   ======                ======                ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                 Number of director(s)
                                                               ------------------------------------------------------
                                                                1.1.2004              1.1.2003              1.4.2002
                                                                   to                    to                    to
                                                               31.12.2004            31.12.2003            31.12.2002
                                                               ----------            ----------            ----------
     <S>                                                          <C>                   <C>                    <C>
     Emoluments of the directors were within
       the following bands:

     Nil - HK$1,000,000                                             12                    13                     9
     HK$1,000,001 - HK$1,500,000                                     -                     -                     1
     HK$2,000,001 - HK$2,500,000                                     -                     1                     -
     HK$2,500,001 - HK$3,000,000                                     2                     -                     1
     HK$3,500,001 - HK$4,000,000                                     -                     -                     1
                                                                  ====                  ====                  ====
</TABLE>


     Note:    The directors' salaries and other benefits include the
              operating lease rentals amounting to HK$1,200,000 (1.1.2003 to
              31.12.2003: HK$nil and 1.4.2002 to 31.12.2002: HK$1,401,000)
              in respect of rental premises provided to directors. The
              amounts were also included in the minimum lease payments paid
              in respect of rental premises under note 8 above.


                                                                          - 25 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

9.   DIRECTORS' REMUNERATION AND HIGHEST PAID EMPLOYEES - continued

     Details of emoluments paid by the Company to the five highest paid
     individuals (including directors, details of whose emoluments are set out
     above) are as follows:

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
     <S>                                                       <C>                   <C>                   <C>
                                                                  HK$'000               HK$'000               HK$'000

     Salaries and other benefits                                   10,003                 5,927                 8,479
     Retirement benefit scheme contributions                          179                   485                   601
                                                                   ------                ------                ------
                                                                   10,182                 6,412                 9,080
                                                                   ======                ======                ======
</TABLE>

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
     <S>                                                        <C>                   <C>                   <C>
     Emoluments of the five highest paid individuals were
       within the following bands:

     Nil - HK$1,000,000                                              -                     3                     2
     HK$1,000,001 - HK$1,500,000                                     2                     -                     1
     HK$1,500,001 - HK$2,000,000                                     1                     1                     -
     HK$2,000,001 - HK$2,500,000                                     -                     1                     -
     HK$2,500,001 - HK$3,000,000                                     2                     -                     1
     HK$3,500,001 - HK$4,000,000                                     -                     -                     1
                                                                   ===                   ===                   ===

     Number of directors                                             2                     2                     3
     Number of employees                                             3                     3                     2
                                                                   ---                   ---                   ---
                                                                     5                     5                     5
                                                                   ===                   ===                   ===
</TABLE>


10.  FINANCE COSTS

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000

     <S>                                                           <C>                   <C>                   <C>
     Finance lease charges                                            133                 2,459                   850
     Interest on borrowings wholly repayable
       within five years                                           39,997                17,504                 7,847
     Interest on convertible notes                                  3,760                 5,082                 4,011
     Interest on promissory note                                    9,821                     -                     -
                                                                   ------                ------                ------
     Total finance costs                                           53,711                25,045                12,708
                                                                   ======                ======                ======
</TABLE>


                                                                          - 26 -


<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

11.  DISCONTINUED OPERATION

     On 25 October 2003, the Company entered into a sale and purchase agreement
     to dispose of its then subsidiary, Trans-Island Limousine Service Limited
     and its subsidiaries ("Trans-Island Group") which carried out all of the
     Company's transportation services. The disposal was completed on 31 October
     2003, when the control of Trans-Island Group was passed to the purchaser.

     The results of the transportation services for the period from 1 January
     2003 to 31 October 2003, which have been included in the consolidated
     financial statements, were as follows:

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000

     <S>                                                           <C>                   <C>                    <C>
     Turnover                                                           -                124,329               137,726
     Direct operating costs                                             -                (99,712)             (123,684)
     Other operating income                                             -                  1,403                 3,113
     Administrative expenses                                            -                (45,687)              (24,744)
     Finance costs                                                      -                 (2,337)               (1,655)
                                                                   ------                -------               -------
     Loss before taxation                                               -                (22,004)               (9,244)
     Taxation credit                                                    -                  1,718                   460
                                                                   ------                -------               -------
     Net loss for the year/period                                       -                (20,286)               (8,784)
                                                                   ======                =======               =======
</TABLE>


     During the year ended 31 December 2003, Trans-Island Group contributed
     HK$26,547,000 (1.4.2002 to 31.12.2002: HK$16,288,000) to the Company's net
     operating cash flows, HK$11,644,000 (1.4.2002 to 31.12.2002: HK$778,000) in
     respect of investing activities, and HK$11,205,000 (1.4.2002 to 31.12.2002:
     HK$13,938,000) in respect of financing activities.

     The carrying amounts of assets and liabilities of Trans-Island Group at the
     date of disposal are disclosed in note 43.

     A loss of HK$32,697,000 arose on the disposal of Trans-Island Group, being
     the proceeds of disposal less the carrying amount of the net assets of
     Trans-Island Group and attributable unamortized goodwill.



                                                                          - 27 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

12.  TAXATION CREDIT

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000
     <S>                                                           <C>                   <C>                  <C>
     Taxation in other jurisdictions for current
       year/period                                                      -                     -                    11
     Overprovision in prior years                                      23                     -                    19
     Deferred tax (Note 38)                                             -                 1,718                   460
                                                                   ------                ------                ------
     Taxation attributable to the Company                              23                 1,718                   468
                                                                   ------                ------                ------

     Share of taxation attributable to associates
       Hong Kong                                                        -                     -                  (270)
       Other jurisdictions                                              -                   357                   471
                                                                   ------                ------                ------
                                                                        -                   357                   201
                                                                   ------                ------                ------
     Taxation credit                                                   23                 2,075                   669
                                                                   ======                ======                ======
</TABLE>


     No provision for Hong Kong Profits Tax has been made as the Company either
     has no assessable profit in the year/period or the estimated assessable
     profits were wholly absorbed by tax losses brought forward.

     Taxation for other jurisdictions represents overprovision for taxation in
     prior years. No provision for overseas taxation has been made as the
     Company has no taxable profit during the two years ended 31 December 2004
     and 2003 and the nine-month period ended 31 December 2002 in other
     jurisdictions.

     No charge or credit arose on the loss on discontinuance of the
     transportation services during the year ended 31 December 2003.

     Taxation for the year/period can be reconciled to the profit (loss) before
     taxation per the consolidated income statement as follows:

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000


     <S>                                                           <C>                  <C>                   <C>
     Profit (loss) before taxation                                 37,838               (373,047)             (304,153)
                                                                   ======                =======               =======

     Tax at the domestic income tax rate of 17.5%
       (1.1.2003 to 31.12.2003: 17.5% and
       1.4.2002 to 31.12.2002: 16%)                                (6,622)                65,283                48,664
     Tax effect of share of results of associates                     (34)               (19,495)               (5,133)
     Tax effect of expenses that are not deductible
       in determining taxable profit                                 (887)               (14,614)              (11,866)
     Tax effect of income that is not taxable in
       determining taxable profit                                  13,649                  3,848                 2,415
     Tax effect of tax losses not recognized                       (6,645)               (33,901)              (33,443)
     Tax effect of tax losses utilized but not
       previously recognized                                        3,604                  2,023                   248
     Effect of different tax rates of subsidiaries
       operating in other jurisdictions                            (3,065)                  (314)                 (235)
     Overprovision in prior years                                      23                      -                    19
     Increase in opening deferred tax liability
       resulting from an increase in Hong Kong
       Profits Tax rate                                                 -                   (755)                    -
                                                                   ------                -------               -------
     Taxation credit for the year                                      23                  2,075                   669
                                                                   ======                =======               =======
</TABLE>



                                                                          - 28 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

13.  DIVIDENDS

     No dividends were declared by the Company for the year ended 31 December
     2004 (1.1.2003 to 31.12.2003: HK$nil and 1.4.2002 to 31.12.2002: HK$nil).


14.  EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000
     <S>                                                           <C>                  <C>                   <C>
     Earnings (loss) for the purpose of basic
       earnings (loss) per share                                   35,377               (370,972)             (302,248)
                                                                                         =======               =======
     Interest expenses on convertible notes                         3,102
                                                                   ------
     Earnings for the purpose of diluted earnings
       per share                                                   38,479
                                                                   ======
</TABLE>

<TABLE>
<CAPTION>
                                                                                   Number of shares
                                                                ------------------------------------------------------
                                                                 1.1.2004              1.1.2003              1.4.2002
                                                                    to                    to                    to
                                                                31.12.2004            31.12.2003            31.12.2002
                                                                ----------            ----------            ----------
                                                                                      (Restated)            (Restated)
     <S>                                                         <C>                  <C>                   <C>
     Weighted average number of ordinary shares
       for the purpose of basic earnings (loss)
       per share                                               201,251,437           183,167,328           165,090,000
                                                                                     ===========           ===========
     Effect of dilutive potential ordinary shares
       relating to convertible notes                            97,498,216
                                                               -----------
     Weighted average number of ordinary
       shares for the purpose of diluted earnings
       per share                                               298,749,653
                                                               ===========
</TABLE>


     Notes:

     (a)  The above weighted average number of ordinary shares for the
          calculation of the basic and diluted earnings (loss) per share for the
          years ended 31 December 2004 and 2003 and the nine-month period ended
          31 December 2002 have been adjusted to take into account of the
          consolidation of shares as mentioned under Note 52(c) completed
          subsequent to 31 December 2004.

     (b)  No diluted loss per share has been presented for the year ended 31
          December 2003 and the nine-month period ended 31 December 2002 as the
          conversion of the convertible notes and shares issuable under the
          subscription agreement dated 31 May 2002 to a subscriber would result
          in a decrease in loss per share.


                                                                          - 29 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

14.  EARNINGS (LOSS) PER SHARE - continued

     Notes: - continued

     (c)  A reconciliation of the restatement of loss per share for 2003 and
          2002 to adjust for the consolidation of shares as mentioned under Note
          52(c) subsequent to 31 December 2004 is as follows:

<TABLE>
<CAPTION>
                                                     1.1.2003           1.4.2002
                                                        to                 to
                                                    31.12.2003         31.12.2002
                                                    ----------         ----------
                                                        HK$                HK$

          <S>                                         <C>                <C>
          As originally stated                        (0.0203)           (0.0183)
          Consolidation of shares                     (2.0097)           (1.8117)
                                                      -------            -------
          As restated                                 (2.0300)           (1.8300)
                                                      =======            =======
</TABLE>


15.  PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                                    Office
                            Leasehold               Properties  Furniture                          equipment
                            land and      Hotel       under        and      Leasehold     Motor       and
                            buildings  properties  construction  fixtures  improvements  vehicles  machinery  Vessels     Total
                            ---------  ----------  ------------ ---------  ------------  --------  ---------  -------   ---------
                             HK$'000     HK'000      HK$'000     HK$'000     HK$'000      HK$'000    HK$'000  HK$'000    HK$'000
                                        Note (a)
<S>                           <C>       <C>            <C>         <C>         <C>          <C>       <C>       <C>     <C>
COST OR VALUATION
At 1 January 2004             80,153            -      46,728       3,361       8,592       1,017     15,648    6,467     161,966
Currency realignment               -            -           -         195         118          20        243        -         576
Acquisition of subsidiaries        -    1,604,752           -      54,422      15,907       1,448      6,665        -   1,683,194
Additions                          -            -           -       4,220      12,043         937      1,655        -      18,855
Disposals                    (42,128)           -           -      (7,198)     (5,180)       (443)      (905)       -     (55,854)
                              ------    ---------      ------      ------      ------       -----     ------    -----   ---------
At 31 December 2004           38,025    1,604,752      46,728      55,000      31,480       2,979     23,306    6,467   1,808,737
                              ------    ---------      ------      ------      ------       -----     ------    -----   ---------

Comprising
  At cost                     31,025    1,604,752      46,728      55,000      31,480       2,979     23,306    6,467   1,801,737
  At valuation                 7,000            -           -           -           -           -          -        -       7,000
                              ------    ---------      ------      ------      ------       -----     ------    -----   ---------
                              38,025    1,604,752      46,728      55,000      31,480       2,979     23,306    6,467   1,808,737
                              ------    ---------      ------      ------      ------       -----     ------    -----   ---------

DEPRECIATION, AMORTIZATION
  AND IMPAIRMENT
At 1 January 2004             58,939            -       8,128       2,087       3,943         583     12,598    5,475      91,753
Currency realignment            -               -           -         152          17          16        197        -         382
Provided for the year            299            -           -      17,771       5,464         526      2,697      181      26,938
(Reversal of impairment loss)
  impairment loss recognized
  for the year (Note (c))     (4,511)           -       1,100           -           -           -          -        -      (3,411)
Eliminated on disposals      (33,161)           -           -      (6,501)     (4,793)       (443)      (828)       -     (45,726)
                              ------    ---------      ------      ------      ------       -----     ------    -----   ---------
At 31 December 2004           21,566            -       9,228      13,509       4,631         682     14,664    5,656      69,936
                              ------    ---------      ------      ------      ------       -----     ------    -----   ---------
NET BOOK VALUES
At 31 December 2004           16,459    1,604,752      37,500      41,491      26,849       2,297      8,642      811   1,738,801
                              ======    =========      ======      ======      ======       =====     ======    =====   =========
At 31 December 2003           21,214            -      38,600       1,274       4,649         434      3,050      992      70,213
                              ======    =========      ======      ======      ======       =====     ======    =====   =========
</TABLE>


                                                                          - 30 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

15.  PROPERTY, PLANT AND EQUIPMENT - continued

     An analysis of the properties of the Company held at the balance sheet date
     is as follows:

<TABLE>
<CAPTION>
                                                    Leasehold                   Hotel                  Properties
                                               land and buildings            properties            under construction
                                              --------------------     ---------------------       -------------------
                                               2004         2003          2004         2003         2004         2003
                                              ------        ------     ---------      ------       ------       ------
                                              HK$'000      HK$'000       HK$'000      HK$'000      HK$'000      HK$'000

     <S>                                      <C>           <C>        <C>            <C>          <C>          <C>
     Long leases in Hong Kong                 13,299        10,237       626,165           -            -            -
     Medium term leases in Hong Kong           3,160        10,977             -           -            -            -
     Medium term land use rights in
       the PRC (note b)                            -             -       978,587           -       37,500       38,600
                                              ------        ------     ---------      ------       ------       ------
                                              16,459        21,214     1,604,752           -       37,500       38,600
                                              ======        ======     =========      ======       ======       ======
</TABLE>


     Notes:

     (a)  Included in the hotel properties at the balance sheet date is a hotel
          property with a carrying value of HK$160,837,000 situated in Luoyang,
          the PRC and held under a medium term land use rights. The land use
          rights of the hotel property is currently held by Luoyang Power Supply
          Bureau, a minority shareholder of the subsidiary holding the hotel
          property. Pursuant to a land use rights agreement entered into between
          Luoyang Power Supply Bureau and the subsidiary on 15 April 1999
          (before the Company acquired the said subsidiary in 2004), Luoyang
          Power Supply Bureau agreed to permit the said subsidiary to use the
          land use rights of the hotel property for a term commencing from April
          1999 to April 2049 for hotel use.

     (b)  Included in the hotel properties held under medium term land use
          rights in the PRC of HK$978,587,000 is a hotel property with a
          carrying value of approximately HK$217,487,000 of which the Company
          has been granted the right to operate and manage the hotel in
          Guangzhou, the PRC for a period from January 1987 to January 2017, and
          subject to certain conditions to be fulfilled, the operating period
          may be extended for a further period of 20 years.

     (c)  During the year, the directors reviewed the carrying amounts of its
          property, plant and equipment and identified that the value of
          properties under construction was impaired and the value of certain
          properties has increased. Accordingly, the carrying amounts of
          properties under construction and properties were stated to their
          recoverable amounts, which were determined with reference to the
          independent professional valuation on an open market value as at 31
          December 2004.



                                                                          - 31 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

15.  PROPERTY, PLANT AND EQUIPMENT - continued

     Details of property, plant and equipment which are stated at valuation at
     the balance sheet date are as follows:

<TABLE>
<CAPTION>
                                                                            Leasehold
                                                                       land and buildings
                                                                     ----------------------
                                                                      2004            2003
                                                                     ------          ------
                                                                     HK$'000         HK$'000
     <S>                                                             <C>             <C>
     At valuation
       - 31 July 1997                                                 4,800           4,800
       - 31 March 1998                                                2,200           2,200
                                                                     ------          ------

                                                                      7,000           7,000
     Less: Accumulated depreciation, amortization and
                 impairment                                          (4,628)         (4,588)
                                                                     ------          ------
     Net book value                                                   2,372           2,412
                                                                     ======          ======
</TABLE>


     The valuations at 31 July 1997 and 31 March 1998 represented the carrying
     values (equivalent to their approximately fair value) of the leasehold land
     and buildings at the time when they ceased to be classified as investment
     properties. Had the leasehold properties been carried at their historical
     cost less accumulated depreciation, amortization and impairment loss, the
     carrying value of the leasehold properties would have been stated at
     HK$2,372,000 (2003: HK$2,412,000).

     The net book value of motor vehicles, and office equipment and machinery of
     the Company held under finance leases at 31 December 2004 was HK$1,774,000
     (2003: HK$nil).

     The net book value of motor vehicles of the Company leased to outsiders to
     earn rental income at 31 December 2004 was HK$890,000 (2003: HK$nil).


16.  INVESTMENT PROPERTY

<TABLE>
<CAPTION>
                                                                      2004            2003
                                                                     ------          ------
                                                                     HK$'000         HK$'000

     <S>                                                             <C>             <C>
     At beginning of the year                                         1,400           1,230
     Surplus on revaluation                                           2,000             170
                                                                     ------          ------
     At end of the year                                               3,400           1,400
                                                                     ======          ======
</TABLE>


     The investment property of the Company is freehold and held outside Hong
     Kong.

     The investment property was revalued at 31 December 2004 by a firm of
     independent professional property valuers on an open market value basis at
     HK$3,400,000 (2003: HK$1,400,000). The valuation gave rise to a revaluation
     increase of HK$2,000,000 (2003: HK$170,000), of which HK$nil (2003:
     HK$7,000) and HK$2,000,000 (2003: HK$163,000) has been credited to the
     income statement and the investment property revaluation reserve
     respectively.


                                                                          - 32 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

17.  INTEREST IN ASSOCIATES

<TABLE>
<CAPTION>
                                                                      2004            2003
                                                                     ------          -------
                                                                     HK$'000         HK$'000

     <S>                                                             <C>             <C>
     Share of net assets                                              1,989          253,184
     Impairment loss recognized                                           -          (31,717)
                                                                     ------          -------
                                                                      1,989          221,467
                                                                     ======          =======
</TABLE>


     Particulars of the Company's associates as at 31 December 2004 are as
     follows:

<TABLE>
<CAPTION>
                                                                    Issued and        Proportion of
                                                  Place of           paid up         issued/registered
                                    Form of       incorporation    share capital/      capital held
     Name of associate        business structure  and operation  registered capital   by the Company     Principal activities
     -----------------        ------------------  -------------  ------------------  -----------------   --------------------
                                                                      '000           2004       2003
                                                                                     ----       ----

     <S>                       <C>                 <C>               <C>             <C>         <C>     <C>
     Ananda Travel Service     Limited liability   Australia             A$400        40%        40%     Travel and related
      (Aust.) Pty. Limited      company                                                                   services


     Apex Quality Group        Limited liability   British Virgin    HK$43,276         -        49.6%    Investment holding
      Limited ("Apex")          company             Islands/
                                                     Hong Kong

     Cherry Development        Limited liability   Hong Kong          HK$0.002        50%         -      Inactive
      Limited                   company

     CYTS Wing On Travel       Limited liability   Hong Kong          HK$2,000        50%        50%     In the process of
      Service Company Limited   company                                                                   deregistration


     Heilongjiang Ananda       Sino-foreign        PRC              RMB283,140         -         50%     Operation of a hotel
      Entertainment Company     equity joint                                                              and an entertainment
      Limited                   venture                                                                   resort complex and
      ("Heilongjiang Ananda")                                                                             development of a
                                                                                                          residential and
                                                                                                          commercial complex

     Siu Wah Investments       Limited liability   Hong Kong          HK$0.002        50%         -      Inactive
      Limited                   company

     Wing On International     Sino-foreign        PRC                RMB5,000        49%        49%     Travel and related
      Travel Service Ltd.       equity joint                                                              services
      Guangdong                 venture

     Wing On JAS Nice Wing     Limited liability   Hong Kong          HK$1,000         -         50%     Liquidated
      Limited                   company
</TABLE>


     Other than Ananda Travel Services (Aust.) Pty. Limited whose financial year
     end date ends on 31 March, the financial year end date of all other
     associates end on 31 December. The Company's share of their results and net
     assets under the equity method is based on their financial statements made
     to 31 December 2004.

     In February 2004, a 50% associate of the Company acquired an interest in a
     piece of land in Hong Kong for redevelopment purpose. Subsequently, the
     Company entered into a sale and purchase agreement to dispose of the entire
     interest of the aforesaid associate resulting and recognizing a profit of
     HK$37,430,000.


                                                                          - 33 -

<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

17.  INTEREST IN ASSOCIATES - continued

     Included in the interest in associates at 31 December 2003 was the interest
     in Apex which became a subsidiary of the Company during the year ended 31
     December 2004 and Heilongjiang Ananda which was disposed of during the year
     ended 31 December 2004 at a profit of HK$500,000. Extracts from the
     financial statements prepared in accounting principles generally accepted
     in Hong Kong of Apex for the period from 13 December 2003 (the date Apex
     became an associate of the Company) to 31 December 2003 and Heilongjiang
     Ananda for the year ended 31 December 2003 and the nine-month period ended
     31 December 2002 are as follows:

<TABLE>
<CAPTION>
     Apex                                                             2003
     ----                                                             ----
                                                                     HK$'000
     <S>                                                            <C>
     FINANCIAL POSITION

     Non-current assets                                             1,592,960
                                                                    ---------
     Current assets                                                    84,038
     Current liabilities                                             (143,811)
                                                                    ---------
     Net current liabilities                                          (59,773)
                                                                    ---------

     Total assets less current liabilities                          1,533,187
     Non-current liabilities                                       (1,018,106)
     Minority interests                                               (72,058)
                                                                    ---------
     Net assets                                                       443,023
                                                                    =========

     Share of net assets attributable to the Company                  219,739
                                                                    =========

     RESULTS FOR THE PERIOD

     Turnover                                                           7,857
                                                                    =========
     Net loss for the period                                          (12,985)
                                                                    =========
     Net loss for the period attributable to the Company               (6,441)
                                                                    =========
</TABLE>


                                                                          - 34 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

17.  INTERESTS IN ASSOCIATES - continued

<TABLE>
<CAPTION>
     Heilongjiang Ananda                                                                  2003             2002
     -------------------                                                                --------          -------
                                                                                         HK$'000          HK$'000
     FINANCIAL POSITION

     <S>                                                                                 <C>              <C>
     Non-current assets                                                                  876,215
                                                                                        --------
     Current assets                                                                       32,119
     Current liabilities                                                                (844,900)
                                                                                        --------
     Net current liabilities                                                            (812,781)
                                                                                        --------
     Net assets                                                                           63,434
                                                                                        ========

     Share of net assets attributable to the Company                                      31,717
     Impairment loss recognized                                                          (31,717)
                                                                                         -------
                                                                                               -
                                                                                        ========

     RESULTS FOR THE YEAR/PERIOD

     Turnover                                                                             53,388           56,223
                                                                                         =======          =======

     Net loss for the year/period                                                        (52,722)         (60,430)
                                                                                         =======          =======

     Net loss for the year attributable to the Company                                   (26,361)         (30,215)
                                                                                         =======          =======
</TABLE>


     In addition, included in the Company's share of results of associates for
     2003 was its share of results of Rosedale Hotel Group Limited ("Rosedale").
     The financial statements of Rosedale for the period from 1 January 2003 to
     16 December 2003, the date of completion of disposal of Rosedale, prepared
     in accounting principles generally accepted in Hong Kong, are as follows:

<TABLE>
<CAPTION>
     Rosedale                                                                             2003             2002
     --------                                                                           --------          -------
                                                                                         HK$'000          HK$'000
     <S>                                                                                <C>               <C>
     RESULTS FOR THE PERIOD

     Turnover                                                                            131,303          181,692
                                                                                        ========          =======

     Net loss for the period                                                            (165,871)         (99,810)
                                                                                        ========          =======

     Net loss for the period attributable to the Company                                 (81,774)          (2,447)
                                                                                        ========          =======
</TABLE>


     As Rosedale was disposed of in December 2003, no financial position as at
     31 December 2003 was presented.



                                                                          - 35 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

18.  NEGATIVE GOODWILL ARISING FROM ACQUISITION OF AN ASSOCIATE


<TABLE>
<CAPTION>
                                                                      2004              2003
                                                                      ----              ----
                                                                     HK$'000           HK$'000

<S>                                                                 <C>               <C>
     NEGATIVE GOODWILL

     Balance at beginning of the year                                     -            59,043

     Released on disposal                                                 -           (59,043)
                                                                     ------            ------

     Balance at end of the year                                           -                 -
                                                                     ------            ------

     REALIZATION

     Balance at beginning of the year                                     -               125

     Released to the income statement during the year                     -             1,350

     Released on disposal                                                 -            (1,475)
                                                                     ------            ------

     Balance at end of the year                                           -                 -
                                                                     ------            ------

     CARRYING AMOUNT

     At end of the year                                                   -                 -
                                                                     ======            ======
</TABLE>


     Negative goodwill was recognized to the income statement over 40 years,
     which was determined based on the remaining average useful life of
     identifiable acquired depreciable assets.


19.  OTHER LONG TERM INVESTMENT

     Other long term investment represented the contribution paid to a joint
     venture partner in 2001 for a joint development of a piece of land in
     Chengdu, the PRC, into a tourist attraction. On 11 December 2002, the
     Company entered into an agreement with the joint venture partner to
     withdraw from the project. Under the agreement, the joint venture partner
     would transfer the titles of a total of approximately 3,000 square meters
     of commercial areas and car parking spaces in a commercial building in
     Chengdu, the PRC, to the Company. The transaction was cancelled and the
     contribution paid was refunded during the year ended 31 December 2004.


20.  LONG TERM INVESTMENT DEPOSITS

<TABLE>
<CAPTION>
                                                             2004         2003
                                                             ----         ----
                                                              HK$          HK$

<S>                                                         <C>         <C>
     Deposits for acquisition of investment (Note)               -       60,000

     Disposal                                                    -      (60,000)
                                                            ------       ------

                                                                 -            -
                                                            ======       ======
</TABLE>




                                                                            -36-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


20.  LONG TERM INVESTMENT DEPOSITS - continued


     Note: The amount represented the deposits paid for acquisition of 100%
           interest in a co-operative joint venture which will develop and
           operate a hotel in Guangdong, the PRC. During the year ended 31
           December 2003, the Company entered into an agreement to dispose
           of two-third of its rights to the intended interests in the
           co-operative joint venture for HK$40,000,000 but the completion
           thereof had not yet taken place. After the aforesaid agreement,
           the directors considered it was not viable to carry out the
           investment to avoid further substantial commitments. The Company
           then entered into another agreement with the aforesaid purchaser
           to dispose of the remaining rights and entire commitments of the
           Company in the said co-operative joint venture (which together
           with the aforesaid partial interest disposed of constitute the
           Company's entire interests in the co-operative joint venture in
           the acquisition agreement) to the purchaser at a nominal
           consideration. The loss arising therefrom was disclosed as loss
           on disposal of interest in a co-operative joint venture for the
           year ended 31 December 2003.


21.  INVESTMENTS IN SECURITIES


<TABLE>
<CAPTION>
                                              Investment securities       Other investments               Total
                                              ---------------------      --------------------      --------------------
                                               2004         2003          2004         2003         2004         2003
                                               ----         ----          ----         ----         ----         ----
                                              HK$'000      HK$'000       HK$'000      HK$'000      HK$'000      HK$'000

<S>                                           <C>          <C>           <C>          <C>          <C>          <C>
     Equity securities

     Unlisted shares, at cost                  126,422      126,232           -            -       126,422      126,232

     Listed shares in Hong Kong                      -            -       2,778        2,847         2,778        2,847
                                               -------      -------       -----        -----       -------      -------

                                               126,422      126,232       2,778        2,847       129,200      129,079

     Less: Impairment losses recognized        (32,633)     (26,974)          -            -       (32,633)     (26,974)
                                               -------      -------       -----        -----       -------      -------

                                                93,789       99,258       2,778        2,847        96,567      102,105
                                               =======      =======       =====        =====       =======      =======

     Market value of listed shares                   -            -       2,778        2,847         2,778        2,847
                                               =======      =======       =====        =====       =======      =======

     Carrying amount analyzed for
      reporting purposes as:

     Non-current                                93,789       99,258           -            -        93,789       99,258

     Current                                         -            -       2,778        2,847         2,778        2,847
                                               -------      -------       -----        -----       -------      -------

                                                93,789       99,258       2,778        2,847        96,567      102,105
                                               =======      =======       =====        =====       =======      =======
</TABLE>


     Particulars of the Company's major investment securities as at 31 December
     2004 are as follows:


<TABLE>
<CAPTION>
                                                 Issued             Proportion of
                               Place of        and paid up        issued/registered        Interest
                             incorporation    share capital/        capital held         attributable
     Name of company         and operation  registered capital   by the subsidiaries    to the Company      Principal activities
     ---------------         -------------  ------------------   -------------------    ---------------     --------------------
                                                  '000            2004       2003       2004       2003
                                                                  ----       ----       ----       ----

<S>                          <C>            <C>                  <C>        <C>         <C>        <C>      <C>
     Guilin Osmanthus Hotel       PRC          US$3,489          49.5%      49.5%       49.5%      49.5%      Operation of a hotel
                                                                 Note (a)

     Guangxi Guijia Property      PRC          US$8,021            26%        26%       18.2%      18.2%      Property holding and
      Management Company                                         Note (b)                                      operation of leisure
      Limited                                                                                                  services
</TABLE>



                                                                            -37-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

21.  INVESTMENTS IN SECURITIES - continued

     Notes:

     (a)  Though the Company holds a 49.5% interest in Guilin Osmanthus Hotel,
          the directors considered that the Company cannot exercise influence on
          the financial and operating policies of the investee company.
          Accordingly, Guilin Osmanthus Hotel is classified as investment in
          securities. At 31 December 2003, the directors reviewed the carrying
          amounts of investments in securities and considered that it is
          unlikely to recover the interest in Guilin Osmanthus Hotel and the
          present value of the estimated future cash flows expected to arise
          from the investment is minimal. Accordingly, an impairment loss of
          HK$26,974,000 was recognized in the financial statements to write down
          the carrying amount of the investment.

     (b)  Though the Company holds a 26% interest in this investee company, the
          directors considered that the Company cannot exercise significant
          influence on the financial and operating policies of the investee
          company and accordingly, it is classified as an investment in
          securities. At 31 December 2004, the directors reviewed the carrying
          amount of this investment and considered that it is unlikely to
          recover the full amount of the interest in this investment and
          accordingly an impairment loss of HK$5,659,000 was recognized in the
          financial statements to write down the carrying amount of the
          investment to its recoverable amount.


22.  GOODWILL


<TABLE>
<CAPTION>
                                                                      2004            2003
                                                                      ----            ----
                                                                     HK$'000         HK$'000


<S>                                                                  <C>             <C>
     COST

     At beginning of the year                                              -          13,232

     Arising from acquisition during the year (Note 42 (b))           50,215               -

     Eliminated on disposal of a subsidiary                                -         (13,232)
                                                                      ------          ------

     At end of the year                                               50,215               -
                                                                      ------          ------


     AMORTIZATION AND IMPAIRMENT

     At beginning of the year                                              -             165

     Charge for the year                                                   -             496

     Eliminated on disposal of a subsidiary                                -            (661)
                                                                      ------          ------

     At end of the year                                                    -               -
                                                                      ------          ------

     CARRYING AMOUNT

     At end of the year                                               50,215               -
                                                                      ======          ======
</TABLE>


     The amortization period adopted for the goodwill is 20 years.

     No amortization is provided for the goodwill arising during the year as the
     acquisition was completed in December 2004. The directors considered that
     the amount involved was insignificant.



                                                                            -38-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


23.  NEGATIVE GOODWILL

<TABLE>
<CAPTION>
                                                                           2004          2003
                                                                           ----          ----
                                                                          HK$'000       HK$'000

<S>                                                                       <C>           <C>
     GROSS AMOUNT

     Arising on acquisition of Apex during the year (Note 42(a))           74,514            -

     RELEASE TO INCOME

     Released during the year                                              (1,863)           -
                                                                           ------        -----

     CARRYING AMOUNT

     At end of the year                                                    72,651            -
                                                                           ======        =====
</TABLE>


     The negative goodwill arose on the Company's acquisition of Apex in January
     2004. The negative goodwill is released to income on a straight line basis
     of 40 years, the remaining weighted average useful life of the depreciable
     assets acquired.


24.  INVESTMENT DEPOSITS

<TABLE>
<CAPTION>
                                                                               2004          2003
                                                                               ----          ----
                                                                              HK$'000       HK$'000

<S>                                                                           <C>           <C>
     Deposits for the acquisition of 100% interests in companies
       holding land use rights in the PRC (Note a)                             150,000            -

     Deposits for the acquisition of a hotel booking business (Note b)          50,945            -

     Deposits for the acquisition of interest in a hotel (Note c)               20,750            -
                                                                               -------       ------

                                                                               221,695            -
                                                                               =======       ======
</TABLE>


     Notes:

     (a)  The amount represents deposits paid for the acquisition of 100% equity
          interests in certain companies holding land use rights in the PRC for
          various development projects, with the objective of developing hotel,
          shopping malls, recreational and other tourists related amenities
          respectively. The aggregate consideration for the purchase will amount
          to HK$180,000,000. The transactions have not been completed as at the
          date of this report.

     (b)  The amount represents the deposits paid for the acquisition of 51%
          interest in an enterprise established in the PRC engaging in full
          scale on-line and off-line hotel booking services for a consideration
          of approximately HK$51,500,000. The transaction has not been completed
          as at the date of this report.

     (c)  The amount represents the deposits paid for the acquisition of
          approximately 34.24% attributable interest in a hotel in Macau
          ("Kingsway Hotel") for a total consideration to be paid of
          HK$157,504,000 in accordance with the acquisition agreement dated 20
          November 2004. Details of the acquisition are set out in the Company's
          circular dated 16 December 2004. As mentioned in notes 52(d), the
          terms of acquisition was subsequently changed and the transaction was
          completed on 17 February 2005.



                                                                            -39-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


25.  INVENTORIES

     The inventories were carried at cost and represent principally food,
     beverages and general stores which are to be utilized in the ordinary
     course of operations.


26.  AMOUNTS DUE FROM RELATED COMPANIES

     The balances represent the aggregate amounts due from related parties.
     Certain directors of the Company are also directors of and/or have
     beneficial interests in these companies. The amounts are unsecured and
     interest free. The balances were principally trading balances.

     The aged analysis of amounts due from related companies at the reporting
     dates is as follows:

<TABLE>
<CAPTION>
                                                       2004               2003
                                                       ----               ----
                                                      HK$'000            HK$'000

<S>                                                   <C>                <C>
     0 - 30 days                                          661                  -

     31 - 60 days                                          47                  4

     61 - 90 days                                         462                  -

     Over 90 days                                       5,352              2,924
                                                       ------             ------

                                                        6,522              2,928
                                                       ======             ======
</TABLE>



27.  AMOUNTS DUE FROM (TO) ASSOCIATES

     The amounts due from (to) associates are unsecured, interest free and have
     no fixed terms of repayment.


28.  TRADE AND OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                                            2004             2003
                                                            ----             ----
                                                           HK$'000          HK$'000

<S>                                                        <C>             <C>
     Trade receivables                                      13,538           7,029

     Advance cost to tour operators                        136,996         276,522

     Deposits and prepayments                               93,845          17,080

     Interest receivable                                     3,716           1,384

     Other receivables                                      28,405          48,823
                                                           -------         -------

                                                           276,500         350,838
                                                           =======         =======
</TABLE>




                                                                            -40-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------




28.  TRADE AND OTHER RECEIVABLES - continued

     The aged analysis of the trade receivables at the reporting dates is as
     follows:


<TABLE>
<CAPTION>
                                                                             2004         2003
                                                                             ----         ----
                                                                            HK$'000      HK$'000

<S>                                                                         <C>          <C>
     0 - 30 days                                                              7,446        2,617

     31 - 60 days                                                             2,869        1,573

     61 - 90 days                                                             1,414          815

     Over 90 days                                                             1,809        2,024
                                                                             ------       ------

                                                                             13,538        7,029
                                                                             ======       ======
</TABLE>

     The Company allows an average credit period of 60 days to local customers
     and 90 days to overseas customers.


29.  LOAN RECEIVABLES

<TABLE>
<CAPTION>
                                                                            2004          2003
                                                                            ----          ----
                                                                          HK$'000        HK$'000

<S>                                                                       <C>            <C>
     Loan to certain companies and individuals (Notes a and b)            108,000         31,950

     Loan to land operator (Note c)                                        23,000         23,000
                                                                          -------         ------

                                                                          131,000         54,950
                                                                          =======         ======
</TABLE>


     Notes:

     (a)  (i)  Included in the amount at 31 December 2004 was HK$40,000,000
               relating to the consideration receivable on disposal of an
               interest in a co-operative joint-venture in 2003 (note 20). The
               purchaser entered into an agreement on 31 December 2004 with the
               Company, under which the Company grants loan facility to the
               extent of HK$40,000,000 to the purchaser. The loan is repayable
               on demand, carries interest at prime rate and is secured on
               equity interest in an enterprise established in the PRC.

          (ii) Included in the balances was approximately HK$5,074,000 (2003:
               HK$nil) due from a related company. Certain directors of the
               Company have beneficial interests in and/or are also directors of
               the related company.

     (b)  The amounts are unsecured, carrying interest at market rates and
          repayable within one year.

     (c)  The loan to land operator represents an advance made to one of the
          Company's land operators for the designated purpose of purchase of
          coaches. The amount is secured, bears interest at 10% per annum on the
          principal amount over a period of thirty months and should be
          repayable by thirty equal monthly instalments commencing August 2000.
          Pursuant to the subsequent supplemental agreements thereafter, the
          repayment date of the loan was extended to 31 December 2005.


                                                                            -41-
<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


30.  TRADING CASH BALANCES

     The amounts represent foreign currencies held for money exchange purposes.


31.  TRADE AND OTHER PAYABLES

<TABLE>
<CAPTION>
                                                                        2004             2003
                                                                        ----             ----
                                                                       HK$'000          HK$'000

<S>                                                                    <C>              <C>
     Trade payables                                                    113,844           77,121

     Amounts payable for acquisition of investments                          -           43,000

     Accrued liabilities                                                63,632           40,160

     Other payables                                                     27,453           20,497

     Receipt in advance                                                 29,512           58,413
                                                                       -------          -------

                                                                       234,441          239,191
                                                                       =======          =======
</TABLE>


     The aged analysis of the trade payables at the reporting dates is as
     follows:

<TABLE>
<CAPTION>
                                                                         2004            2003
                                                                         ----            ----
                                                                        HK$'000         HK$'000

<S>                                                                     <C>             <C>
     0 - 30 days                                                         60,876          44,715

     31 - 60 days                                                        22,542          15,687

     61 - 90 days                                                        16,316           9,593

     Over 90 days                                                        14,110           7,126
                                                                         ------          ------

                                                                        113,844          77,121
                                                                        =======          ======
</TABLE>



32.  LOANS FROM RELATED COMPANIES

     Certain directors of the Company are also directors of and/or have
     beneficial interests in those companies. The loans are unsecured, bear
     interest at market rates and with the terms of repayment as follows:

<TABLE>
<CAPTION>
                                                                         2004            2003
                                                                         ----            ----
                                                                        HK$'000         HK$'000

<S>                                                                     <C>            <C>
     Amounts repayable within 1 year                                    260,778           8,000

     Amounts repayable after 1 year but within 2 years                  112,098         223,312
                                                                        -------         -------

                                                                        372,876         231,312
                                                                        =======         =======
</TABLE>



33.  AMOUNTS DUE TO RELATED COMPANIES

     The balances represent principally trading balances including trade
     payables and loan interest payable, which are unsecured, interest free and
     repayable on demand.



                                                                            -42-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

34.  OBLIGATIONS UNDER FINANCE LEASES

<TABLE>
<CAPTION>
                                                                                      Present value
                                                           Minimum                     of minimum
                                                       lease payments                lease payments
                                                     ---------------------       ----------------------
                                                        2004         2003          2004          2003
                                                        ----         ----          ----          ----
                                                      HK$'000      HK$'000       HK$'000        HK$'000

<S>                                                   <C>          <C>           <C>            <C>
     Amounts payable under finance leases:

     Within one year                                      395           -            378             -
     Between one to two years                             106           -             93             -
                                                        -----       -----          -----         -----

                                                          501           -            471             -
     Less: Future finance charges                         (30)          -              -             -
                                                        -----       -----          -----         -----

     Present value of lease obligations                   471           -            471             -
                                                        =====       =====

     Less: Amount due within one year
                 shown under current liabilities                                    (378)            -
                                                                                   -----         -----

     Amount due after one year                                                        93             -
                                                                                   =====         =====
</TABLE>


     The Company entered into finance leases to acquire certain of its property,
     plant and equipment. The terms of the finance leases ranged from 2 to 4
     years and the average effective borrowing rate was 6% (2003: 8.5%) per
     annum. Interest rate was fixed at the contract date. The leases were on a
     fixed repayment basis and no arrangement was entered into for contingent
     rental payments. The Company's obligations under the finance leases were
     secured by the lessors' charge over the leased assets.


35.  BORROWINGS

<TABLE>
<CAPTION>
                                                         2004              2003
                                                         ----              ----
                                                        HK$'000          HK$'000

<S>                                                     <C>              <C>
     Bank loans                                         329,091              921

     Bank overdrafts                                     28,181                -

     Other loans                                            189           33,560
                                                        -------           ------

                                                        357,461           34,481
     Less: Amount due within one year
            shown under current liabilities             (57,066)         (28,230)
                                                        -------           ------

     Amount due after one year                          300,395            6,251
                                                        =======           ======


     Secured                                            327,287              921

     Unsecured (Note)                                    30,174           33,560
                                                        -------           ------

                                                        357,461           34,481
                                                        =======           ======

     Borrowings are repayable as follows:

     Within one year or on demand                        57,066           28,230

     Between one to two years                            30,020            6,251

     Between two to five years                          270,375                -
                                                        -------           ------

                                                        357,461           34,481
                                                        =======           ======
</TABLE>


                                                                            -43-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

35.  BORROWINGS - continued

     Note: At 31 December 2003, included in unsecured other loans of the Company
           were HK$15,000,000 which were secured on assets provided by a related
           company (Note 53(g)).

     Interest rates for bank loans and overdraft are generally based on the
     banks' usual lending rates in Hong Kong. Other loans amounting to HK$nil
     (2003: HK$15,000,000) carry a fixed interest rate of 12% per annum and the
     remainder carries interest at prime interest rate per annum.



36.  CONVERTIBLE NOTES

<TABLE>
<CAPTION>
                                                                   2004          2003
                                                                   ----          ----
                                                                  HK$'000       HK$'000

<S>                                                               <C>           <C>
     Convertible notes                                            260,000       254,125

     Less: Conversion into shares                                (205,000)            -
                                                                  -------       -------

                                                                   55,000       254,125
     Less: Amount repayable within one year classified
            under current liabilities                                   -      (254,125)
                                                                  -------       -------

                                                                   55,000             -
                                                                  =======       =======
</TABLE>


     During the year, the Company issued new convertible notes amounting to
     HK$260,000,000 to finance the redemption of the convertible notes amounting
     to HK$254,125,000 issued in 2002 and due in 2004. All the 2002 convertible
     notes were redeemed or cancelled by the replacement of the 2004 convertible
     notes. The new convertible notes carry interest at 2% per annum and are
     repayable on 14 June 2007. The holders of the new convertible notes were
     initially entitled to convert on any business day the convertible notes
     into new shares of the Company at any time from the date of issue of the
     new convertible notes, at an initial conversion price of HK$0.02 per share,
     subject to adjustments.

     During the year, HK$205,000,000 of the 2004 convertible notes were
     converted into 10,250,000,000 new shares in the Company of HK$0.01 each.

     Following the issue of shares in the Company pursuant to the placing and
     subscription agreement dated 4 February 2005 (note 52(b)), the conversion
     price of the convertible notes was adjusted to HK$0.0197 per share in
     accordance with its terms and conditions. On 14 March 2005, the day
     immediately preceding the effective date of the share consolidation as
     mentioned under note 52(c), the conversion price was adjusted to HK$1.97
     per new consolidated share.

     If and whenever the average closing price per share of the Company for 20
     consecutive trading days immediately preceding the first or second
     anniversary of the date of issue of the convertible notes is lower than the
     then prevailing conversion price, such conversion price shall be
     immediately adjusted to such average closing price, provided that such
     average closing price shall not fall below HK$1.50. Upon full conversion of
     the new convertible notes at 31 December 2004 at HK$1.97 per new
     consolidated share, a total of 27,918,781 new consolidated shares in the
     Company of HK$1.00 each would be issued. Should the conversion price be
     HK$1.50 per share as noted above, a total of 36,666,666 new consolidated
     shares in the Company of HK$1.00 each would be issued.



                                                                            -44-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


36.  CONVERTIBLE NOTES - continued

     The conversion price of the convertible notes may be adjusted from
     time to time in accordance with the following relevant provisions:

     (a)  If and whenever the Company will issue (other than in lieu of a cash
          dividend) any shares credited as fully paid by way of capitalization
          of profits or reserves (including any share premium account or capital
          redemption reserve fund),

     (b)  If and whenever the Company will make any capital distribution (except
          where, and to the extent that, the conversion price is adjusted under
          (a) above) to holders (in their capacity as such) of shares (whether
          on a reduction of capital or otherwise) or will grant to such holders
          rights to acquire for cash assets of the Company or any of its
          subsidiaries.

     (c)  If and whenever the Company will offer to holders of shares new shares
          for subscription by way of rights, or will grant to holders of shares
          any options, warrants or other rights to subscribe for or purchase any
          shares.

     (d)  (i)  If and whenever the Company will issue wholly for cash any
               securities which by their terms are convertible into or
               exchangeable for or carry rights of subscription for new shares,
               and the total effective consideration per share initially
               receivable for such securities is less than the greater of either
               the closing price per share at the date of the announcement of
               the terms of issue of such securities or the conversion price in
               effect immediately prior to the date of the announcement of the
               terms of issue of such securities.

          (ii) If and whenever the rights of conversion or exchange or
               subscription attached to any such securities as are mentioned in
               (d) (i) are modified so that the total effective consideration
               per share initially receivable for such securities will be less
               than the greater of either the closing price per share at the
               date of announcement of the proposal to modify such rights of
               conversion or exchange or subscription or the conversion price in
               effect immediately prior to the date of announcement of the
               proposal to modify such rights of conversion or exchange or
               subscription.

     (e)  If and whenever the Company will issue shares for the acquisition of
          assets at a total effective consideration per share which is less than
          the greater of either the closing price per share at the date of the
          announcement of the terms of such issue or the conversion price in
          effect immediately prior to the date of the announcement of the terms
          of such issue.




                                                                            -45-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


37.  PROMISSORY NOTE

     The promissory note was issued during the year ended 31 December 2002 by a
     subsidiary of Apex (note 42(a)) to Hutchison Hotels Holdings
     (International) Limited as partial consideration for the acquisition of the
     entire share capital of, and shareholders' loan to, Makerston Limited
     ("Makerston"), which holds indirectly a 95% interest in a group company
     holding a hotel property in Beijing. The promissory note is interest
     bearing at Hong Kong Inter-Bank Offered Rate plus 2%, repayable on 1
     December 2007 and secured by the entire issued share capital of, and
     shareholders' loan to, Makerston and its subsidiaries holding the aforesaid
     hotel property.


38.  DEFERRED TAXATION

     The following are the major deferred tax liabilities and assets recognized
     and movement thereon during the current and prior accounting periods:


<TABLE>
<CAPTION>
                                           Accelerated
                                               tax           Tax         Hotel
                                          depreciation     losses     properties     Others         Total
                                          ------------     ------     ----------     ------         -----
                                             HK$'000       HK$'000      HK$'000      HK$'000       HK$'000


<S>                                       <C>              <C>        <C>            <C>           <C>
     At 1 January 2003                         13,062      (5,012)            -            -         8,050

     Credit to income for the year               (106)     (2,133)            -         (234)       (2,473)

     Effect of change in tax rate
       - charge (credit) to income
         for the year                           1,225        (470)            -            -           755

     Released on disposal of
       subsidiaries                           (14,181)      7,615             -          234        (6,332)
                                              -------       -----       -------        -----       -------

     At 31 December 2003 and
       1 January 2004                               -           -             -            -             -

     Acquisition of subsidiaries
       (note 42(a))                                 -           -       243,354            -       243,354
                                              -------       -----       -------        -----       -------

     At 31 December 2004                            -           -       243,354            -       243,354
                                              =======       =====       =======        =====       =======
</TABLE>


     For the purpose of the balance sheet presentation, the above deferred tax
     assets and liabilities were offset.

     At 31 December 2004, the Company has unused tax losses of HK$947,791,000
     (2003: HK$555,159,000) available for offset against future profits. No
     deferred tax asset has been recognized in respect of the tax losses due to
     the unpredictability of future profit streams. Pursuant to the relevant
     laws and regulations in the PRC, the unutilized tax losses of approximately
     HK$65,000,000 (2003: HK$nil) can be carried for a period of five years. The
     losses arising from overseas subsidiaries are insignificant, which will
     expire after a specific period of time, other unrecognized tax losses may
     be carried forward indefinitely.



                                                                            -46-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


39.  SHARE CAPITAL


<TABLE>
<CAPTION>
                                                                     Number of shares         Amount
                                                                     ----------------        -------
                                                                                             HK$'000

<S>                                                                  <C>                     <C>
     Shares of HK$0.01 each

     Authorized

       At 1 January 2003, 31 December 2003,
         1 January 2004 and 31 December 2004                           50,000,000,000         500,000
                                                                       ==============         =======

     Issued and fully paid

       At 1 January 2003, 31 December 2003 and
         1 January 2004                                                18,316,732,770         183,167

       Conversion into shares from convertible notes (note 36)         10,250,000,000         102,500

       Issue of shares (note)                                           3,660,000,000          36,600
                                                                       --------------         -------

       At 31 December 2004                                             32,226,732,770         322,267
                                                                       ==============         =======
</TABLE>


     Note: On 30 November 2004, the Company entered into two placing and
          subscription agreements with CEL, a subsidiary of China Strategic
          Holdings Limited ("CSH") and a substantial shareholder of the Company,
          and Deutsche Bank AG, Hong Kong Branch (the "Placing Agent") pursuant
          to which the Placing Agent agreed to place 6,000 million shares of
          HK$0.01 each in the Company then held by CEL at the price of HK$0.028
          per share to independent investors and CEL would subscribe for up to
          6,000 million new shares of HK$0.01 each in the Company at the same
          price of HK$0.028 per share. The first placing and subscription
          agreement and the second placing and subscription agreement related to
          the placing and the conditional subscription of 3,660 million and
          2,340 million shares of HK$0.01 each in the Company respectively. The
          subscription of the shares under the second placing and subscription
          agreement was conditional upon, among others, the approval of the
          independent shareholders of the Company. The total proceeds from the
          above two placing and subscription agreements will be used principally
          towards payments of HK$107.5 million of the consideration for the
          acquisition of interest in Kingsway Hotel and the balance of
          approximately HK$53.1 million will be utilized as general working
          capital of the Company. On 14 December 2004, 3,660 million of shares
          were issued and allotted at the price of HK$0.028 per share in
          accordance with the first placing and subscription agreement and the
          proceeds, net of expense, amounted to approximately HK$98.6 million.
          The new shares issued rank pari passu in all respects with the then
          existing shares. The details of the second placement are set out in
          note 52 to the financial statements.



                                                                            -47-
<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


40.  SHARE OPTION SCHEME

     The Company has a share option scheme (the "Scheme"), which was approved
     and adopted by shareholders of the Company on 3 May 2002, enabling the
     directors to grant options to employees, executives or officers of the
     Company or any of its subsidiaries (including executive and non-executive
     directors of the Company or any of its subsidiaries) and any suppliers,
     consultants, agents or advisers who will contribute or have contributed to
     the Company or any of its subsidiaries as incentives and rewards for their
     contribution to the Company or such subsidiaries. The maximum number of
     shares in respect of which options may be granted under the Scheme, when
     aggregated with any shares subject to any other schemes, shall not exceed
     1,388,131,777 shares of HK$0.01 each in the Company before the
     consolidation of shares, representing 10% of the issued share capital of
     the Company on the date of approval and adoption of the Scheme.

     Options granted must be accepted and paid for within 30 days of the date of
     offer. The consideration payable for the option is HK$1. Options may be
     exercised at any time from the date of acceptance of the share option to
     such date as determined by the board of directors but in any event not
     exceeding 10 years. The exercise price is determined by the directors of
     the Company and will not be less than the higher of (i) the average closing
     price of the shares for the five business days immediately preceding the
     date of grant, (ii) the closing price of the shares on the date of grant or
     (iii) the nominal value of the shares of the Company.

     No share options have been granted under the Scheme since its adoption.


41.  RESERVES

<TABLE>
<CAPTION>
                                                             Investment
                                                              property
                                          Share     Special  revaluation  Translation  Goodwill Statutory  Accumulated
                                         premium    reserve    reserve      reserve    reserve  reserves     losses     Total
                                         -------    -------    -------      -------    -------  --------     ------     -----
                                         HK$'000    HK$'000    HK$'000      HK$'000    HK$'000   HK$'000    HK$'000    HK$'000

<S>                                    <C>          <C>       <C>         <C>         <C>        <C>      <C>         <C>
     At 1 April 2002                    795,296     55,554        573        (262)    (9,767)     150     (292,348)   549,196

     Premium on issue of shares,
      net of expenses
      of HK$2,915,000                   228,349          -          -           -          -        -            -    228,349

     Premium utilized on repurchase
      of shares                          (4,039)         -          -           -          -        -            -     (4,039)

     Exchange difference arising on
       translation of financial
       statements of operations
       outside Hong Kong                      -          -          -        (322)         -        -            -       (322)

     Share of reserve of an associate         -          -          -         (65)         -        -            -        (65)

     Reserve released on disposal of
      subsidiaries                            -          -          -          68          -        -            -         68

     Reserve released on deemed
      disposal of a subsidiary                -          -          -         470          -        -            -        470

     Net loss for the period                  -          -          -           -          -        -     (302,248)  (302,248)
                                      ---------     ------      -----      ------     ------    -----      -------    -------

     At 31 December 2002 and
      1 January 2003                  1,019,606     55,554        573        (111)    (9,767)     150     (594,596)   471,409

     Exchange difference arising
      on translation of financial
      statements of operations
      outside Hong Kong                       -          -          -        (286)         -        -            -       (286)

     Surplus arising from revaluation
      of investment property                  -          -        163           -          -        -            -        163

     Share of reserve of an associate         -          -          -          73          -        -            -         73

     Transfer to investments in
      securities on reclassification
      of investments                          -          -          -           -      9,767        -            -      9,767

     Net loss for the year                    -          -          -           -          -        -     (370,972)  (370,972)
                                      ---------     ------      -----      ------     ------    -----      -------    -------

     At 31 December 2003 and
      1 January 2004                  1,019,606     55,554        736        (324)         -      150     (965,568)   110,154

     Exchange difference arising on
      translation of financial
      statements of operations
      outside Hong Kong                       -          -          -        (757)         -        -            -       (757)

     Conversion into shares from
      convertible notes                 102,500          -          -           -          -        -            -    102,500

     Issue of shares                     65,880          -          -           -          -        -            -     65,880

     Share issue expenses                (3,832)         -          -           -          -        -            -     (3,832)

     Surplus arising from revaluation
      of investment property                  -          -      2,000           -          -        -            -      2,000

     Realization on liquidation of a
      subsidiary                              -          -          -        (847)         -        -            -       (847)

     Net profit for the year                  -          -          -           -          -        -       35,377     35,377
                                      ---------     ------      -----      ------     ------    -----      -------    -------

     At 31 December 2004              1,184,154     55,554      2,736      (1,928)         -      150     (930,191)   310,475
                                      =========     ======      =====      ======     ======    =====      =======    =======
</TABLE>




                                                                            -48-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

41.  RESERVES - continued

     The special reserve represents the difference between the nominal value of
     the shares of the acquired subsidiaries and the nominal value of the shares
     of the Company issued for the acquisition under the Company reorganization
     in September 1997.

     The accumulated losses, translation reserve and statutory reserves of the
     Company include losses of HK$1,739,000 (2003: HK$246,293,000), surplus of
     HK$73,000 (2003: HK$73,000) and HK$150,000 (2003: HK$150,000) respectively
     attributable to the associates of the Company.

     In the opinion of the directors, the reserves of the Company which were
     available for distribution to shareholders at 31 December 2004 were nil
     (2003: nil).


42.  ACQUISITION OF SUBSIDIARIES

     (a)  During the year, the Company acquired through a cash offer further
          interest in its former associate, Apex. On 9 January 2004, Apex became
          a subsidiary of the Company. The effect of the acquisition is
          summarized as follows:

<TABLE>
<CAPTION>
                                                                       2004
                                                                       ----
                                                                      HK$'000

<S>                                                                  <C>
          Property, plant and equipment                              1,683,105

          Club debenture                                                   713

          Investments in securities                                        212

          Properties held for sale                                          98

          Inventories                                                    5,394

          Trade and other receivables                                   65,423

          Bank balances and cash                                        22,258

          Trade and other payables                                    (104,544)

          Amount due to the Company                                     (9,425)

          Obligations under a finance lease                             (1,467)

          Bank and other borrowings                                   (378,829)

          Amounts due to related companies                             (81,654)

          Promissory note                                             (365,000)

          Deferred taxation                                           (243,354)

          Minority interests                                          (279,909)
                                                                     ---------

          Net assets acquired                                          313,021

          Less: Interest previously acquired and classified
                 as interest in an associate                          (218,360)
                                                                     ---------

                                                                        94,661

          Negative goodwill arising on acquisition                     (74,514)
                                                                     ---------

          Cash consideration                                            20,147
                                                                     =========

          Net cash inflow arising on acquisition:

            Cash consideration                                         (20,147)

            Bank balances and cash acquired                             22,258
                                                                     ---------

                                                                         2,111
                                                                     =========
</TABLE>


           Apex contributed HK$190,034,000 to the Company's turnover and
           HK$5,927,000 to the Company's profit before taxation for the
           current year.



                                                                            -49-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


42.  ACQUISITION OF SUBSIDIARIES - continued

     (b)  In December 2004, the Company acquired 100% of the issued share
          capital of International Travel Systems Inc. The effect of the
          acquisition is summarized as follows:

<TABLE>
<CAPTION>
                                                                    2004
                                                                    ----
                                                                   HK$'000

<S>                                                                <C>
          Net assets acquired:

          Property, plant and equipment                                 89

          Trade and other receivables                                1,000

          Bank balances and cash                                       502

          Trade and other payables                                  (1,806)
                                                                    ------

          Net liabilities acquired                                    (215)

          Goodwill arising on acquisition                           50,215
                                                                    ------

          Cash consideration                                        50,000
                                                                    ======

          Net cash outflow arising on acquisition:

            Cash consideration                                     (50,000)

            Bank balances and cash acquired                            502
                                                                    ------

                                                                   (49,498)
                                                                    ======
</TABLE>


          The subsidiary acquired during the year ended 31 December 2004
          contributed an insignificant amount to the Company's turnover and
          profit before taxation for the current year.

     (c)  On 24 September 2003, the Company acquired 100% of the issued share
          capital of Sinomatrix Limited by assets swap mentioned under note
          45(d). Sinomatrix Limited, in turn, holds 70% interest in Silver Bay
          Commodities Limited. The aggregate assets and liabilities are as
          follows:

<TABLE>
<CAPTION>
                                                                        2003
                                                                        ----
                                                                       HK$'000

<S>                                                                   <C>
          Net assets acquired:

          Investments in securities                                    99,258
          Minority interests                                          (29,778)
                                                                       ------

          Net assets acquired                                          69,480
                                                                       ======
</TABLE>


          The subsidiaries acquired during the year ended 31 December 2003
          contributed an insignificant amount to the Company's turnover and loss
          from operations.

     These acquisitions have been accounted for by the acquisition method of
     accounting.



                                                                            -50-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


43.  DISPOSAL OF DISCONTINUED OPERATION

     On 31 October 2003, the Company disposed of its subsidiary which carried
     out the segment of transportation services. The net assets of Trans-Island
     Group at the date of disposal and at 31 December 2002 were as follows:

<TABLE>
<CAPTION>
                                                                  2003           2002
                                                                  ----           ----
                                                                 HK$'000       HK$'000

<S>                                                              <C>           <C>
     Net assets disposed of:

     Property, plant and equipment                                92,977        101,132

     Inventories                                                      56             57

     Amounts due from group companies                              8,775         17,698

     Trade and other receivables                                  24,779         30,910

     Tax recoverable                                                   -            727

     Bank balances and cash                                        3,356          4,654

     Trade and other payables                                    (39,476)       (26,524)

     Tax payable                                                     (61)           (61)

     Bank borrowings                                             (15,152)       (27,400)

     Obligations under finance leases                            (18,529)       (22,486)

     Deferred taxation                                            (6,332)        (8,050)
                                                                  ------         ------

                                                                  50,393         70,657

     Unamortized goodwill                                         12,571         13,067
                                                                  ------         ------

                                                                  62,964         83,724
                                                                                 ======

     Cash consideration                                          (36,131)
                                                                  ------

                                                                  26,833

     Commission and related expenses                               5,864
                                                                  ------

     Loss on disposal of discontinued operation                   32,697
                                                                  ======

     Net cash inflow arising from disposal:

       Cash consideration                                         36,131

       Less:  Bank balances and cash disposed of                  (3,356)

              Commission and related expenses                     (5,864)
                                                                  ------

                                                                  26,911
                                                                  ======
</TABLE>


     The subsidiaries disposed of during the year ended 31 December 2003
     contributed HK$124,329,000 to the Company's turnover and HK$22,004,000 to
     the Company's loss before taxation for that year.




                                                                            -51-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


44.  DEEMED DISPOSAL/DISPOSAL OF SUBSIDIARIES

     During the period from 1 April 2002 to 31 December 2002, several
     subsidiaries of the Company were deemed disposed/disposed of. The aggregate
     assets and liabilities of these subsidiaries at their respective dates of
     disposal were as follows:

<TABLE>
<CAPTION>

                                                                                           2002
                                                                                           ----
                                                                                          HK$'000

<S>                                                                                       <C>
     Net assets disposed of:

     Property, plant and equipment                                                            517

     Trade and other receivables                                                            7,659

     Amounts due from related companies                                                        56

     Tax recoverable                                                                           47

     Bank balances and cash                                                                 1,448

     Trade and other payables                                                              (5,733)

     Tax payable                                                                             (346)

     Amounts due to related companies                                                         (15)

     Obligations under finance leases                                                         (56)

     Bank borrowings                                                                         (792)

     Deferred taxation                                                                        (15)
                                                                                           ------

                                                                                            2,770
     Retained as investments in associates/ investments in securities
       by the Company                                                                      (1,596)

     Reserves released on disposal of subsidiaries                                            538
                                                                                           ------

                                                                                            1,712

     Loss on deemed disposal/disposal of subsidiaries                                      (1,712)
                                                                                           ------

     Consideration                                                                              -
                                                                                           ======

     Satisfied by:

     Cash consideration                                                                         -
                                                                                           ------

                                                                                                -
                                                                                           ======

     Analysis of net cash outflow of cash and cash equivalents in connection
      with the deemed disposal/disposal of subsidiaries:

     Cash consideration                                                                         -

     Bank balances and cash disposed of                                                    (1,448)
                                                                                           ------

                                                                                           (1,448)
                                                                                           ======
</TABLE>


     The subsidiaries disposed of during the period from 1 April 2002 to 31
     December 2002 did not have any significant impact on the turnover,
     operating results and cash flows of the Company.



                                                                            -52-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

45.  MAJOR NON-CASH TRANSACTIONS

     (a)  During the year, the Company issued convertible notes to finance the
          redemption of the convertible notes issued in 2002 and due in 2004.
          The total consideration of 2004 convertible notes of HK$260,000,000
          was partly settled by the cancellation of 2002 convertible notes of
          HK$189,800,000.

     (b)  During the year, the consideration receivable on disposal of interest
          in a co-operative joint venture in 2003 of HK$40,000,000, which was
          yet to be received as at 31 December 2003, was transferred to loan
          receivable (note 29a(i)).

     (c)  During the year, the Company entered into finance lease arrangements
          in respect of assets with a total capital value of HK$186,000
          (1.1.2003 to 31.12.2003: HK$nil and 1.4.2002 to 31.12.2002:
          HK$12,155,000) at the inception of the finance leases.

     (d)  During the year ended 31 December 2003, the Company disposed of the
          amount receivable from the property purchaser together with interests
          in other investments amounting to HK$77,200,000 and HK$22,913,000
          (including HK$287,000 receivable from the investee companies)
          respectively to exchange for a 70% interest in an investment company
          which holds a 26% interest in a PRC joint venture engaged in property
          holding and operation of leisure services. The acquired investee
          company is classified as investment securities at a fair value of
          HK$99,258,000 at the date of completion of the transaction.

     (e)  During the year ended 31 December 2003, the Company disposed of its
          interests in Rosedale for a consideration of HK$88,000,000 of which
          HK$68,000,000 was due for payment after 31 December 2003.

     (f)  During the nine-month period ended 31 December 2002, the Company
          disposed of its interest in an investment holding company which holds
          a right to acquire a 60% interest in Luogang Golden Golf Hotel Co.
          Limited to Rosedale for a consideration of HK$110,000,000 satisfied by
          366,666,666 new shares of Rosedale. Accordingly, the Company's
          investment in associates amounting to HK$110,000,000 were transferred
          from long term investment deposits which comprised of HK$24,400,000
          brought forward, an amount of HK39,400,000 paid during the period and
          the balance of HK$46,200,000 unpaid as at 31 December 2002.

     (g)  During the nine-month period ended 31 December 2002, the Company
          acquired the remaining 25% interest in Trans-Island Group for
          HK$40,000,000. At 31 December 2002, a balance of HK$30,000,000 was
          outstanding.


46.  ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>

                                                2004          2003          2002
                                                ----          ----          ----
                                               HK$'000       HK$'000       HK$'000

<S>                                            <C>           <C>           <C>
     Bank balances and cash                    134,317       111,709       61,510

     Bank overdrafts                           (28,181)            -       (7,717)
                                               -------       -------       ------

                                               106,136       111,709       53,793
                                               =======       =======       ======
</TABLE>




                                                                            -53-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


47.  PLEDGE OF ASSETS

     Save as otherwise disclosed, at 31 December 2004, the Company's credit
     facilities were secured by the Company's assets as follows:

<TABLE>
<CAPTION>
                                                                      2004          2003
                                                                      ----          ----
                                                                     HK$'000       HK$'000

<S>                                                                  <C>           <C>
     Hotel property                                                  641,569             -

     Property interests                                               14,060        19,839

     Bank balances                                                     6,800           390
                                                                     -------        ------

                                                                     662,429        20,229
                                                                     =======        ======
</TABLE>



48.  CONTINGENT LIABILITIES

<TABLE>
<CAPTION>
                                                                       2004         2003
                                                                       ----         ----
                                                                      HK$'000      HK$'000

<S>                                                                   <C>          <C>
     An undertaking to Apex  to indemnify it against any
       potential loss upon the transfer of the land use right
       in relation to the disposal thereof                                  -       37,347

     Guarantee to the holder of the promissory note issued
       by a subsidiary of Apex                                              -      365,000
                                                                       ------      -------

                                                                            -      402,347
                                                                       ======      =======
</TABLE>


     In addition, the Company also had contingent liabilities in respect of
     liabilities arising from claims against Trans-Island Group in connection
     with its businesses before the disposal. The directors consider that the
     final outcomes of those claims will not be material and, accordingly, no
     provision has been made in the financial statements.


49.  OPERATING LEASE COMMITMENTS

     As lessee

     At 31 December 2004, the Company had commitments for future minimum lease
     payments under non-cancellable operating leases which fall due as follows:

<TABLE>
<CAPTION>
                                                                     2004            2003
                                                                     ----            ----
                                                                    HK$'000         HK$'000

<S>                                                                 <C>             <C>
     Land and buildings

     Within one year                                                  9,690          13,752

     In the second to fifth years inclusive                           3,029           7,777
                                                                     ------          ------

                                                                     12,719          21,529
                                                                     ======          ======

     Equipment

     Within one year                                                    358               -

     In the second to fifth years inclusive                           1,254               -
                                                                     ------          ------

                                                                      1,612               -
                                                                     ======          ======
</TABLE>

     Operating lease payments represent rentals payable by the Company for
     certain of its office properties, shops and employees' quarters as well as
     equipment. Leases are negotiated for an average term of two years.



                                                                            -54-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


49.  OPERATING LEASE COMMITMENTS - continued

     As lessor

     Property rental income earned during the year was HK$13,072,000 (1.1.2003
     to 31.12.2003: HK$109,000 and 1.4.2002 to 31.12.2002: HK$82,000).

     At the balance sheet date, the Company had contracted with tenants for the
     following future minimum lease payments for its investment property and
     premises within the hotel properties:

<TABLE>
<CAPTION>

                                                               2004        2003
                                                               ----        ----
                                                              HK$'000    HK$'000

<S>                                                           <C>        <C>
      Within one year                                          11,369          -

      In the second to fifth years inclusive                   33,577          -
                                                               ------      -----

                                                               44,946          -
                                                               ======      =====
</TABLE>


50.  CAPITAL COMMITMENTS

<TABLE>
<CAPTION>
                                                                            2004          2003
                                                                            ----          ----
                                                                           HK$'000       HK$'000

<S>                                                                        <C>           <C>
     Contracted for but not provided in the financial statements
       in respect of investments                                           137,697             -

     Contracted for but not provided in the financial statements
       in respect of acquisition of property, plant and equipment           30,760             -
                                                                           -------         -----

                                                                           168,457             -
                                                                           =======         =====
</TABLE>

51.  PROVIDENT FUND SCHEMES

     The Company has retirement schemes covering a substantial portion of its
     employees in Hong Kong. The principal schemes are defined contribution
     schemes. The assets of these schemes are held separately from those of the
     Company in funds under the control of independent trustees.

     With effect from 1 December 2000, the Company joined a Mandatory Provident
     Fund Scheme ("MPF Scheme") for all its new employees in Hong Kong employed
     therefrom or existing employees wishing to join the MPF Scheme. The MPF
     Scheme is registered with the Mandatory Provident Fund Scheme Authority
     under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF
     Scheme are held separately from those of the Company in funds under the
     control of an independent trustee. Under the rules of the MPF Scheme, the
     employer and its employees are required to make contributions to the MPF
     Scheme at rates specified in the rules. The only obligation of the Company
     in respect of MPF Scheme is to make the required contributions under the
     MPF Scheme.



                                                                            -55-
<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


51.  PROVIDENT FUND SCHEMES - continued

     The employees of the Company's subsidiaries in the PRC are members of the
     state-managed retirement benefit scheme operated by the government of the
     PRC. The subsidiaries are required to contribute certain percentage of
     their payroll costs to the retirement benefit scheme to fund the benefits.
     The only obligation of the Company with respect to the retirement benefit
     scheme is to make the specified contributions.

     The amounts charged to the income statement represent contributions payable
     to schemes and the MPF Scheme by the Company at rates specified in the
     rules of the schemes less forfeiture of HK$277,134 (1.1.2003 to 31.12.2003:
     HK$1,003,589 and 1.4.2002 to 31.12.2002: HK$650,000) arising from employees
     leaving the Company prior to completion of the qualifying service period,
     if any.

     At the balance sheet date, the total amount of forfeited contributions,
     which arose upon employees leaving the retirement benefit schemes and which
     are available to reduce the contributions payable in future years was
     HK$65,025 (2003: HK$98,530).


52.  POST BALANCE SHEET EVENTS

     Subsequent to the balance sheet date, the following events have taken
     place:

     (a)  On 31 January 2005, the Company issued and allotted 2,340 million of
          new shares of HK$0.01 each in the Company at the price of HK$0.028 per
          share under the second placing and subscription agreement as mentioned
          under note 39 after the approval by the independent shareholders at
          the special general meeting on 11 January 2005. The proceeds, net of
          expense, amounted to approximately HK$61.8 million. The new shares
          issued rank pari passu in all respects with the then existing shares.

     (b)  On 4 February 2005, the Company entered into a placing and
          subscription agreement with CEL and Tai Fook Securities Company
          Limited ("Tai Fook") pursuant to which Tai Fook agreed to place up to
          6,400 million shares in the Company then held by CEL at the price of
          HK$0.022 per share to independent investors and CEL would subscribe
          for up to 6,400 million new shares of the Company at the same price of
          HK$0.022 per share. The net proceeds from the placement amounted to
          approximately HK$136.8 million, net of expenses. HK$50 million of the
          net proceeds will be used for financing the refurbishment, renovation
          and upgrading of Kingsway Hotel and the balance of approximately
          HK$86.8 million will be used for future investment opportunities
          relating to existing businesses. The subscription was completed on 18
          February 2005. The new shares issued rank pari passu in all respects
          with the then existing shares.

     (c)  On 4 February 2005, the directors proposed to the shareholders of the
          Company for approval of the consolidation of every one hundred shares
          of HK$0.01 each in the issued and unissued ordinary share capital of
          the Company into one share of HK$1.00 each. The consolidation of
          shares of the Company was approved by the shareholders of the Company
          in the special general meeting on 14 March 2005. The number of issued
          ordinary shares immediately after the consolidation of shares of the
          Company was 409,667,327.




                                                                            -56-
<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------


52.  POST BALANCE SHEET EVENTS - continued

     (d)  On 17 February 2005, the Company entered into a supplemental agreement
          under which the Company acquired the attributable interest in Kingsway
          Hotel from approximately 34.24% (note 24(c)) to 36.26% for a revised
          consideration of HK$166,800,000. The transaction was completed on the
          same date.

     (e)  On 17 May 2005, the directors proposed to the shareholders of the
          Company for approval of the cancellation of share premium account (the
          "Cancellation") pursuant to which the entire amount standing to the
          credit of the share premium account of the Company will be cancelled
          and the credit arising from the Cancellation will be transferred to
          the contributed surplus account of the Company and such credit will be
          partially used to set off against the accumulated losses of the
          Company (the "Set Off"). The Cancellation and the Set Off were
          approved by the shareholders of the Company in the special general
          meeting on 5 July 2005.

          In addition, the directors proposed to increase the authorized share
          capital of the Company from HK$500,000,000 divided into 500,000,000
          shares of HK$1 each to HK$1,500,000,000 divided into 1,500,000,000
          shares of HK$1 each by creation of an additional 1,000,000,000 shares
          of HK$1 each. The increase in the authorized share capital of the
          Company was approved by the shareholders of the Company in the special
          general meeting on 5 July 2005.

     (f)  On 13 July 2005, the Company entered into an agreement with an
          independent third party under which the Company disposed of a 8.13%
          interest in Triumph Up Investments Limited, a subsidiary holding the
          equity interest in Kingsway Hotel, at a consideration of
          HK$22,800,000. The transaction was completed on the same date.




                                                                            -57-
<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

53.  RELATED PARTY TRANSACTIONS

     (a)  During the year/period, the Company had transactions with related
          parties as follows:

<TABLE>
<CAPTION>
                                                                                          1.1.2004     1.1.2003    1.4.2002
                                                                                              to           to         to
          (I)  Nature of transactions               Notes  Name of company               31.12.2004   31.12.2003  31.12.2002
               ----------------------               -----  ---------------               ----------   ----------  ----------
                                                                                           HK$'000      HK$'000     HK$'000

               <S>                                   <C>   <C>                               <C>         <C>         <C>
               Property rental expenses paid and     (i)   Mass Success International
                 payable by the Company                     Limited                           2,268       1,790         288
                                                           Cycle Company Limited and
                                                            Gunnell Properties Limited        2,266       1,630           -
                                                                                             ------      ------      ------
                                                                                              4,534       3,420         288
                                                                                             ======      ======      ======

               Air ticketing and travel service      (ii)  Paul Y. - ITC Construction
                 income received and receivable             Holdings Limited and its
                 by the Company                             subsidiaries                      1,965         486         838
                                                           Hanny Holdings Limited
                                                            and its subsidiaries              1,240         666       1,056
                                                           Cheung Wah Ho Dyestuffs
                                                            Company Limited                     233          17           -
                                                           China Strategic Holdings
                                                            Limited and its subsidiaries        174         213         248
                                                           ITC Corporation Limited
                                                            and its subsidiaries                153         266         460
                                                           PSC Corporation Limited               68         213           -
                                                           Cyber Business Network                 3           -           -
                                                            (Hong Kong) Limited
                                                           Pacific Century Premium
                                                            Developments Limited
                                                            (formerly known as
                                                            Dong Fang Gas Holdings
                                                            Limited) and its subsidiaries         -         318           -
                                                           SMI Corporation Limited
                                                            (formerly known as
                                                            Star East Holdings Limited)
                                                            and its subsidiaries                  -         118         901
                                                           Mobile Media Management
                                                            Limited                               -          27           -
                                                           X-One Management Limited               -          11           -
                                                                                             ------      ------      ------
                                                                                              3,836       2,335       3,503
                                                                                             ======      ======      ======

               Interest on convertible notes         (iii) Million Good Limited               2,177       1,696       1,345
                                                                                             ======      ======      ======

               Loan interest paid and payable        (iv)  Hanny Holdings Limited
                 by the Company                             and its subsidiaries              9,742       1,790       1,298
                                                           Million Good Limited               5,256       1,710           -
                                                           Nation Cheer Investment
                                                            Limited                           2,051         385           -
                                                           China Strategic Holdings
                                                            Limited and its subsidiaries      1,465       2,229         891
                                                                                             ------      ------      ------
                                                                                             18,514       6,114       2,189
                                                                                             ======      ======      ======
               Interest on loan receivables          (v)   Ruili Holdings Limited                76           -           -
                                                                                             ======      ======      ======
               Net income on sales of computer       (vi)  Cyber Business Network
                 program source code                        (Hong Kong) Limited                   -       3,000           -
                                                                                             ======      ======      ======
               Website maintenance services          (vii) Cyber Business Network
                 paid by the Company                        (Hong Kong) Limited               1,200           -           -
                                                                                             ======      ======      ======
</TABLE>



                                                                          - 58 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

53.  RELATED PARTY TRANSACTIONS - continued

     (a)  During the year/period, the Company had transactions with related
          parties as follows: - continued

            Notes:

            (i)   The property rental expenses paid and payable by the Company
                  were transactions determined in accordance with the terms of
                  relevant agreements.

            (ii)  The above companies purchased air tickets and related services
                  from the Company at rates comparable to market rates.

            (iii) The interest on convertible notes was calculated at the rate
                  specified in the convertible notes issued.

            (iv)  The interest paid and payable by the Company for loans from
                  these companies was calculated at rates comparable to market
                  rates.

            (v)   The interest on loan receivables was calculated at rates
                  comparable to market rates.

            (vi)  The above company purchased the computer source code from the
                  Company at a price with reference to the market rate.

            (vii) The above company charged website maintenance service to the
                  Company at comparable market price.

            Certain directors of the Company are also directors of and/or have
            beneficial interests in those companies.

<TABLE>
<CAPTION>
                                                                                          1.1.2004    1.1.2003    1.4.2002
                                                                                             to          to          to
          (II)  Nature of transactions              Notes  Name of company               31.12.2004  31.12.2003  31.12.2002
                ----------------------              -----  ---------------               ----------  ----------  ----------
                                                                                          HK$'000      HK$'000     HK$'000

                <S>                                  <C>   <C>                               <C>         <C>         <C>
                Agency fees paid by the Company      (i)   Ananda Travel Service, Inc.            -          60         111
                                                           HK Ananda Travel (Malaysia)            -           -         484
                                                           Ananda Travel Company
                                                            Limited **                            -           -         321
                                                           Ananda Travel Philippines, Inc.        -           -         103
                                                                                             ------      ------      ------
                                                                                                  -          60       1,019
                                                                                             ======      ======      ======

                Air ticketing and travel services    (ii)  Ananda Travel Service, Inc.            -           7          64
                  income received by the Company           HK Ananda Travel (Malaysia)
                                                            Sdn. Bhd.                             -           -          14
                                                                                             ------      ------      ------
                                                                                                  -           7          78
                                                                                             ======      ======      ======
                Property rental expenses paid by     (iii) Tower Property Limited
                  the Company                                                                     -           -       5,439
                                                                                             ======      ======      ======

                Printing expenses paid by the        (iv)  Ananda Public Relations
                  Company                                   & Advertising Limited                 -           -       1,013
                                                                                             ======      ======      ======
</TABLE>


                **   Being English translation of legal Chinese name as the
                     company does not have any legal English name.




                                                                          - 59 -

<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

53.  RELATED PARTY TRANSACTIONS - continued

     (a)  During the year/period, the Company had transactions with related
          parties as follows: - continued

            Notes:

            (i)   During the year ended 31 December 2003 and the nine-month
                  period ended 31 December 2002, the above company acted as the
                  Company's land operators in the jurisdiction in which it is
                  located. Agency fees were calculated in accordance with the
                  agency agreement entered into between the Company and the
                  above related company on 20 September 1997.

            (ii)  During the year ended 31 December 2003 and the nine-month
                  period ended 31 December 2002, the above company purchased air
                  tickets and other travel related services from the Company at
                  rates comparable to market rates.

            (iii) The Company continued to occupy office premises owned by Tower
                  Property Limited until December 2002. The rentals were
                  calculated on the basis of an amount determined by reference
                  to the floor area of the relevant property, and comparable
                  rent paid for similar properties by tenants occupying such
                  premises.

            (iv)  During the period ended 31 December 2002, Ananda Public
                  Relations & Advertising Limited provided printing services for
                  the Company's promotional materials at prices comparable to
                  market rates.

            The Company paid an annual fee of HK$nil (1.1.2003 to 31.12.2003:
            HK$10 and 1.4.2002 to 31.12.2002: HK$10) to Ananda Holdings Limited
            for a non-exclusive licence to the Company to use the "Ananda"
            trademark.

            The Company accrued no fee (1.4.2002 to 31.12.2002: HK$9,000)
            payable to each of Ananda Development Limited and Ananda Holdings
            Limited for the Company to use the address of certain premises in
            Guangzhou and Hong Kong as the correspondence address of the
            Company's representative office in Guangzhou and the Company's head
            office and principal place of business respectively.

            Mr. Chan Yeuk Wai has controlling interests in the above companies,
            except for Ananda Travel Philippines, Inc., Ananda Travel Service,
            Inc., Ananda Travel Company Limited and HK Ananda Travel (Malaysia)
            Sdn. Bhd., companies in which they have minority interests.

     (b)  During the year, the Company received loans from related companies.
          Details of their relationship and the terms of the loans are set out
          in note 32.

     (c)  The Company maintained current accounts with related companies and
          associates. Their balances as at 31 December 2004 are set out in notes
          26, 27 and 33.

          Certain directors of the Company are also directors of and/or have
          beneficial interests in those companies.


                                                                          - 60 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

53.  RELATED PARTY TRANSACTIONS - continued

     (d)  During the year, the Company made loans to a related company. Details
          of its relationship and the terms of the loan are set out in note
          29a(ii).

     (e)  During the year, the Company issued convertible notes amounting to
          HK$155,000,000 to a related company. Details of the convertible notes
          are set out in note 36. As at the balance sheet date, the related
          company holds the convertible notes amounting to HK$55,000,000.

          Certain directors of the Company are also directors of and/or have
          beneficial interests in that related company.

     (f)  During the year/period, the Company received commission and hotel
          management fee of HK$3,628,000 (1.1.2003 to 31.12.2003: HK$nil and
          1.4.2002 to 31.12.2002: HK$1,075,000) from Heilongjiang Ananda in
          accordance with the hotel management contract entered with
          Heilongjiang Ananda.

     (g)  During the year ended 31 December 2003, a subsidiary of an indirect
          substantial shareholder pledged certain of its investments listed in
          Hong Kong with a lender to secure its loans to the Company. No
          commission or charges were paid to the subsidiary of the indirect
          substantial shareholder by the Company in respect of the security
          provided.

     (h)  During the year ended 31 December 2003, the Company executed a
          guarantee in favour of the holder of the promissory note issued by a
          subsidiary of Apex as security to secure the note to the extent of
          HK$365 million together with interest. No commission or charges were
          received from the Apex Company in respect of the guarantee.

     (i)  During the year ended 31 December 2003, two directors including a
          former executive director of the Company executed personal guarantees
          to a bank and a securities company to secure their loans granted to
          the Company. No commission or charges were paid to the directors by
          the Company in respect of the above guarantees.

     (j)  On 22 July 2002, the Company together with other parties entered into
          a series of agreements with Rosedale. One of them included disposing
          of its interest in an investment company (the "Investment Company")
          holding a right to acquire a 60% interest in Luoyang Golden Gulf Hotel
          Co., Limited whose principal asset is the Golden Gulf Hotel in
          Luoyang, the PRC, for a consideration of HK$110,000,000 which was
          satisfied by 366,666,666 new shares of Rosedale.

          The Company, in relation to the disposal of the interest in the
          Investment Company holding Luoyang Golden Gulf Hotel Co., Limited gave
          an undertaking to Rosedale to indemnify it against any potential loss
          they may suffer as a result of failure to transfer the land use right
          including the payment of any land premium payable for such transfer.
          It is estimated that the land premium for such transfer would be
          approximately RMB39.7 million (equivalent to approximately
          HK$37,347,000).

          In addition to the above 366,666,666 new shares in Rosedale, the
          Company also subscribed for 1,000,000,000 shares in Rosedale at a
          price of HK$0.30 per share amounting in aggregate to a total
          consideration of HK$300,000,000. The transaction was also approved by
          the independent shareholders of the Company at the special general
          meeting held on 28 October 2002.



                                                                          - 61 -

<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

54.  PRINCIPAL SUBSIDIARIES

     Details of the Company's principal subsidiaries as at 31 December 2004 are
     as follows:

<TABLE>
<CAPTION>
                                                                              Proportion of
                                                         Issued and         nominal value of
                                        Place of           paid up        issued share capital/
                                     incorporation/     share capital/     registered capital    Principal activities
     Name of company                  registration    registered capital     held by Company     and place of operation
     ---------------                 -------------    ------------------  ---------------------  ----------------------
                                                                          Directly  Indirectly
                                                                              %         %

     <S>                             <C>               <C>                   <C>       <C>       <C>
     Allied Glory Investment         Hong Kong                   HK$2          -       55.7      Investment holding in Hong Kong
       Limited

     Ananda Travel (Canada)          Canada                  C$15,000          -        100      Travel and related services in
       Limited                                                                                     Canada

     Apex Quality Group              British Virgin      US$5,548,172          -       67.9      Investment holding in Hong Kong
       Limited                         Islands

     Asian Pearl Investments         British Virgin              US$1          -        100      Investment holding in the PRC
       Limited                         Islands

     Benchmark Pacific Limited       British Virgin              US$1          -        100      Investment holding in Hong Kong
                                       Islands

     China-HK International          Hong Kong                   HK$2          -       67.9      Financial services in Hong Kong
       Finance Limited

     Clever Basin Holdings Limited   British Virgin              US$1          -       67.9      Investment holding in Hong Kong
                                       Islands

     Credit Paradise Limited         Hong Kong                   HK$2          -        100      Property investment in Malaysia

     DS Eastin Limited               Hong Kong                  HK$20          -       67.9      Investment holding in Hong Kong

     Golden Sun Limited              Hong Kong                   HK$2          -        100      Investment holding in Hong Kong

     Hey Wealth  Limited             Hong Kong                   HK$2          -       67.9      Property holding in Hong Kong

     HKWOT (BVI) Limited             British Virgin              US$1        100         -       Investment holding in Hong Kong
                                       Islands

     HMH China Investments           Bermuda            CAD$1,152,913          -       55.7      Investment holding in Canada
       Limited

     Hong Kong Wing On Travel        Hong Kong             Ordinary -          -        100      Outbound travel and related
       Service Limited                                 HK$180,000,100                              services in Hong Kong
                                                           Deferred -
                                                       HK$20,000,000*

     Kingsgrove International        Hong Kong                   HK$2          -        100      Property investment in Hong Kong
       Limited

     Lucky Million Investments       British Virgin              US$1          -       67.9      Investment holding in Hong Kong
       Limited                         Islands

     Luoyang Golden Gulf Hotel       PRC #             RMB145,000,000          -       40.8      Hotel ownership and operation in
       Co., Ltd.                                                                                   the PRC

     Makerston Limited               British Virgin              US$1          -       67.9      Investment holding in Hong Kong
                                       Islands

     Many Good Money Exchange        Hong Kong             HK$100,000          -        100      Money exchange services in
       Limited                                                                                     Hong Kong

     Mexmara Holdings Limited        British Virgin              US$1          -        100      Property investment in Hong Kong
                                       Islands
</TABLE>


                                                                          - 62 -

<PAGE>


WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

54.  PRINCIPAL SUBSIDIARIES - continued

<TABLE>
<CAPTION>
                                                                             Proportion of
                                                         Issued and         nominal value of
                                        Place of           paid up        issued share capital/
                                     incorporation/     share capital/     registered capital    Principal activities
     Name of company                  registration    registered capital     held by Company     and place of operation
     ---------------                 -------------    ------------------  ---------------------  ----------------------
                                                                          Directly  Indirectly
                                                                              %         %

     <S>                             <C>               <C>                   <C>       <C>       <C>
     Millennium Target Holdings      British Virgin                US$1        -        100      Investment holding in Hong Kong
       Limited                         Islands

     Ming Hung (Holdings) Limited    Hong Kong         HK$1,591,158,590        -       67.9      Investment holding in Hong Kong

     Multi-Million Assets Limited    British Virgin                US$1        -       55.7      Investment holding in Hong Kong
                                       Islands

     Rosedale Hotel Beijing          PRC #                US$17,200,000        -       64.5      Hotel ownership and operation in
       Co., Ltd                                                                                   the PRC

     Rosedale Hotel Group Limited    British Virgin                US$1        -       67.9      Investment holding in Hong Kong
                                       Islands

     Rosedale Hotel Guangzhou        PRC ##               US$11,500,000        -        55       Hotel operation in the PRC
       Co., Ltd.
       ("Rosedale Guangzhou")

     Rosedale Hotel Management       Hong Kong                     HK$2        -       67.9      Hotel management in Hong Kong
       Limited

     Rosedale Hotel Management       British Virgin                US$1        -       67.9      Hotel management in areas
       International Limited           Islands                                                     other than Hong Kong

     Rosedale Park Limited           Hong Kong                     HK$2        -       67.9      Hotel operation in Hong Kong

     South Africa Express Limited    British Virgin                US$1        -        100      Overseas travel services
                                       Islands

     Success Fund Industrial         Hong Kong                   HK$100        -        100      Property investment in the PRC
       Limited

     Super Grade Investment          British Virgin                US$1        -        100      Property investment in
       Limited                         Islands                                                     Hong Kong

     Watertours of Hong Kong         Hong Kong               Ordinary -        -        100      Watertour services in Hong Kong
       Limited                                             HK$1,500,000
                                                           "B" - HK$100*

     Wing On Holidays (Macau)        Macau                 MOP1,000,000        -        100      Travel and related services in
       Limited                                                                                     Macau
       (Formerly known as
       "Ananda Travel, Limited")

     Wing On Hotel Management        British Virgin                US$4        -        100      Hotel management services in the
       Limited                         Islands                                                     PRC

     Wing On Travel and Tour         Hong Kong             HK$2,000,000        -        100      Inbound travel and related services
       Limited                                                                                     in Hong Kong

     Wing on Travel Finance Limited  Hong Kong                     HK$2        -        100      Money lending in Hong Kong
       (Formerly known as Asian
       Universe Limited)

     Wing On Travel International    British Virgin                US$1      100          -      Investment holding in Hong Kong
       Limited                         Islands

     Wing On Travel (BVI) Limited    British Virgin           US$10,000        -        100      Investment holding in Hong Kong
                                      Islands

     Wing On Travel (U.K.) Limited   United Kingdom    Pound Sterling 2        -        100      Travel and related services in U.K.
       (Formerly known as "Ananda
       Travel (U.K.) Limited")

     Yechain Development Limited     Hong Kong                     HK$2        -        67.9     Property investment in Hong Kong
</TABLE>


     *    The deferred shares and "B" shares are owned by the Company,
          practically carry no rights to dividends or to receive notice of or to
          attend or vote at any general meeting of the respective companies or
          to participate in any distribution in winding up.

     #    The subsidiaries are PRC Sino-foreign equity joint ventures.

     ##   This subsidiary is a PRC Sino-foreign co-operative joint venture.
          Allied Glory Investment Limited ("Allied Glory"), a subsidiary of the
          Company,  is entitled to recoup its total investment (including
          capital and interest) from the after-tax earnings of Rosedale
          Guangzhou before any amount are distributed. Thereafter, the after-tax
          earnings of Rosedale Guangzhou are to be distributed at 80% and 20% to
          Allied Glory and other joint venture partner respectively.

     The above table lists the subsidiaries of the Company which, in the opinion
     of the directors, principally affected the results or assets and
     liabilities of the Company. To give details of other subsidiaries would, in
     the opinion of the directors, result in particulars of excessive length.

     Save as disclosed, no debt securities have been issued by any of the
     subsidiaries during the year.


                                                                          - 63 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

55.  SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
     HONG KONG ("HK GAAP") AND IN THE UNITED STATES ("US GAAP")

     The consolidated financial statements are prepared in accordance with HK
     GAAP, which differ in certain significant respects from US GAAP. The cash
     flow statement used in the primary financial statements complies with
     International Accounting Standards No. 7.

     The significant differences between HK GAAP and US GAAP as they relate to
     the Company are principally attributable to the accounting for the goodwill
     and negative goodwill arising on acquisition, convertible notes with
     beneficial conversion features, valuation of hotel and investment
     properties and reversal of impairment losses.

     Under HK GAAP, the excess of purchase consideration paid over the fair
     value of the net assets acquired before 1 January 2005 is recorded as
     goodwill and is being amortized on a straight line basis over its useful
     economic life. Under US GAAP, intangible assets, including goodwill, with
     indefinite useful lives are not amortized but instead tested for impairment
     at least annually in accordance with the provisions of Statement of
     Financial Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible
     Assets".

     Under HK GAAP, the excess of the fair value of the net assets acquired over
     the purchase consideration paid for the acquisition before 1 January 2005
     is recorded as negative goodwill, which is presented as a deduction from
     the assets of the Company in the consolidated balance sheet. The Company
     releases the negative goodwill to the statement of income on a systematic
     basis over the remaining weighted average useful life of the identifiable
     acquired depreciable/amortizable assets. Under US GAAP, the excess of
     assigned value of identifiable assets over the cost of an acquired company,
     should be allocated on a pro rata basis to the fair values of all acquired
     assets except financial assets other than investments accounted for by the
     equity method, assets to be disposed of by sale, deferred tax assets,
     prepaid assets relating to pension or other postretirement benefit plans,
     and any other current assets.

     Under HKGAAP, prior to the adoption of new Hong Kong Accounting Standards
     on 1 January 2005, the Company does not separately account for
     non-detachable conversion features embedded in convertible notes that are
     in-the-money on the date of issuance (a "beneficial conversion feature").
     Under US GAAP, the embedded beneficial conversion feature should be valued
     separately upon issuance. The discount resulting from allocation of
     proceeds to the beneficial conversion feature should be recognized as
     interest expense over the maturity of the convertible notes. All of the
     unamortized discount remaining at the date of conversion should be
     immediately recognized as interest expense.

     Under HK GAAP, in accordance with the Company's accounting policies,
     revaluation of investment properties is performed annually, instead of
     providing depreciation on the historical cost. The revalued amount becomes
     the deemed cost base of the assets of the Company or its affiliates and no
     depreciation is provided. Under US GAAP, financial statements are required
     to be prepared on a historical cost basis. Accordingly, an adjustment is
     provided so that the investment properties are stated at cost, less
     accumulated depreciation.


                                                                          - 64 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

55.  SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
     HONG KONG ("HK GAAP") AND IN THE UNITED STATES ("US GAAP") - continued

     Under HK GAAP, hotel properties are stated at cost less accumulated
     impairment loss. No depreciation or amortization is provided on the hotel
     properties. Under US GAAP, hotel properties are stated at historical cost
     less accumulated depreciation and impairment loss.

     These differences in accounting for hotel properties and investment
     properties under HK GAAP and US GAAP had a significant impact on the
     Company's equity method affiliate's results of operations or financial
     position for the year ended 31 December 2003. The equity method affiliate
     became a subsidiary of the Company during the year and the adjustments
     attributable to this equity method affiliate were reversed to the negative
     goodwill arising on its acquisition which were then allocated on a pro rata
     basis to the fair values of all acquired assets except financial assets
     other than investments accounted for by the equity method, assets to be
     disposed of by sale, deferred tax assets, prepaid assets relating to
     pension or other post-retirement benefit plans, and any other current
     assets.

     Under HK GAAP, where an impairment loss subsequently reverses, the
     carrying amount of the assets is increased to the revised estimate of its
     recoverable amount, but so that the increased carrying amount does not
     exceed the carrying amount that would have been determined had no
     impairment loss been recognized for the asset in prior years. A reversal of
     an impairment loss is recognized as income immediately, unless the relevant
     asset is carried at a revalued amount, in which case the reversal of the
     impairment loss is treated as a revaluation increase. Under US GAAP, any
     reversal of impairment loss is prohibited, and as such, the effects of such
     reversals are eliminated.

     Under HK GAAP, prior to the adoption of new Hong Kong Financial Reporting
     Standards on 1 January 2005, the Company does not make any  accounting
     entry on grant of share options to its employees and directors. Under US
     GAAP, the Company accounts for its share option scheme under the
     recognition and measurement provisions of Accounting Principles Board
     Opinion No. 25 ("APB No. 25"),"Accounting for Stock Issued to Employees"
     and related interpretations. Accordingly, the amount of compensation
     expense is determined based on the intrinsic value, i.e. the excess, if
     any, of the quoted market price of the shares over the exercise price of
     the options at the date of grant and is amortized over the vesting period
     of the related options. Since no options have been granted under the
     Company's option plans, this difference in accounting under HK GAAP and US
     GAAP has had no impact on the Company's results of operations or financial
     position.


                                                                          - 65 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

55.  SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
     HONG KONG ("HK GAAP") AND IN THE UNITED STATES ("US GAAP") - continued

     The adjustments necessary to present net profit (loss) and shareholders'
     equity in accordance with US GAAP, for the two years ended 31 December 2004
     and 2003 and the nine-month period ended 31 December 2002, respectively,
     are shown in the tables set out below.

<TABLE>
<CAPTION>
                                                                  1.1.2004              1.1.2003              1.4.2002
                                                                     to                    to                    to
                                                                 31.12.2004            31.12.2003            31.12.2002
                                                                 ----------            ----------            ----------
                                                                   HK$'000               HK$'000               HK$'000

     <S>                                                           <C>                  <C>                   <C>
     Net profit (loss) as reported under HK GAAP                    35,377              (370,972)             (302,858)
     US GAAP adjustments:
       Interest expense attributable to amortization
         of the beneficial conversion feature
         embedded in the convertible notes                         (17,939)              (64,828)             (102,233)
       Depreciation of hotel properties                            (38,332)                    -                     -
       Minority interests' share of depreciation
         of hotel properties                                        12,293                     -                     -
       Write-back of reversal of impairment loss in
         respect of leasehold land and buildings                    (4,511)                    -                     -
       Reversal of release of negative goodwill                     (1,863)                    -                     -
       Reversal of amortization of goodwill                              -                   496                   165
       Difference in amortization attributable to the
         excess of fair value of net assets acquired
         over the purchase consideration paid for
         a business acquired                                             -                   568                    49
       Reversal of revaluation surplus of investment
         property                                                        -                    (7)                    -
       Additional loss on disposal of discontinued
         operation                                                       -                  (661)                    -
       Additional loss on disposal of an associate                       -                  (617)                    -
       Net US GAAP adjustments attributable to
         equity method affiliate                                         -                 7,712                     -
                                                                   -------               -------               -------
     Net loss under US GAAP                                        (14,975)             (428,309)             (404,877)
                                                                   =======               =======               =======

     Comprising:
       Continuing operation                                        (14,975)             (408,519)             (396,258)
       Discontinued operation                                            -               (19,790)               (8,619)
                                                                   -------               -------               -------
                                                                   (14,975)             (428,309)             (404,877)
                                                                   =======               =======               =======

<CAPTION>
                                                                      HK$                   HK$                   HK$
                                                                  ---------             ---------             ---------
     <S>                                                           <C>                  <C>                   <C>
     Loss per share under US GAAP - basic and
       diluted
       Continuing operation                                          (0.07)                (2.23)                (2.40)
       Discontinued operation                                            -                 (0.11)                (0.05)
                                                                   -------               -------               -------
                                                                     (0.07)                (2.34)                (2.45)
                                                                   =======               =======               =======
</TABLE>


     In addition, interest income for the year ended 31 December 2004 of
     HK$3,381,000 (1.1.2003 to 31.12. 2003: HK$1,150,000 and 1.4.2002 to
     31.12.2002: HK$10,679,000) classified as a component of other operating
     income for HK GAAP purposes is considered to be non-operating income for US
     GAAP purposes.


                                                                          - 66 -


<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

55.  SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
     HONG KONG ("HK GAAP") AND IN THE UNITED STATES ("US GAAP") - continued

<TABLE>
<CAPTION>
                                                                                           2004                  2003
                                                                                         -------               -------
                                                                                         HK$'000               HK$'000

     <S>                                                                                 <C>                   <C>
     Shareholders' equity as reported under HK GAAP                                      632,742               293,321
     US GAAP adjustments:
       Reversal of revaluation surplus of investment property                             (2,170)                 (170)
       Reversal of net US GAAP adjustments attributable to equity
         method affiliate which became a subsidiary during the year                        7,712                     -
       Reversal of release of negative goodwill                                           (1,863)                    -
       Depreciation of hotel properties                                                  (38,332)                    -
       Minority interests' share of depreciation of hotel properties                      12,293                     -
       Write-back of reversal of impairment loss in respect of
         leasehold land and buildings                                                     (4,511)                    -
       Reversal of amortization of goodwill                                                    -                   661
       Difference in amortization attributable to negative goodwill                            -                   617
       Additional loss on disposal of discontinued operations                                  -                  (661)
       Additional loss on disposal of an associate                                             -                  (617)
       Accounting for beneficial conversion feature present in the
         convertible notes                                                                     -                17,939
       Net US GAAP adjustments attributable to equity method
         affiliate                                                                             -                 7,712
                                                                                         -------               -------
     Shareholders' equity under US GAAP                                                  605,871               318,802
                                                                                         =======               =======
</TABLE>


     Other comprehensive loss

<TABLE>
<CAPTION>
                                                                  1.1.2004              1.1.2003              1.4.2002
                                                                     to                    to                    to
                                                                 31.12.2004            31.12.2003            31.12.2002
                                                                 ----------            ----------            ----------
                                                                  HK$'000               HK$'000               HK$'000

     <S>                                                           <C>                  <C>                   <C>
     US GAAP net loss                                              (14,975)             (428,309)             (404,877)
     Foreign currency translation adjustment                          (757)                 (213)                 (387)
                                                                   -------               -------               -------
     Comprehensive loss                                            (15,732)             (428,522)             (405,264)
                                                                   =======               =======               =======
</TABLE>

<TABLE>
<CAPTION>
                                                                                         2004                  2003
                                                                                        -------               -------
                                                                                        HK$'000               HK$'000

     <S>                                                                               <C>                   <C>
     Total assets

     Total assets under US GAAP                                                        2,563,277             1,114,893
                                                                                       =========             =========

     Total liabilities

     Total liabilities under US GAAP                                                   1,657,528               766,313
                                                                                       =========             =========
</TABLE>

     At 31 December 2003 and 2002, the unamortized balance of the beneficial
     conversion feature present in the convertible notes was included in the
     carrying value of the convertible notes.


                                                                          - 67 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

55.  SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
     HONG KONG ("HK GAAP") AND IN THE UNITED STATES ("US GAAP") - continued

     Valuation allowances
     --------------------

     Roll forward schedule of allowances for doubtful assets (all related to
     continuing operations)

     For the year ended 31 December 2004
     -----------------------------------

<TABLE>
<CAPTION>
                                                                          Charged to
                                                                           costs and
                                                          1.1.2004         expenses         Write-off        31.12.2004
                                                          --------        ----------        ---------        ----------
                                                           HK$'000          HK$'000          HK$'000           HK$'000

     <S>                                                   <C>              <C>               <C>              <C>
     Allowance for doubtful debts                           32,690           1,262                 -            33,952
     Allowance for advances to service
       suppliers                                           209,385              -                  -            209,385
     Allowance for short term investment
       deposit                                              23,000              -                  -             23,000
                                                           =======          ======            ======           =======
</TABLE>


     For the year ended 31 December 2003
     -----------------------------------

<TABLE>
<CAPTION>
                                                                          Charged to
                                                                           costs and
                                                          1.1.2003         expenses         Write-off        31.12.2003
                                                          --------        ----------        ---------        ----------
                                                           HK$'000          HK$'000          HK$'000           HK$'000

     <S>                                                   <C>              <C>               <C>              <C>
     Allowance for doubtful debts                           32,690               -                 -            32,690
     Allowance for advances to service
       suppliers                                           209,385               -                 -           209,385
     Allowance for short term investment
       deposit                                              23,000               -                 -            23,000
                                                           =======          ======            ======           =======
</TABLE>


     For the nine-month period ended 31 December 2002
     ------------------------------------------------

<TABLE>
<CAPTION>
                                                                          Charged to
                                                                           costs and
                                                          1.4.2002         expenses         Write-off        31.12.2002
                                                          --------        ----------        ---------        ----------
                                                           HK$'000          HK$'000          HK$'000           HK$'000

     <S>                                                   <C>              <C>               <C>              <C>
     Allowance for doubtful debts                            9,877          22,813                 -            32,690
     Allowance for advances to service
       suppliers                                            47,263         162,122                 -           209,385
     Allowance for short term investment
       deposit                                                   -          23,000                 -            23,000
                                                           =======          ======            ======           =======
</TABLE>


                                                                          - 68 -

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED
---------------------------------

55.  SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN
     HONG KONG ("HK GAAP") AND IN THE UNITED STATES ("US GAAP") - continued

     Recent Accounting Pronouncements Not Yet Adopted
     ------------------------------------------------

     In March 2004, the Emerging Issues Task Force ("EITF") reached a consensus
     on Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and its
     Application to Certain Investments". EITF No. 03-01 provides guidance on
     recording other-than-temporary impairments of cost method investments and
     requires additional disclosures for those investments. The recognition and
     measurement guidance in EITF No. 03-01 should be applied to
     other-than-temporary impairment evaluations in reporting periods beginning
     after 15 June 15 2004. The disclosure requirements are effective for fiscal
     years ending after 15 June 2004 and are required only for annual periods.
     The adoption of this standard did not have a material impact on Company's
     financial positions or results of operations.

     In November 2004, the Financial Accounting Standards Board ("FASB") issued
     SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4.
     "This statement amends the guidance in Accounting Research Board ("ARB")
     No. 43, Chapter 4, "Inventory Pricing" to clarify the accounting for
     abnormal amounts of idle facility expenses, freight, handling costs, and
     wasted material (spoilage). This Statement require that those items be
     recognized as current period charges. In addition, this Statement requires
     that allocation of fixed production overheads to the cost of conversion be
     based on the normal capacity of the production facilities. This Statement
     is effective for inventory costs incurred during fiscal years beginning
     after 15 June 2005. The Company does not expect the adoption of this
     Statement will have a material effect on the Company's financial position,
     cash flows or results of operations.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004) ("SFAS No.
     123-R"). "Share-Based Payment", which is a revision of SFAS No. 123,
     "Accounting for Stock-Based Compensation". SFAS No. 123-R supersedes APB
     No. 25, "Accounting for Stock Issued to Employees". Generally, the approach
     in SFAS No. 123-R is similar to the approach described in SFAS No. 123,
     However, SFAS No. 123-R requires all share-based payments to employees,
     including grants of employee stock options, to be recognized in the income
     statement based on the grant-date fair values. Pro forma disclosure
     previously permitted under SFAS No. 123 is no longer an alternative. The
     new standard, as recently amended, will be effective for the Company in the
     annual reporting period beginning 1 January 2006. Under SFAS No. 123-R, the
     Company may elect the modified prospective or the modified retroactive
     option for transition on the adoption of this new standard. Under the
     modified retroactive option, prior periods are adjusted on a basis
     consistent with the pro forma disclosures previously required for those
     periods by SFAS No. 123. Under the modified prospective option,
     compensation expense for all unvested stock options must be recognized on
     or after the required effective date based on the grant-date fair value of
     those stock options. The Company has not yet quantified the effect of the
     future adoption of SFAS No. 123-R on a going forward basis. Prior to the
     adoption of SFAS No. 123-R, the Company will continue to utilize the
     accounting method prescribed by APB No. 25 and has adopted the disclosure
     requirements of SFAS No. 148 as of 31 December 2003 as allowed by SFAS No.
     123.


                                                                          - 69 -
<PAGE>





                           HANGZHOU ZHONGCE RUBBER CO., LTD.

                           Report of Independent Registered Public
                           Accounting Firm and Consolidated Financial Statements
                           For the years ended December 31, 2002, 2003 and 2004


<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





<TABLE>

HANGZHOU ZHONGCE RUBBER CO., LTD.


<S>                                                                                                      <C>
Report of Independent Registered Public Accounting Firm..................................................F-1


Consolidated Financial Statements:


Consolidated Statements of Income and Comprehensive Income
  for the years ended December 31, 2002, 2003 and 2004...................................................F-2


Consolidated Balance Sheets as of December 31, 2003 and 2004.............................................F-3


Consolidated Statements of Equity for the years
  ended December 31, 2002, 2003 and 2004.................................................................F-5


Consolidated Statements of Cash Flows for the years ended
  December 31, 2002, 2003 and 2004.......................................................................F-6


Notes to Consolidated Financial Statements...............................................................F-8
</TABLE>



<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Hangzhou Zhongce Rubber Co., Ltd.

We have audited the accompanying consolidated balance sheets of Hangzhou Zhongce
Rubber Co., Ltd. and its subsidiary as of December 31, 2003 and 2004 and the
related consolidated statements of income and comprehensive income, equity and
cash flows for each of the three years in the period ended December 31, 2004,
all expressed in Renminbi. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hangzhou Zhongce
Rubber Co., Ltd. and its subsidiary as of December 31, 2003 and 2004, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company and its subsidiary will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the negative
working capital of the Company and its subsidiary of approximately
Rmb807,842,000 as of December 31, 2004 raises substantial doubt about their
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

Our audits also comprehended the translation of Renminbi amounts into United
States Dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2(j). Such United States Dollar amounts
are presented solely for the convenience of the readers.





Deloitte Touche Tohmatsu
Hong Kong
October 26, 2005


                                      F-1

<PAGE>



                        HANGZHOU ZHONGCE RUBBER CO., LTD.

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                    -------------------------------------------------------
                                                                     2002           2003           2004             2004
                                                                     ----           ----           ----             ----
                                                                      RMB            RMB            RMB              US$

<S>                                                                 <C>             <C>            <C>              <C>
REVENUES (Note 14):

  - third parties...........................................        2,533,748       3,717,855      4,960,335        599,075

  - related parties.........................................           76,328          78,353         60,900          7,355
                                                                    ---------       ---------      ---------        -------

Total.......................................................        2,610,076       3,796,208      5,021,235        606,430

COST OF REVENUES............................................       (2,250,785)     (3,416,622)    (4,450,538)      (537,505)
                                                                    ---------       ---------      ---------        -------

Gross profit................................................          359,291         379,586        570,697         68,925

Selling, general and administrative expenses................         (171,756)       (242,100)      (342,123)       (41,319)
                                                                    ---------       ---------      ---------        -------

OPERATING INCOME............................................          187,535         137,486        228,574         27,606

NON-OPERATING INCOME (EXPENSES):

Interest income.............................................            1,491           1,071          1,845            223

Interest expenses...........................................          (40,789)        (44,582)       (82,471)        (9,960)

Other income................................................            2,938           4,333          6,612            798

Equity in earnings of an affiliate..........................            3,592          23,302              -              -
                                                                    ---------       ---------      ---------        -------

INCOME FROM OPERATIONS BEFORE INCOME TAXES
  AND MINORITY INTERESTS....................................          154,767         121,610        154,560         18,667

Provision for income taxes (note 7).........................          (17,697)        (12,764)       (35,676)        (4,309)

Minority interests..........................................           (3,795)         (2,509)        (8,814)        (1,064)
                                                                    ---------       ---------      ---------        -------

NET INCOME AND COMPREHENSIVE INCOME.........................          133,275         106,337        110,070         13,294
                                                                    =========       =========      =========        =======
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-2
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                           CONSOLIDATED BALANCE SHEETS

                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                        AS OF DECEMBER 31,
                                                                         --------------------------------------------------
                                                                             2003                2004                2004
                                                                             ----                ----                ----
                                                                              RMB                 RMB                 US$

<S>                                                                      <C>                   <C>                  <C>
ASSETS

Current assets:

  Cash and cash equivalents.................................                98,900               232,493             28,079

  Restricted cash...........................................                44,684                38,924              4,701

  Accounts receivable, net of allowance for
    doubtful receivables of Rmb58,160 in 2003
    and Rmb57,045 in 2004...................................               478,653               654,091             68,581

  Other receivables.........................................                 4,505                14,497              1,751

  Inventories (note 3)......................................               738,369               924,977            111,712

  Prepaid expenses and other current assets.................                39,600                65,832              7,950

  Due from related companies, net of allowance
    for doubtful receivables of Rmb1,942 in 2003
    and Rmb1,942 in 2004 (note 11)..........................                 8,242                 8,525             11,445

  Short-term deferred tax assets (note 7)...................                17,136                29,003              3,503

  Other tax recoverable.....................................                 2,625                21,395              2,584
                                                                         ---------             ---------            -------

  Total current assets......................................             1,432,714             1,989,737            240,306

Investments in and advances to affiliate (note 4)...........               190,109                     -                  -

Due from Chinese joint venture partners (note 12)...........                 1,200                   873                105

Prepayments for equipment...................................                68,273               120,119             14,507

Property, plant and equipment, net (note 5).................               769,773             1,949,312            235,424

Long-term deferred tax assets (note 7)......................                 3,189                 9,521              1,149

Other assets................................................                 1,085                   441                 53
                                                                         ---------             ---------            -------

  Total assets..............................................             2,466,343             4,070,003            491,544
                                                                         =========             =========            =======
</TABLE>



                                       F-3
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                     CONSOLIDATED BALANCE SHEETS - CONTINUED

                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                           AS OF DECEMBER 31,
                                                                         ---------------------------------------------------
                                                                            2003                  2004                2004
                                                                            ----                  ----                ----
                                                                             RMB                   RMB                 US$
<S>                                                                      <C>                   <C>                  <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

  Short-term bank loans (note 6)............................               917,046             1,577,352            190,501

  Long-term bank loans - current portion (note 6)...........               135,000                64,000              7,729

  Accounts payable..........................................               471,967               693,886             83,803

  Other payables............................................                46,708               260,316             31,440

  Dividend payable..........................................                20,116                  -                  -

  Accrued liabilities.......................................               106,727               152,419             18,408

  Income taxes payable (note 7).............................                 6,007                30,708              3,709

  Loans from related companies (note 11)....................                  -                    5,841               -

  Other tax liability.......................................                  -                   13,057              1,576
                                                                         ---------             ---------            -------

  Total current liabilities.................................             1,703,571             2,797,579            337,166

Long-term bank loans, net of current portion
  (note 6)..................................................                60,000               289,000             34,903

Due to a shareholder........................................                    67                    67                  8

Loans from related companies (note 11)......................                   523                  -                   705
                                                                         ---------             ---------            -------

  Total liabilities.........................................             1,764,161             3,086,646            372,782
                                                                         ---------             ---------            -------

Minority interests..........................................                18,481               189,586             22,896
                                                                         ---------             ---------            -------

Obligations and commitments (note 9)

Shareholders' equity:

  Registered capital........................................               613,603               613,603             74,107

  Additional paid-in capital................................                20,266                20,266              2,448

  Retained earnings.........................................                49,832               159,902             19,311
                                                                         ---------             ---------            -------

  Total shareholders' equity................................               683,701               793,771             95,866
                                                                         ---------             ---------            -------

  Total liabilities and shareholders' equity................             2,466,343             4,070,003            491,544
                                                                         =========             =========            =======
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-4
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                        CONSOLIDATED STATEMENTS OF EQUITY

                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                               ADDITIONAL
                                                             REGISTERED         PAID-IN          RETAINED
                                                               CAPITAL          CAPITAL          EARNINGS            TOTAL
                                                             ----------        ----------       ----------          -------
                                                                RMB               RMB              RMB               RMB

<S>                                                          <C>              <C>               <C>                 <C>
Balance at January 1, 2002...........................           469,749                -            33,294          503,043

Increase of capital..................................                 -           20,266                 -           20,266

Net income...........................................                 -                -           133,275          133,275

Dividends declared...................................                 -                -           (40,000)         (40,000)
                                                                -------          -------           -------          -------

Balance at December 31, 2002.........................           469,749           20,266           126,569          616,584

Increase of registered capital.......................           143,854                -          (143,854)               -

Net income...........................................                 -                -           106,337          106,337

Dividends declared...................................                 -                -           (39,220)         (39,220)
                                                                -------          -------           -------          -------

Balance at December 31, 2003.........................           613,603           20,266            49,832          683,701

Net income...........................................                 -                -           110,070          110,070
                                                                -------          -------           -------          -------

Balance at December 31, 2004.........................           613,603           20,266           159,902          793,771
                                                                =======          =======           =======          =======

Balance at December 31, 2004
  (in US$)...........................................            74,107            2,448            19,311           95,866
                                                                =======          =======           =======          =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------------------------
                                                                       2002           2003           2004            2004
                                                                       ----           ----           ----            ----
                                                                        RMB            RMB            RMB             US$

<S>                                                                   <C>             <C>           <C>             <C>
Cash flows from operating activities:

  Net income..................................................        133,275         106,337        110,070         13,294

  Adjustments to reconcile net income to net cash
    provided by operating activities:

    Minority interests........................................          3,795           2,509          8,814          1,064

    Equity in earnings of an affiliate........................         (3,592)        (23,302)          -              -

    Deferred income taxes.....................................         (6,150)         (6,048)       (18,199)        (2,198)

    Loss (gain) on disposal of property, plant and
      equipment...............................................            955            (945)           (67)            (8)

    Depreciation and amortization.............................         61,024          71,748        180,272         21,772

Changes in operating assets and liabilities (net of effects
 of consolidation of variable interest entity):

    Accounts and other receivables, net.......................        (71,450)        (56,362)      (180,190)       (21,762)

    Inventories...............................................       (124,530)       (141,044)      (182,410)       (22,030)

    Prepaid expenses and other current assets.................        (20,483)         10,543         (5,486)          (663)

    Due (from) to related companies...........................         (2,806)          4,682        (59,833)        (7,226)

    Other tax recoverable.....................................           -             (2,625)       (18,770)        (2,267)

    Other assets..............................................           (283)            239            644             78

    Accounts payable and other payables.......................        118,776          75,617        304,757         36,806

    Accrued liabilities.......................................         38,887          44,947         45,192          5,458

    Income taxes payable......................................         12,437          (7,821)        24,701          2,983

    Other taxes liabilities...................................          7,140         (13,187)          -              -
                                                                      -------         -------        -------        -------

  Net cash provided by operating activities...................        146,995          65,288        209,495         25,301
                                                                      -------         -------        -------        -------
</TABLE>


                                       F-6
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                    --------------------------------------------------------
                                                                       2002           2003           2004            2004
                                                                       ----           ----           ----            ----
                                                                        RMB            RMB            RMB             US$

<S>                                                                  <C>             <C>            <C>             <C>
Cash flows from investing activities:

  Purchase of property, plant and equipment...................       (207,603)       (368,775)      (625,792)       (75,579)

  Decrease (increase) in restricted bank deposits.............         22,118         (18,501)        12,360          1,493

  Investments in and advances to affiliates, net..............        (48,071)        (14,890)             -              -

  Increase (decrease) in amount due to Chinese
    joint venture partners....................................          4,263             (50)           327             40

  Proceeds from disposal of property, plant and
    equipment.................................................         42,053           7,726         15,637          1,888

  Proceeds from disposal of trading securities................            170              50              -              -

  Decrease in due from a shareholder..........................             67               -              -              -

  Consolidation of variable interest entity, net cash
    acquired..................................................              -               -         35,058          4,234
                                                                      -------         -------        -------        -------

Net cash used in investing activities.........................       (187,003)       (394,440)      (562,410)       (67,924)
                                                                      -------         -------        -------        -------

Cash flows from financing activities:

  Net increase in short-term bank loans.......................         75,158         247,658        474,306         57,284

  Proceeds of long-term bank loans............................         60,000         120,000        147,000         17,754

  Payment of dividends to shareholders........................              -         (38,838)       (20,116)        (2,430)

  Repayment of long-term bank loans...........................        (36,000)        (31,600)      (120,000)       (14,493)

  Repayment of loans from a related company...................        (11,806)           (535)          (523)           (63)

  (Decrease) increase in amount due to Chinese joint
    venture partners..........................................         (5,281)         (2,369)         5,841            705

  Increase in amount due to a shareholder.....................             67               -              -              -
                                                                      -------         -------        -------        -------

Net cash provided by financing activities.....................         82,138         294,316        486,508         58,757
                                                                      -------         -------        -------        -------

Net increase (decrease) in cash and cash
  equivalents.................................................         42,130         (34,836)       133,593         16,134

Cash and cash equivalents, beginning of year..................         91,606         133,736         98,900         11,945
                                                                      -------         -------        -------        -------

Cash and cash equivalents, end of year........................        133,736          98,900        232,493         28,079
                                                                      =======         =======        =======        =======


Supplemental disclosures of cash flow information:

  Cash paid during the year for:

    Interest paid - net of amounts capitalized..............           37,488          47,138         82,525          9,967

    Net income tax paid.....................................           10,649          26,634         30,563          3,691
                                                                      =======         =======        =======         ======
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-7
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


1.   ORGANIZATION AND BASIS OF PREPARATION

     Hangzhou Zhongce Rubber Co., Ltd. (the "Company") was incorporated in the
     People's Republic of China (the "PRC") on June 12, 1992. The Company has a
     51.24% equity interest in Hangzhou Fu Chun Jiang Chemical Industrial Co.,
     Ltd. ("FCJ"), a company also incorporated in the PRC for a term of 20 years
     commencing from September 28, 2001. The Company is engaged in the
     manufacture and sale of rubber tires in the PRC. FCJ is engaged in the
     manufacture and trade of tire rubber and carbon powder.

     In 1998, an agreement was entered into by the Company with three other PRC
     enterprises to establish a Sino-foreign equity joint venture, Hangzhou
     Sunrise Rubber Co., Ltd. ("Hangzhou Sunrise") in Hangzhou, the PRC, to
     construct and operate a radial tire factory. The total investment and
     registered capital of this joint venture was US$29,980 (Rmb248,000). The
     equity interest owned by the Company was 49.2% and its investment
     commitment was satisfied by the contribution of its existing radial tire
     project under construction into Hangzhou Sunrise while the other three
     shareholders contributed cash for the remaining 50.8% interest in Hangzhou
     Sunrise. The radial tire factory of Hangzhou Sunrise commenced operations
     in 2000.

     In January 2003, the Financial Accounting Standards Board ("FASB") issued
     Financial Interpretation No. 46 ("FIN 46") which requires certain variable
     interest entities to be consolidated by the primary beneficiary of the
     entity if the ownership interest held by the equity investors in the entity
     does not have characteristics of a controlling financial interest or does
     not have sufficient equity at risk for the entity to finance its activities
     without additional subordinated financial support from other parties. In
     December 2003, the FASB issued FIN 46 (revised) which provides for the
     deferral of the implementation date to the end of the first reporting
     period after March 15, 2004, unless the Company has a special purpose
     entity, in which case the provisions must be applied for fiscal years ended
     December 31, 2003. The Company had early adopted FIN 46 (revised) effective
     January 1, 2004 and has consolidated Hangzhou Sunrise as its variable
     interest entity for the year ended December 31, 2004.

     The Company is the primary beneficiary of Hangzhou Sunrise because (i) the
     Company receives a majority of the expected residual returns of Hangzhou
     Sunrise by virtue of its 49.2% equity interest in Hangzhou Sunrise; and
     (ii) the Company has guaranteed more than majority portion of bank loans of
     Hangzhou Sunrise since fiscal 2000, and accordingly, the Company will
     absorb a majority of Hangzhou Sunrise's expected losses disproportional to
     its expected return if Hangzhou Sunrise is unable to repay its bank loans
     as they fall due.

     Since the Company, FCJ and Hangzhou Sunrise (hereinafter collectively
     referred to as the "Group") conduct all of their operations in the PRC,
     they are subject to special considerations and significant risks not
     typically associated with investments in equity securities of the United
     States of America (the "US") and western European companies. These include,
     among others, risks associated with the political and economic environment,
     foreign currency exchange, import restrictions and legal system of the PRC.

     The consolidated financial statements were prepared in accordance with
     accounting principles generally accepted in the United States ("US GAAP").



                                      F-8
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


1.   ORGANIZATION AND BASIS OF PREPARATION - continued

     These consolidated financial statements are prepared assuming that the
     Group will continue as a going concern, which assumes the realization of
     assets and the settlement of liabilities in the normal course of
     operations. The Group has net current liabilities of Rmb807,842 as of
     December 31, 2004. The Group's negative working capital may not allow it to
     meet its financial commitments as presently structured.

     The consolidated financial statements do not include any adjustments in the
     carrying amounts of the assets and liabilities to their realizable amounts
     and the classification thereof that might be necessary should the Group be
     unable to continue as a going concern.

     The Group's continuation as a going concern is dependent upon its ability
     to generate sufficient cash flows to meet its obligations on a timely basis
     and to obtain additional financing as may be required.

     The Group has historically met cash needs from the proceeds of debt and
     operating cash flows. Subsequent to the balance sheet date, certain banks
     have extended or provided additional funding to the Group. In addition, the
     Group obtained the letter of support from a shareholder to provide
     financial support to meet its debts when they fall due in the foreseeable
     future. However, there can be no assurances that continuous extension of
     facilities or additional funding will be made available to the Group. These
     factors raise substantial doubt about the ability of the Group to continue
     as a going concern.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a)  BASIS OF CONSOLIDATION

          For the year ended December 31, 2004, the consolidated financial
          statements include the assets, liabilities, revenue and expenses of
          the Company, its majority owned and controlled subsidiary, FCJ, and a
          variable interest entity, Hangzhou Sunrise. For the years ended
          December 31, 2002 and 2003, the consolidated financial statements
          include the assets, liabilities, revenue and expenses of the Company
          and FCJ. Investment in Hangzuou Sunrise was accounted for using the
          equity method. Under the equity method, the Company's proportionate
          share of the affiliate's net income or loss is included in the
          consolidated statement of income. All significant intercompany
          balances and transactions have been eliminated on consolidation.

     (b)  REVENUES

          Revenues represent the invoiced value of goods, net of value-added tax
          ("VAT") and other sales taxes, supplied to customers. Revenues are
          recognized upon delivery and acceptance of goods by the customers. The
          Group permits the return of damaged or defective products and accounts
          for these returns as deduction from sales. The Group incurred sales
          taxes of Rmb40,639, Rmb64,108 and Rmb89,826 for the years ended
          December 31, 2002, 2003 and 2004, respectively.



                                       F-9
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (c)  SHIPPING AND HANDLING FEES AND COSTS

          Costs for transportation of products to customers is recorded as a
          component of selling, general and administrative expense, and amounted
          to Rmb62,707, Rmb91,563 and Rmb141,031 for the years ended December
          31, 2002, 2003 and 2004, respectively.

     (d)  CASH AND CASH EQUIVALENTS

          The Group considers cash on hand, demand deposits with banks and
          liquid investments which are unrestricted as to withdrawal or use and
          with an original maturity of three months or less when purchased to be
          cash and cash equivalents. Included in cash and cash equivalents as of
          December 31, 2003 and 2004 were United States dollar deposits of
          US$2,916 (Rmb24,144) and US$7,214 (Rmb59,731), respectively.

     (e)  INVENTORIES

          Inventories are stated at the lower of cost, on an average cost basis,
          or market value. Costs of work-in-progress and finished goods comprise
          direct materials, direct labor and an attributable proportion of
          production overheads. Provision for potentially obsolete or
          slow-moving inventory is made based on management's analysis of
          inventory levels.

     (f)  PROPERTY, PLANT AND EQUIPMENT

          Property, plant and equipment is stated at cost of acquisition less
          accumulated depreciation and provision for impairment loss. The cost
          of major improvements and betterments is capitalized whereas the cost
          of maintenance and repairs is expensed in the year incurred.

          Depreciation of property, plant and equipment is computed using the
          straight-line method over the assets' remaining estimated economic
          useful lives and an estimated residual value of 4% to 10% of the costs
          except for land use rights which have no residual value. The estimated
          useful lives of property, plant and equipment are as follows:

<TABLE>

<S>                                                                     <C>
          Land use rights                                               50 years

          Buildings                                                     20 years

          Machinery and equipment                                       10 years

          Motor vehicles                                                5 years

          Furniture, fixtures and office equipment                      5 years
</TABLE>


          Construction-in-progress represents factory and office buildings under
          construction and plant and machinery pending installation. This
          includes the costs of construction, the costs of plant and machinery
          and interest capitalized on borrowings during the period of
          construction or installation. Assets under construction are not
          depreciated until construction completed and the assets are ready for
          their intended use. Interest capitalized was Rmb3,954, Rmb4,000 and
          Rmb7,904 for the years ended December 31, 2002, 2003 and 2004,
          respectively.



                                      F-10
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (g)  IMPAIRMENT

          The Group evaluates the impairment of long-lived assets based on the
          projection of undiscounted cash flows whenever events or changes in
          circumstances indicate that the carrying amounts of such assets may
          not be recoverable. In the event such cash flows are not expected to
          be sufficient to recover the recorded value of the assets, the assets
          are written down to their estimated fair values.

     (h)  INCOME TAXES

          Deferred tax assets and liabilities are recognized for the future tax
          consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and
          their respective tax bases and to operating loss and tax credit carry
          forwards. Deferred tax assets and liabilities are measured using
          enacted tax rates expected to apply when those temporary differences
          are expected to reverse. Valuation allowances are established to
          reduce the amount of deferred tax assets if it is considered more
          likely than not that some portion of, or all of, the deferred tax
          asset will not be realized.

     (i)  VAT AND CONSUMPTION TAX ("CT")

          The Group is subject to VAT and CT. They are recognized on an accrual
          basis and revenues are recorded net of these taxes.

          The Group is required to provide for VAT and CT which are the
          principal taxes on the sales of tangible goods and the provision of
          certain specified services. The general VAT rate applicable to the
          Company and FCJ is 17% while CT is calculated at 10% on the domestic
          sales amount, except that the 10% CT on radial tire products was
          abolished since January 1, 2001. VAT and CT are recognized on an
          accrual basis and sales are recorded net of these taxes.

     (j)  FOREIGN CURRENCIES

          The Group maintains its books and records in Renminbi, its functional
          currency. Foreign currency transactions are translated into Renminbi
          at the applicable exchange rates quoted by the People's Bank of China
          (the "unified exchange rates") prevailing at the dates of
          transactions. Monetary assets and liabilities denominated in foreign
          currencies are translated into Renminbi using the applicable unified
          exchange rates prevailing at the balance sheet dates. Non-monetary
          assets and liabilities are translated at the unified exchange rates
          prevailing at the time the assets or liabilities were acquired. The
          resulting exchange differences are included in the consolidated
          statement of income. The Group had foreign exchange gains of Rmb2,006,
          Rmb4,333 and Rmb2,782 in 2002, 2003 and 2004, respectively.



                                      F-11
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (j)  FOREIGN CURRENCIES - continued

          The Renminbi currently is not a generally freely convertible currency.
          The State Administration for Foreign Exchange, under the authority of
          the People's Bank of China, controls the conversion of Renminbi into
          foreign currencies. The value of the Renminbi is subject to changes in
          central government policies and to international economic and
          political developments affecting supply and demand in the China
          Foreign Exchange Trading System market.

          The Group conducts business in the PRC and its financial performance
          and position is measured in terms of Renminbi. Any devaluation of the
          Renminbi against the United States dollar would consequently have an
          adverse effect on the financial performance and asset values of the
          Group when measured in terms of United States dollars.

          The translation of Renminbi (Rmb) amounts into United States dollar
          (US$) amounts are included solely for the convenience of readers in
          the United States of America and have been made at US$1.00 = Rmb8.28,
          the unified exchange rate on December 31, 2004. No representation is
          made that the Renminbi amounts could have been, or could be, converted
          into United States dollar at that or at any other rate.

     (k)  DEDICATED CAPITAL

          In accordance with the relevant laws and regulations for Sino-foreign
          equity joint venture enterprises, the Group maintains discretionary
          dedicated capital, which includes a general reserve fund, an
          enterprise expansion fund, and a staff welfare and incentive bonus
          fund. The Company and FCJ have to set aside 5% of or a higher
          percentage as determined by the respective board of directors of the
          Company and FCJ of its net income after tax as reflected in their
          statutory financial statements for each of general reserve fund and
          enterprise expansion fund (except where the fund has reached 50% of
          the registered capital of the Company and FCJ, respectively). There is
          no specific requirement for appropriation to dedicated capital for
          Hangzhou Sunrise. The Group's appropriations to the general reserve
          fund and the enterprise expansion fund are included in retained
          earnings and are non-distributable; however, the appropriation for the
          staff welfare and incentive bonus fund is charged to consolidated
          statement of income and the unused portion is recorded as a current
          liability.

          Included in the retained earnings of the Group as of December 31,
          2002, 2003 and 2004, were non-distributable dedicated capital of
          Rmb61,548, Rmb3,932 and Rmb12,933, respectively.



                                      F-12
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (l)  USE OF ESTIMATES

          The preparation of financial statements in conformity with US GAAP
          requires management to make estimates and assumptions that affect the
          reported amounts of assets and liabilities and disclosures of
          contingent assets and liabilities at the date of the financial
          statements and the reported amounts of revenues and expenses during
          the reporting period. Actual results may differ from those estimates.
          Significant items subject to such estimates and assumptions include
          the carrying value and estimated useful lives of long-lived assets;
          valuation allowances for receivables, inventories and deferred tax
          assets; liability for product warranty; and the valuation of certain
          financial instruments.

     (m)  CONCENTRATION OF CREDIT RISK

          The Group's financial instruments that are exposed to concentration of
          credit risk consist primarily of its cash and cash equivalents,
          restricted cash, accounts and other receivables and advances to
          affiliate and Chinese joint venture partners. The Group's cash and
          cash equivalents and restricted cash are high-quality deposits placed
          with banking institutions with high credit ratings; therefore, the
          credit risk is limited. The accounts receivable largely represent
          amounts due from the Group's customers and are typically on an open
          account basis. Concentrations of credit risk associated with the
          accounts receivable are considered minimal due to the Group's diverse
          customer base. In no period did sales to any one customer accounts for
          10% or more of the Group's sales. The Group maintains allowances to
          cover potential bad debts and believes that no significant credit risk
          exists as a result of its diverse group of customers. Credit losses,
          when realized, have historically been within the range of management's
          expectations. The other receivables comprise principally deposits to
          suppliers and receivable from local government. The Company does not
          believe there is a significant credit risk from any of these
          counterparties as they are either major suppliers of the Group or
          local government authorities. The Group has reviewed the credit
          worthiness and financial position of its affiliate and Chinese joint
          venture partners for credit risks associated with advances to these
          entities. This affiliate and Chinese joint venture partners have good
          credit standing and the Group does not expect to incur significant
          loss for uncollected advances from these entities.

          The Group does not purchase derivative instruments to manage risks.




                                      F-13
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (n)  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying value of current financial assets and current financial
          liabilities approximates fair value due to the short-term nature of
          these instruments. Bank loans approximate their carrying value as the
          interest rates approximate those which would have been available for
          loans of similar remaining maturity at the respective year ends. The
          fair value of the financial guarantees issued by the Group is
          determined based on the sum of probability-weighted present values in
          a range of estimated cash flows, all discounted using the same
          interest rate convention.

     (o)  COMPREHENSIVE INCOME

          Comprehensive income consists of net income and other gains and losses
          affecting shareholders' equity that, under US GAAP, are excluded from
          net income. Comprehensive income only represents the Group's net
          income and has been disclosed within the consolidated statements of
          income and comprehensive income.

     (p)  SEGMENT INFORMATION

          The Group is organized and operates in one reportable segment which
          comprises the manufacture and sale of tires.

     (q)  RELATED PARTIES

          Parties are considered to be related to the Group if the parties that,
          directly or indirectly, through one or more intermediaries, control,
          are controlled by, or are under common control with the Company and/or
          its subsidiary. Related parties also include principal owners of the
          Company or its subsidiary, their management, members of the immediate
          families of principal owners of the Company or its subsidiary and
          their management and other parties with which the Group may deal if
          one party controls or can significantly influence the management or
          operating policies of the other to an extent that one of the
          transacting parties might be prevented from fully pursuing its own
          separate interests. A party which can significantly influence the
          management or operating policies of the transacting parties or if it
          has an ownership interest in one of the transacting parties and can
          significantly influence the other to an extent that one or more of the
          transacting parties might be prevented from fully pursuing its own
          separate interests is also a related party.



                                      F-14
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (r)  ADVERTISING EXPENSES

          The Group expenses advertising costs as incurred. Advertising expenses
          were Rmb6,580, Rmb5,808 and Rmb2,856 for the years ended December 31,
          2002, 2003 and 2004, respectively.

     (s)  GOVERNMENT SUBSIDIES

          Government subsidies are recognized when received and all the
          conditions for their receipt have been met. Government subsidies are
          recognized as other income in the consolidated statements of income
          and comprehensive income in the period in which the related
          expenditure are recorded. Capital grants for the acquisition of
          equipment are recorded as a liability until earned and then offset
          against the related capital assets.

     (t)  GUARANTEES

          The Group discloses and recognizes a liability for the fair value of
          the obligation it assumes under the guarantees. The initial
          recognition and measurement provision of FIN 45 are effective for
          guarantees issued or modified after December 31, 2002. As of December
          31, 2003 and 2004, the carrying amount of the liability for the
          Group's obligations under the guarantees is Rmb2,000 and Rmb3,102,
          respectively.

     (u)  RESTRICTED CASH

          Bank deposits are classified as restricted cash when they are
          restricted as to withdrawal or use. Bank deposits pledged as security
          for bank guarantees and bank drafts, and those retained for staff
          housing benefits (see note 13) amounted to Rmb44,684 and Rmb38,924 as
          of December 31, 2003, and 2004, respectively, and are presented as
          restricted cash in the consolidated balance sheets.

     (v)  RESEARCH AND DEVELOPMENT

          Research and development costs are expensed as incurred. Research and
          development expenses were Rmb1,301, Rmb6,248 and Rmb4,706 for the
          years ended December 31, 2002, 2003 and 2004, respectively.



                                      F-15
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

     (w)  RECENT ACCOUNTING PRONOUNCEMENT

          In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
          amendment of ARB No. 43, Chapter 4". SFAS No. 151 clarifies the
          accounting that requires abnormal amounts of idle facility expenses,
          freight, handling costs, and spoilage costs to be recognized as
          current-period charges. It also requires that allocation of fixed
          production overheads to the costs of conversion be based on the normal
          capacity of the production facilities. SFAS No. 151 will be effective
          for inventory costs incurred on or after July 1, 2005. The Company is
          currently evaluating the impact of this standard on its consolidated
          financial statements.

          In December 2004, the FASB issued SFAS No. 153, "Exchanges of
          Nonmonetary Assets-An Amendment of APB Opinion No. 29, Accounting for
          Nonmonetary Transactions". SFAS No. 153 eliminates the exception from
          fair value measurement for nonmonetary exchanges of similar productive
          assets in paragraph 21(b) of Accounting Principles Board Opinion No.
          29 "Accounting for Nonmonetary Transactions", and replaces it with an
          exception for exchanges that do not have commercial substance. SFAS
          No. 153 specifies that a nonmonetary exchange has commercial substance
          if the future cash flows of the entity are expected to change
          significantly as a result of the exchange. SFAS No. 153 is effective
          for the fiscal periods beginning after June 15, 2005. The Company is
          currently evaluating the effect that the adoption of SFAS No. 153 will
          have on its financial statements but does not expect it to have a
          material impact.

3.   INVENTORIES

          Inventories by major categories are summarized as follows:

<TABLE>
<CAPTION>
                                                                         2003         2004
                                                                         ----         ----
                                                                          Rmb          Rmb

<S>                                                                     <C>          <C>
     Raw materials..............................................        279,238      360,769
     Work-in-progress...........................................         25,570       52,823
     Finished goods.............................................        433,561      511,385
                                                                        -------      -------

                                                                        738,369      924,977
                                                                        =======      =======
</TABLE>



                                      F-16
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


4.   INVESTMENTS IN AND ADVANCES TO AFFILIATE

     The following table presents summarized comparative financial information
     for Hangzhou Sunrise, which the Company accounted for using the equity
     method for the years ended December 31, 2002 and 2003 until it adopted FIN
     46 effective January 1, 2004:

<TABLE>
<CAPTION>
                                                                            2002           2003
                                                                            ----           ----
                                                                             Rmb            Rmb

<S>                                                                        <C>           <C>
     Revenues....................................................          197,544       341,538

     Operating income............................................           23,759        64,721

     Net income..................................................            8,958        45,704

     Current assets..............................................           84,319        71,842

     Non-current assets..........................................          580,367       725,032

     Current liabilities.........................................          214,382       271,852

     Non-current liabilities.....................................          176,535       205,549

     Shareholders' equity........................................          273,769       319,473
</TABLE>

     Advances to Hangzhou Sunrise are Rmb45,534 and Rmb60,424 as of December 31,
     2002 and 2003, respectively. The amounts are interest free and are not
     repayable within 12 months from the respective balance sheet date.

     As of December 31, 2002, 2003 and 2004, the Company had a 49.2% equity
     ownership in Hangzhou Sunrise.

     Upon the early adoption of FIN 46 effective January 1, 2004 (see note 1),
     Hangzhou Sunrise is classified as a variable interest entity for which the
     Company is the primary beneficiary. Accordingly, the consolidated financial
     statements of the Company for the year ended December 31, 2004 included the
     assets, liabilities, revenue and expenses of Hangzhou Sunrise, which was no
     longer accounted for using the equity method beginning January 1, 2004.


5.   PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                                   2003            2004
                                                                                   ----            ----
                                                                                    Rmb             Rmb
<S>                                                                              <C>           <C>
     Property, plant and equipment consists of the following:

     At cost:

     Buildings and land use rights.......................................          189,460        514,731

     Machinery and equipment.............................................          827,663      1,861,917

     Motor vehicles......................................................           18,291         20,675

     Furniture, fixtures and office equipment............................           23,296         27,638

     Construction-in-progress............................................           83,498        248,613
                                                                                 ---------      ---------

     Total...............................................................        1,142,208      2,673,574

     Less: Accumulated depreciation and amortization.....................         (372,435)      (724,262)
                                                                                 ---------      ---------

     Total net book value................................................          769,773      1,949,312
                                                                                 =========      =========
</TABLE>




                                      F-17
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


6.   BANK LOANS

     As of December 31, 2003, Rmb40,000 of the long-term bank loans were
     guaranteed by an affiliate. As of December 31, 2003, Rmb100,000 of the
     long-term bank loans were guaranteed by a related party. Also, long-term
     bank loans of RmbNil and Rmb60,000 were secured by buildings and equipment
     of the Group as of December 31, 2003 and 2004. Long-term bank loans bear
     fixed interest rates and had average annual interest rates of approximately
     7.86% in 2002, 5.63% in 2003 and 5.59% in 2004.

     The outstanding balances of long-term bank loans as of December 31, 2004
     were repayable as follows:

<TABLE>
<CAPTION>
                                                                                      Rmb

<S>                                                                                <C>
     2005................................................................           64,000

     2006................................................................           97,000

     2007................................................................          144,000

     2008................................................................           48,000
                                                                                   -------

                                                                                   353,000
                                                                                   =======
</TABLE>


     As of December 31, 2003 and 2004, short-term bank loans are repayable on
     demand or within twelve months from the balance sheet dates.

     As of December 31, 2003, Rmb475,646 of the short-term bank loans were
     guaranteed by an affiliate. As of December 31, 2003 and 2004, Rmb100,000
     and RmbNil of the short-term bank loans were guaranteed by related
     companies, respectively, and Rmb40,000 and Rmb630,000 of the short-term
     bank loans were also guaranteed by third parties. Also, short-term bank
     loans of RmbNil and Rmb26,000 were secured by buildings and equipment of
     the Group as of December 31, 2003 and 2004, respectively. The short-term
     bank loans carried fixed interest rates and the average annual interest
     rates were approximately 5.11% in 2002, 4.20% in 2003 and 4.21% in 2004.

     In addition to the above loan facilities provided by banks, the Group had
     available import credit facilities amounting to Rmb355,340 in 2003 and
     Rmb210,223 in 2004, of which Rmb155,830 in 2003 and Rmb48,933 in 2004 had
     been utilized. Interest rates are generally based on the banks' best
     lending rates plus 1% to 2% per annum, subject to fluctuations at the
     banks' discretion. The banking facilities are subject to annual review by
     the banks.


                                      F-18
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


7.   PROVISION FOR INCOME TAXES


     Provision for income taxes consists of:


<TABLE>
<CAPTION>
                                                                  2002             2003         2004
                                                                  ----             ----         ----
                                                                  Rmb              Rmb          Rmb

<S>                                                              <C>             <C>           <C>
     Current..............................................       23,847          18,812        53,875
     Deferred.............................................       (5,071)         (6,000)      (18,199)
     Adjustment of valuation allowance....................       (1,079)            (48)            -
                                                                -------         -------       -------

                                                                 17,697          12,764        35,676
                                                                =======         =======       =======
</TABLE>

     The Group's profit before income taxes and minority interests for fiscal
     2002, 2003 and 2004 is all derived in the PRC.

     The Group is subject to income taxes calculated at a tax rate ranging from
     15% to 33% on the taxable income as reported in the statutory financial
     statements adjusted for taxation based on tax laws prevailing in the PRC.

     In accordance with the relevant income tax laws applicable to Sino-foreign
     joint ventures in the PRC, the Company, having a joint venture term of not
     less than 10 years and engaging in production industries, is exempt from
     the PRC local income tax during fiscal 2002. A summary of the tax
     concessions available to the Company for fiscal 2002 is as follows:


<TABLE>
<CAPTION>
     CHINESE STATE
     UNIFIED             CHINESE LOCAL      CONCESSION                   YEAR OF
     INCOME TAX          INCOME TAX         FROM CHINESE                 COMMENCEMENT
     RATE (%)            RATE (%)           LOCAL INCOME TAX             OF TAX HOLIDAYS
     --------            --------           ----------------             ---------------

     <S>                 <C>                <C>                          <C>
     15.0                1.5                Full exemption for           1993
                                            10 years starting from
                                            the commencement
                                            of tax holidays
</TABLE>

     During fiscal 2003 and 2004, the Company was not entitled to any tax
     concessions as all tax concession periods expired, and therefore the
     Company was subject to a State united income tax rate of 15% and a local
     income tax rate of 1.5%. FCJ and Hangzhou Sunrise was not entitled to any
     tax concession during fiscal 2002, 2003 and 2004 and was subject to the
     State united income tax rate of 30% and the local income tax rate of 3%.
     During fiscal 2002, if the Company were neither in the tax holiday period
     nor had been specifically allowed special tax concessions, it would have
     recorded additional income tax expenses of Rmb1,960, and the consolidated
     net income would have been decreased by the same amount for the year ended
     December 31, 2002.


                                      F-19
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


7.   PROVISION FOR INCOME TAXES - CONTINUED

     The reconciliation of the effective income tax rate based on profit before
     income taxes and minority interests stated in the consolidated statements
     of income to the statutory income tax rates in the PRC is as follows:

<TABLE>
<CAPTION>
                                                                 2002        2003       2004
                                                                 ----        ----       ----

<S>                                                              <C>         <C>        <C>
     Weighted average statutory tax rates.................         18%         18%       21%

     Effect of tax holiday................................         (1%)         -         -

     Underprovision from prior years......................          -           -         6%

     Permanent differences relating to
       non-taxable income and non-deductible
       expenses...........................................         (3%)        (5%)      (3%)

     Valuation allowance..................................         (1%)         -         -

     Others...............................................         (2%)        (3%)      (1%)
                                                                 ----        ----      ----

     Effective tax rate...................................         11%         10%       23%
                                                                 ====        ====      ====
</TABLE>


     The tax impact of temporary differences give rise to the following deferred
     tax assets:

<TABLE>
<CAPTION>

                                                                                        2003           2004
                                                                                        ----           ----
                                                                                         Rmb            Rmb

<S>                                                                                   <C>            <C>
     Allowance for doubtful receivables.........................................        9,917          9,896

     Allowance for inventory obsolescence.......................................        1,102          1,102

     Provision for warranty expenses............................................        9,850         21,318

     Impairment loss provision for long-lived assets............................          297            297

     Depreciation...............................................................        3,586         10,338
                                                                                      -------        -------

     Total deferred tax assets..................................................       24,752         42,951

     Valuation allowance for deferred tax assets................................       (4,427)        (4,427)
                                                                                      -------        -------

                                                                                       20,325         38,524
                                                                                      =======        =======
</TABLE>


     The valuation allowance refers to the portion of the deferred tax assets
     that are not "more likely than not" going to be realized.

     The net deferred tax asset is classified as follows:

<TABLE>
<CAPTION>
                                                                                   2003           2004
                                                                                   ----           ----
                                                                                    Rmb            Rmb

<S>                                                                               <C>            <C>
     Short-term deferred tax assets......................................         17,136         29,003

     Long-term deferred tax assets.......................................          3,189          9,521
                                                                                 -------        -------

                                                                                  20,325         38,524
                                                                                 =======        =======
</TABLE>



                                      F-20
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


8.   REGISTERED CAPITAL

     The Company was incorporated with an initial registered capital of
     Rmb469,749. On August 18, 2003, the registered capital of the Company was
     further increased from Rmb469,749 to Rmb613,603 by the capitalization of
     dedicated capital and retained earnings amounting to Rmb83,841 and
     Rmb60,013, respectively, as allowed under the laws and regulations in the
     PRC.

     There was no movement in the Company's registered capital for the year
     ended December 31, 2004.


9.   OBLIGATIONS AND COMMITMENTS

     As of December 31, 2003 and 2004, the Group had outstanding capital
     commitments for construction of factory premises and purchase of equipment
     amounting to approximately Rmb225,198 and Rmb123,123, respectively.

     The Group leases certain of its warehouses under non-cancelable operating
     leases expiring at various dates through fiscal 2009. Rental expense under
     operating leases was Rmb4,397, Rmb3,141 and Rmb12,079 for the years ended
     December 31, 2002, 2003 and 2004, respectively.

     The following is a schedule of future minimum lease payments required under
     operating leases that have initial or remaining non-cancelable lease terms
     in excess of one year as of December 31, 2004:

<TABLE>
<CAPTION>
                                                                                  Rmb

<S>                                                                              <C>
     2005................................................................        6,138
     2006................................................................          817
     2007................................................................          817
     2008................................................................          763
                                                                                 -----

     Total minimum lease payments........................................        8,535
                                                                                 =====
</TABLE>


     The Group also records an estimate of the product warranty obligation at
     the time of sale based on the Group's historical experience. Changes in
     product warranty provision are as follows:

<TABLE>
<CAPTION>
                                                                  2002          2003          2004
                                                                  ----          ----          ----
                                                                  Rmb           Rmb           Rmb

<S>                                                              <C>          <C>           <C>
     Balance at beginning of year.........................        19,972       23,720        59,700
     Warranties paid......................................       (56,183)     (72,396)     (132,992)
     Warranty provision...................................        59,931      108,376       116,892
                                                                 -------      -------       -------

     Balance at end of year...............................        23,720       59,700        43,600
                                                                 =======      =======       =======
</TABLE>




                                      F-21
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


9.   OBLIGATIONS AND COMMITMENTS - CONTINUED

     In addition, the Group provided guarantees to related companies as of
     December 31, 2004, details of which are detailed in note 11(c). These
     guarantees are full and unconditional and would require the Group to make
     scheduled payments immediately if the related companies failed to do so.

     As of December 31, 2004, the Group estimated the maximum potential future
     payments of the guarantees to be Rmb430,198. Historically, the Group had
     not made any payment for these guarantees and considered the probability of
     the default by the related companies to below. As a result, the Group
     estimated that the fair value of the obligations assumed under guarantees
     as of December 31, 2004 to be Rmb3,102 and recognized a liability for such
     amount in the financial statements.

     In addition, the Company and its subsidiary are parties to a variety of
     contractual agreements under which the Group may be obligated to indemnify
     the other party for certain matters. These contracts primarily relate to
     the operating leases, financial agreements and various other agreements.
     Under these contracts the Group may provide certain routine
     indemnifications relating to representations and warranties (e.g.,
     ownership of assets, environmental or tax indemnifications) or personal
     injury matters. Historically, the Group has not made any payment for these
     indemnifications and believes that if the Group were to incur a loss in any
     of these matters, the loss would not have a material effect on our
     financial condition or results of operations.


10.  DISTRIBUTION OF PROFIT

     The Group declares dividends based on the profits as reported in their
     statutory financial statements. Such profits will be different from the
     amounts reported under US GAAP. The Company and FCJ had an aggregate
     retained earnings of Rmb107,726 as of December 31, 2003 and the Group had
     an aggregate retained earnings of Rmb183,964 as at December 31, 2004, as
     reported in their statutory financial statements.


11.  RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS

     (a)  DUE FROM/TO RELATED COMPANIES

          The amounts due from related companies primarily arise from sales of
          tires and are unsecured, non-interest bearing and repayable at the end
          of credit periods granted ranging from 90 days to 180 days.
          Historically, the management reviewed the recoverability of these
          receivables and recognized an allowance for doubtful accounts of
          Rmb1,942, in the consolidated statement of income for fiscal 2002 and
          2003, respectively.

          The loans from related companies represent funds advanced to the Group
          and are unsecured, non-interest bearing and are not repayable on
          demand expect for the amount as of December 31, 2003 which was not
          repayable within 12 months from the balance sheet date.



                                      F-22
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


11.  RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - CONTINUED

     (b)  SALES TO/PURCHASES FROM RELATED PARTIES

          The Group recorded sales to related companies of approximately
          Rmb76,328, Rmb78,353 and Rmb44,631 that have been reflected in the
          Group's consolidated financial statements for the years ended December
          31, 2002, 2003 and 2004, respectively.

          The Company paid sub-contracting charges to Hangzhou Sunrise of
          approximately Rmb199,373 and Rmb341,112 for tire processing that have
          been reflected in the Group's consolidated financial statements for
          the years ended December 31, 2002 and 2003, respectively. The Company
          also paid sub-contracting charges to a related company of
          approximately Rmb23,486 for tire processing that have been reflected
          in the Group's consolidated financial statements for the year ended
          December 31, 2004.

          The Group recorded purchases from a related company of approximately
          Rmb6,568, Rmb11,055 and Rmb28,188 that have been reflected in the
          Group's consolidated financial statements for the years ended December
          31, 2002, 2003 and 2004, respectively.

          The Company received labor cost from a related company of
          approximately Rmb2,796 for tire processing that have been reflected in
          the Group's consolidated financial statements for the year ended
          December 31, 2004.

          These transactions were carried out after negotiations between the
          Group and the respective related companies in the ordinary course of
          business and on the basis of the estimated market value as determined
          by the management of the Company.

     (c)  CONTINGENT LIABILITIES

          As of December 31, 2003 and 2004, the Group had outstanding bank
          guarantees as follows:

<TABLE>
<CAPTION>
                                                                               2003          2004
                                                                               ----          ----
                                                                                RMB           RMB

<S>                                                                            <C>          <C>
          Beneficiaries

          Affiliate.....................................................       220,195            -

          Related companies.............................................       127,444            -

          Third party...................................................        40,000      430,198
                                                                               -------      -------

          Total.........................................................       387,639      430,198
                                                                               =======      =======
</TABLE>



                                      F-23
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


11.  RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - CONTINUED

     (d)  LOAN GUARANTEES PROVIDED BY RELATED COMPANIES

          Certain parties have guaranteed certain of the Group's bank borrowings
          at no cost to the Group. Details of the borrowings are shown in note
          6.

     (e)  USE OF TRADEMARKS

          For the years ended December 31, 2002, 2003 and 2004, the Group is
          entitled to use the trademarks owned by one of its shareholders free
          of charge for a period up to June 27, 2009.


12.  DUE FROM/TO CHINESE JOINT VENTURE PARTNERS

     (i)  The amounts due from Chinese joint venture partners represented:

          (a)  advances made from FCJ to the Chinese joint venture partner; and

          (b)  payment of various operating expenses by FCJ on behalf of their
               Chinese joint venture partners.

          These amounts are unsecured, non-interest bearing and have no fixed
          repayment terms.

     (ii) The amounts due to Chinese joint venture partners represented advances
          provided by the Chinese joint venture partners to the Group to finance
          their working capital requirements.

          These amounts are unsecured and non-interest bearing and are repayable
          on demand.


13.  STAFF RETIREMENT PLANS

     All of the Chinese employees of the Group are entitled to an annual pension
     on retirement, which is equal to their ending basic salaries at their
     retirement dates. The Chinese government is responsible for the pension
     liabilities to these retired employees. The Group is only required to make
     specified contributions to the state-sponsored retirement plan calculated
     at rates ranging from 20% to 23.5% of basic monthly salaries for the years
     ended December 31, 2002 and 2003, and at rates ranging from 14% to 22% of
     basic monthly salaries for the year ended December 31, 2004. The expenses
     reported in the consolidated statements of income and comprehensive income
     related to these arrangements were Rmb26,549, Rmb23,920 and Rmb23,934 for
     the years ended December 31, 2002, 2003 and 2004, respectively.

     The Group and their employees are also required to contribute 5% of the
     monthly salaries to designated bank accounts opened by the Group under a
     regulation implemented by certain PRC municipal governments. Upon
     resignation or retirement of the employees, they are entitled to withdraw
     the principal and related interest from these bank accounts to purchase
     housing. These bank deposits cannot be withdrawn for other uses by the
     Group. As of December 31, 2003 and 2004, such restricted bank deposits
     amounted to Rmb10,034 and Rmb12,339, respectively.



                                      F-24
<PAGE>


                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


14.  SEGMENT INFORMATION

     The Company's chief decision-maker is the Chief Executive Officer, who
     evaluates the Group's performance based on revenues and operating income.
     The Group operates principally in the tire manufacturing industry and has
     only one reportable segment, which is managed based on PRC GAAP. All
     manufacturing is conducted in the PRC.

     Analysis of Reportable Segments (Management Information - PRC GAAP basis)

<TABLE>
<CAPTION>

                                                             AS OF AND FOR THE YEAR ENDED
                                                                      DECEMBER 31,
                                                       ---------------------------------------
                                                       2002           2003             2004
                                                       ----           ----             ----
                                                        Rmb            Rmb              Rmb

<S>                                                   <C>           <C>              <C>
     Net revenue from external
       customers.................................     2,537,476     3,753,855        5,029,835

     Net revenue from related parties............        76,328        78,353           60,900

     Operating income............................       191,263       175,486          299,176
</TABLE>


     Reconciliations of Reportable Segment Totals to Consolidated Totals - The
     amounts presented for reportable segments reconcile to the consolidated
     totals as follows:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,

                                                              2002             2003            2004
                                                              ----             ----            ----
                                                               Rmb              Rmb             Rmb

<S>                                                          <C>             <C>             <C>
     Net revenue from external customers..................   2,537,476       3,753,855       5,029,835

     US GAAP adjustments:

       Warranty provision.................................      (3,728)        (36,000)        (69,500)
                                                             ---------       ---------       ---------

     Total net revenue from external customers............   2,533,748       3,717,855       4,960,335
                                                             =========       =========       =========

     Net revenue from related parties.....................      76,328          78,353          60,900

     US GAAP adjustments..................................           -               -               -
                                                             ---------       ---------       ---------

     Total net revenue from related parties...............      76,328          78,353          60,900
                                                             =========       =========       =========

     Operating income.....................................     191,263         175,486         299,176

     US GAAP adjustments:

       Warranty provision.................................      (3,728)        (36,000)        (69,500)

       Fair value of the obligations assumed under
         guarantees.......................................           -          (2,000)         (1,102)
                                                             ---------       ---------       ---------

     Total operating income...............................     187,535         137,486         228,574
                                                             =========       =========       =========
</TABLE>



                                      F-25
<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)


14.  SEGMENT INFORMATION - CONTINUED

     Revenues of the Group are primarily derived from sales of tires and their
     geographical analysis of revenues is as follows:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                 2002             2003             2004
                                                                 ----             ----             ----
                                                                  Rmb              Rmb              Rmb

<S>                                                            <C>             <C>              <C>
     The PRC..............................................     2,061,236       3,057,152        3,552,954
     Middle East Countries................................       165,664         249,212          466,542
     US and Canada........................................       137,933         140,283          314,456
     United Kingdom.......................................          -             40,693          317,735
     South East Asia......................................        80,252          94,849          152,412
     Others...............................................       164,991         214,019          217,136
                                                               ---------       ---------        ---------

                                                               2,610,076       3,796,208        5,021,235
                                                               =========       =========        =========
</TABLE>



                                   * * * * * *


                                      F-26
<PAGE>

                                    Part III

                          ITEM 18. FINANCIAL STATEMENTS

<PAGE>

                  CHINA ENTERPRISES LIMITED

                  Report of Independent Registered Public Accounting Firm
                  and Consolidated Financial Statements
                  For the years ended December 31, 2002, 2003 and 2004

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CHINA ENTERPRISES LIMITED

<TABLE>
<S>                                                                                       <C>
Report of Independent Registered Public Accounting Firm................................   F-1

Consolidated Financial Statements:

Consolidated Statements of Operations and Comprehensive (Loss) Income
  for the years ended December 31, 2002, 2003 and 2004.................................   F-2

Consolidated Balance Sheets as of December 31, 2003 and 2004...........................   F-4

Consolidated Statements of Shareholders' Equity for the years
  ended December 31, 2002, 2003 and 2004...............................................   F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 2002, 2003 and 2004.....................................................   F-6

Notes to Consolidated Financial Statements.............................................   F-9
</TABLE>

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders of China Enterprises Limited

We have audited the accompanying consolidated balance sheets of China
Enterprises Limited and its subsidiaries as of December 31, 2003 and 2004 and
the related consolidated statements of operations and comprehensive (loss)
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 2004, all expressed in Renminbi. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of China Enterprises
Limited and its subsidiaries as of December 31, 2003 and 2004, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.

Our audits also comprehended the translation of Renminbi amounts into United
States dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2(h). Such United States dollar amounts
are presented solely for the convenience of the readers.

DELOITTE TOUCHE TOHMATSU
Hong Kong
October 26, 2005

                                     F - 1
<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE (LOSS) INCOME

       (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                            -------------------------------------------------------
                                                              2002            2003             2004            2004
                                                            ----------     ----------        -------         ------
                                                               RMB            RMB              RMB             US$
<S>                                                         <C>            <C>               <C>             <C>
REVENUES:
  - third parties .......................................    2,400,964      2,613,398              -              -
  - related parties .....................................      209,112        194,971              -              -
                                                            ----------     ----------        -------         ------
Total (note 16) .........................................    2,610,076      2,808,369              -              -
COST OF REVENUES ........................................   (2,250,785)    (2,502,413)             -              -
                                                            ----------     ----------        -------         ------
Gross profit ............................................      359,291        305,956              -              -
Selling, general and administrative expenses ............     (192,211)      (205,210)       (13,344)        (1,612)
Recovery on amounts due from related
  companies (note 14) ...................................        5,016              -              -              -
                                                            ----------     ----------        -------         ------
OPERATING INCOME (LOSS) .................................      172,096        100,746        (13,344)        (1,612)
NON-OPERATING INCOME (EXPENSES):
Interest income .........................................       40,413          9,228         21,533          2,601
Interest expenses .......................................      (53,997)       (33,027)          (601)           (72)
Other income ............................................          191          1,810             48              6
Change in fair value of call option (note 7) ............      (45,328)             -         59,929          7,238
Provision for interest receivables from
  notes receivable ......................................            -              -           (502)           (61)
Loss on disposal of a subsidiary (note 3) ...............            -         (1,158)             -              -
Gain on disposal of partial interests in an affiliate ...            -              -         23,040          2,783
Provision for income taxes (note 9) .....................      (17,697)       (10,592)             -              -
Impairment loss provision for advance to affiliate ......       (4,451)        (2,619)          (530)           (64)
Equity in (losses) earnings of affiliates ...............      (85,069)       (74,829)        92,369         11,155
Minority interests ......................................      (69,101)       (46,340)             -              -
                                                            ----------     ----------        -------         ------
(LOSS) PROFIT FROM CONTINUING OPERATIONS ................      (62,943)       (56,781)       181,942         21,974

DISCONTINUED OPERATIONS
Loss from discontinued operations, net of applicable
  income taxes of RmbNil in 2002 and 2003 (note 4) ......     (199,838)        (7,760)             -              -
                                                            ----------     ----------        -------         ------
NET (LOSS) INCOME .......................................     (262,781)       (64,541)       181,942         21,974
Other comprehensive income (expenses)
  - translation adjustments relating to an affiliate ....           38          1,636         (1,092)          (132)
                                                            ----------     ----------        -------         ------
COMPREHENSIVE (LOSS) INCOME .............................     (262,743)       (62,905)       180,850         21,842
                                                            ==========     ==========        =======         ======
</TABLE>

                                     F - 2
<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                   AND COMPREHENSIVE (LOSS) INCOME - CONTINUED

       (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------------------
                                                                2002           2003           2004            2004
                                                              ---------      ---------      ---------      ---------
                                                                 RMB            RMB            RMB            US$
<S>                                                           <C>            <C>            <C>            <C>
BASIC AND DILUTED (LOSS) EARNINGS PER COMMON SHARE
Continuing operations ...................................         (6.98)         (6.30)         20.18           2.44
Discontinued operations .................................        (22.16)         (0.86)             -              -
                                                              ---------      ---------      ---------      ---------

Basic and diluted (loss) earnings per common share ......        (29.14)         (7.16)         20.18           2.44
                                                              =========      =========      =========      =========

Number of common shares used in the calculation of basic
 and diluted (loss) earnings per common share ...........     9,017,310      9,017,310      9,017,310      9,017,310
                                                              =========      =========      =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                     F - 3
<PAGE>

                           CONSOLIDATED BALANCE SHEETS

      (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND THEIR PAR VALUES)

<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31,
                                                        -----------------------------------
                                                          2003         2004          2004
                                                        ---------    ---------      -------
                                                           RMB          RMB           US$
<S>                                                     <C>          <C>            <C>
ASSETS

Current assets:
  Cash and cash equivalents .........................      63,623       41,414        5,002
  Other receivables .................................       2,697        7,590          917
  Prepaid expenses and other current assets .........          20           20            2
  Due from ultimate parent company (note 14) ........       4,030       37,426        4,520
  Notes receivable (note 5) .........................      48,016      103,968       12,556
                                                        ---------    ---------      -------
  Total current assets ..............................     118,386      190,418       22,997

Investments in and advances to affiliates
  (note 6) ..........................................     309,826      437,539       52,843
Convertible note receivable from an affiliate, net
  (note 7) ..........................................      81,448       45,008        5,436
Derivative instruments (note 7) .....................           -       68,355        8,255
Deposit paid for acquisition of properties
  (note 8)...........................................           -       50,000        6,039
Other assets ........................................           6            6            1
                                                        ---------    ---------      -------
  Total assets ......................................     509,666      791,326       95,571
                                                        =========    =========      =======
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Other short-term loan payable .....................      27,708            -            -
  Subscription payable (note 6) .....................           -       62,989        7,607
  Accounts payable ..................................         311          311           38
  Other payables ....................................       1,310        1,320          160
  Accrued liabilities ...............................       4,759        5,972          721
  Other taxes payable ...............................       2,753        2,753          332
                                                        ---------    ---------      -------
  Total current liabilities .........................      36,841       73,345        8,858

Due to a fellow subsidiary (note 14) ................           -       50,000        6,039
                                                        ---------    ---------      -------
  Total liabilities .................................      36,841      123,345       14,897
                                                        ---------    ---------      -------
Obligations and commitments (note 12)

Shareholders' equity:
  Supervoting common stock - par value US$0.01
    per share (20,000,000 shares authorized;
    3,000,000 shares outstanding at
    December 31, 2003 and 2004) (note 10) ...........         244          244           29
  Common stock - par value US$0.01 per share
    (50,000,000 shares authorized; 6,017,310
    shares outstanding at December 31, 2003
    and 2004) (note 10) .............................         526          526           64
  Additional paid-in capital ........................   1,033,253    1,047,559      126,517
  Accumulated other comprehensive income ............       1,131           39            5
  Accumulated deficit ...............................    (562,329)    (380,387)     (45,941)
                                                        ---------    ---------      -------
  Total shareholders' equity ........................     472,825      667,981       80,674
                                                        ---------    ---------      -------
  Total liabilities and shareholders' equity ........     509,666      791,326       95,571
                                                        =========    =========      =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                     F - 4
<PAGE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

       (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                  ACCUMULATED
                                                                                                    OTHER
                                         SHARES OF                                                  COMPRE-
                                        SUPERVOTING  SHARES OF   SUPERVOTING          ADDITIONAL    HENSIVE
                                          COMMON      COMMON       COMMON     COMMON    PAID-IN     (LOSSES)  ACCUMULATED
                                           STOCK       STOCK        STOCK      STOCK    CAPITAL      INCOME      DEFICIT    TOTAL
                                        ------------ ----------- ----------   -----   ----------   --------   ---------   --------
                                                                     RMB       RMB       RMB         RMB         RMB        RMB
<S>                                     <C>          <C>         <C>          <C>     <C>         <C>         <C>          <C>
Balance at January 1, 2002.............    3,000,000   6,017,310         244     526    1,039,501       (543)   (235,531)   804,197
Net loss...............................            -           -           -       -            -          -    (262,781)  (262,781)
Loss on dilution of interest
 in an affiliate and a subsidiary
 of an affiliate.......................            -           -           -       -       (6,248)         -           -     (6,248)
Foreign currency translation
 adjustment relating to an affiliate...            -           -           -       -            -         38           -         38
                                          ----------   ---------   ---------   -----   ----------   --------   ---------   --------

Balance at December 31, 2002...........    3,000,000   6,017,310         244     526    1,033,253       (505)   (498,312)   535,206
Net loss...............................            -           -           -       -            -          -     (64,541)   (64,541)
Foreign currency translation
  adjustment relating to an affiliate..            -           -           -       -            -      1,636           -      1,636
Share of dedicated capital of
  an affiliate.........................            -           -           -       -            -          -         524        524
                                          ----------   ---------   ---------   -----   ----------   --------   ---------   --------

Balance at December 31, 2003...........    3,000,000   6,017,310         244     526    1,033,253      1,131    (562,329)   472,825
Net income.............................            -           -           -       -            -          -     181,942    181,942
Gain on dilution of interest in
  an affiliate ........................            -           -           -       -       14,306          -           -     14,306
Foreign currency translation
  adjustment relating to an affiliate..            -           -           -       -            -     (1,092)          -     (1,092)
                                          ----------   ---------   ---------   -----   ----------   --------   ---------   --------

Balance at December 31, 2004...........    3,000,000   6,017,310         244     526    1,047,559         39    (380,387)   667,981
                                          ==========   =========   =========   =====   ==========   ========   =========   ========
</TABLE>

          See accompanying notes to con solidated financial statements.

                                     F  - 5
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------
                                                                   2002        2003       2004        2004
                                                                 --------    -------    --------    -------
                                                                    RMB        RMB         RMB        US$
<S>                                                              <C>         <C>        <C>         <C>
Cash flows from operating activities:
  Net (loss) income...........................................   (262,781)   (64,541)    181,942     21,974
  Adjustments to reconcile net (loss) income to net cash
    provided by operating activities:
    (Gain) loss on disposition of discontinued components.....    (20,144)     7,017           -          -
    Loss on disposal of a subsidiary..........................          -      1,158           -          -
    Minority interests........................................    (76,073)    46,340           -          -
    Change in fair value of call option.......................     45,328          -     (59,929)    (7,238)
    Equity in losses (earnings) of affiliates.................     89,520     74,829    (104,529)   (12,625)
    Gain on disposal of partial interest in an affiliate......          -          -     (23,040)    (2,783)
    Deferred income taxes.....................................     (6,150)    (3,139)          -          -
    Impairment loss provision for advances to affiliates......      4,451      2,619         530         64
    Impairment loss provision for long-lived assets...........    291,648        150           -          -
    Recovery on amounts due from related companies............     (5,016)         -           -          -
    (Gain) loss on disposal of property, plant and
      equipment...............................................       (895)       581           -          -
    Depreciation and amortization.............................    106,015     50,889           -          -
    Amortisation of discount on subscription of the
    convertible note receivable...............................    (21,914)    (6,301)     (4,194)      (505)
Changes in operating assets and liabilities
  (net of effects of acquisition and disposition):
    Accounts and other receivables, net.......................    (91,973)   (67,339)     (4,893)      (591)
    Inventories...............................................    (97,220)    31,942           -          -
    Prepaid expenses and other current assets.................    (21,832)    (4,661)          -          -
    Due from related companies................................    (10,641)     1,495           -          -
    Other assets..............................................       (223)       194           -          -
    Accounts payable and other payables.......................    159,801     35,151          10          1
    Accrued liabilities.......................................     28,154     14,408       1,213        146
    Income taxes payable......................................     12,437     (7,087)          -          -
    Other taxes payable.......................................      9,002     (8,904)          -          -
                                                                 --------    -------    --------    -------

  Net cash provided by (used in) operating activities.........    131,494    104,801     (12,890)    (1,557)
                                                                 --------    -------    --------    -------
</TABLE>

                                     F - 6
<PAGE>

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------
                                                                   2002        2003        2004       2004
                                                                 --------    --------    -------    -------
                                                                    RMB         RMB        RMB         US$
<S>                                                              <C>         <C>         <C>        <C>
Cash flows from investing activities:
  Subscription of convertible note receivable.................   (127,284)          -    (74,926)    (9,049)
  Increase in subscription payable............................          -           -     62,989      7,607
  Increase in notes receivable................................   (464,961)   (114,001)   (99,399)   (12,005)
  Repayment of notes receivable...............................    140,412      91,304     43,447      5,247
  Decrease (increase) in restricted bank deposits.............     31,596     (14,431)         -          -
  Investments in and advances to affiliates, net..............   (180,612)   (197,358)    72,142      8,713
  Purchase of property, plant and equipment...................   (287,536)   (256,872)         -          -
  Proceeds from disposal of interest in an affiliate..........          -           -     47,532      5,741
  Proceeds from disposal of property, plant and equipment.....     77,320       4,601          -          -
  Proceeds from disposal of trading securities................        170           -          -          -
  Increase in amount due from ultimate parent company.........     (1,772)     (4,030)   (33,396)    (4,033)
  Decrease (increase) in amount due from Chinese joint venture
  partners....................................................      5,356        (200)         -          -
  Proceeds from disposal of business components, net..........        833    (104,128)         -          -
                                                                 --------     -------    -------    -------

Net cash (used in) provided by investing activities...........   (806,478)   (595,115)    18,389      2,221
                                                                 --------     -------    -------    -------

Cash flows from financing activities:
  Payment of dividends to minority interests..................     (5,801)     (1,527)         -          -
  Net increase in notes payable...............................    299,230           -          -          -
  Repayment of loans from a related company...................    (22,809)     (1,058)         -          -
  Increase (decrease) in bank and other short-term loans......     84,858     238,498    (27,708)    (3,346)
  Proceeds from long-term bank loans..........................    144,410     100,000          -          -
  Repayment from long-term bank loans.........................    (36,000)    (26,600)         -          -
  Decrease in amount due to Chinese joint venture partners....    (19,936)          -          -          -
                                                                 --------    --------    -------    -------

Net cash provided by (used in) financing activities...........    443,952     309,313    (27,708)    (3,346)
                                                                 --------    --------    -------    -------

Net decrease in cash and cash equivalents.....................   (231,032)   (181,001)   (22,209)    (2,682)
Cash and cash equivalents, beginning of year..................    475,656     244,624     63,623      7,684
                                                                 --------    --------    -------    -------

Cash and cash equivalents, end of year........................    244,624      63,623     41,414      5,002
                                                                 ========    ========    =======    =======
</TABLE>

                                     F - 7
<PAGE>


                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------
                                                                   2002     2003      2004      2004
                                                                 -------   ------   -------   -------
                                                                   RMB      RMB       RMB       US$
<S>                                                              <C>       <C>      <C>       <C>
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
  Interest paid - net of amounts capitalized...................     74,873   33,375         -         -
  Net income tax paid..........................................     11,410   20,228         -         -
                                                                   =======   ======   =======   =======

Supplemental schedule of non-cash investing and financing
    activities:
  Assignment of notes receivable to a holder of notes payable..    299,230        -         -         -
  Conversion of convertible note receivable, and the related
    transfer from derivative instruments, to equity interest
    in an affiliate (see note 7)...............................     50,531        -   119,161    14,391
  Deposit paid for acquisition of properties by a fellow
    subsidiary on behalf of the Company........................          -        -    50,000     6,039
                                                                   =======   ======   =======   =======
</TABLE>

          See accompanying notes to consolidated financial statements.

                                     F - 8
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

1.    ORGANIZATION AND BASIS OF PREPARATION

      China Enterprises Limited (the "Company") was incorporated in Bermuda on
      January 28, 1993. Its common stock traded on the New York Stock Exchange
      (the "NYSE") until September 27, 2002 when it was suspended from trading
      as a result of the Company's failure to meet the NYSE's continuing listing
      standards. On November 26, 2002, the Company's common stock began trading
      on the OTC (Over-the-Counter) Bulletin Board. On December 30, 2002, the
      common stock of the Company was delisted from trading on the NYSE.

      As of December 31, 2004, the Company had the following principal
      subsidiaries (together with the Company, collectively referred to as the
      "Group"):

      -     Container Limited ("Container", incorporated in the British Virgin
            Islands (the "BVI"));

      -     Capital Canton Limited ("Capital Canton", incorporated in the BVI);

      -     Century Lead Limited ("Century Lead", incorporated in the BVI);

      -     Honest Map Limited ("Honest Map", incorporated in the BVI);

      -     Leading Returns Limited ("Leading Returns", incorporated in the
            BVI);

      -     Manwide Holdings Limited ("Manwide", incorporated in the BVI);

      -     Million Good Limited ("Million Good", incorporated in the BVI);

      -     Orion Tire Corporation ("Orion Tire", incorporated in the United
            States of America (the "US"));

      -     Orion (B.V.I.) Tire Corporation ("Orion BVI", incorporated in the
            BVI);

      -     Sincere Ocean Limited ("Sincere Ocean", incorporated in the BVI);
            and

      -     Ventures Kingdom Limited ("Ventures Kingdom", incorporated in the
            BVI).

      -     [CHINIES CHARACTERS]("Rosedale", incorporated in the People's
            Republic of China (the "PRC"));

      All of these subsidiaries are separate legal entities with limited
      liability.

                                     F - 9
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

       (AMOUNTS IN THOUSANDS, EXCEPT CAPITAL, NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

1.    ORGANIZATION AND BASIS OF PREPARATION - CONTINUED

      Details of these subsidiaries are summarized as follows:

<TABLE>
<CAPTION>
                                     Capital      Century       Honest        Leading      Million
                       Container     Canton        Lead          Map          Returns       Good
                       ----------   ----------   ----------   -----------   -----------   ----------
<S>                    <C>          <C>          <C>          <C>           <C>           <C>
Legal status           Limited       Same as      Same as      Same as       Same as       Same as
                       liability    Container    Container    Container     Container     Container
                       company

Principal activities   Investment   Investment   Investment   Investment    Investment    Investment
                        holding      holding      holding     holding and   holding and    holding
                                                              financing     financing

Registered capital/      US$1         US$1         US$1         US$1           US$1         US$1
 Issued capital
 (amount as stated)

Percentage of             100         100          100          100             100         100
 ownership by the
 Company (%)

<CAPTION>
                        Sincere      Ventures                                 Orion        Orion
                         Ocean        Kingdom       Manwide      Rosedale      Tire         BVI
                       ----------   -----------   ----------   ------------  ----------   ----------
<S>                    <C>          <C>           <C>          <C>           <C>          <C>
Legal status            Same as      Same as       Same as      Same as       Same as      Same as
                       Container    Container     Container    Container     Container    Container


Principal activities   Investment   Investment    Investment   Property      Investment   Investment
                        holding     holding and    holding      holding       holding      holding
                                    financing

Registered capital/       US$1         US$1         US$1       US$3,000,000    US$1         US$100
 Issued capital
 (amount as stated)

Percentage of             100          100           100           100          60            60
 ownership by the
 Company (%)
</TABLE>

      As of December 31, 2004, the Company had the following significant equity
      method affiliates:

      -     Wing On Travel (Holdings) Limited (formerly known as Ananda Wing On
            Travel (Holdings) Limited and incorporated in Bermuda, hereinafter
            together with its subsidiaries collectively referred to as "Wing
            On"); and

      -     Hangzhou Zhongce Rubber Co., Limited ("HZ", located in Hangzhou,
            Zhejiang Province, the PRC).

      As of December 31, 2003, the Company had a 32.21% equity interest in Wing
      On. As a result of the transactions as detailed in note 6, the Company's
      equity interest in Wing On had been reduced to 19.58% as of December 31,
      2004. Wing On is engaged in the provision of package tours, travel and
      other related services and hotel operation with its shares listed on The
      Stock Exchange of Hong Kong Limited.

      HZ and its consolidated subsidiaries (the "PRC entities") is engaged in
      the manufacture of rubber tires in the PRC, and remained as a consolidated
      subsidiary of the Company for the periods presented until the Company sold
      a 25% equity interest in HZ on September 30, 2003. See note 3 for details
      of this disposition. Thereafter, HZ became a 26% owned equity affiliate of
      the Company.

      The PRC entities conduct their operations in the PRC. The Company is,
      accordingly, subject to special considerations and significant risks not
      typically associated with investments in equity securities of the US and
      western European companies. These include, among others, risks associated
      with the political and economic environment, foreign currency exchange,
      import restrictions and legal system of the PRC.

      The consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the US ("U.S. GAAP").

                                     F - 10
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (a)   BASIS OF CONSOLIDATION

            The consolidated financial statements include the assets,
            liabilities, revenue and expenses of the Company and its
            consolidated subsidiaries.

            All significant intercompany balances and transactions have been
            eliminated on consolidation. Investments in 50% or less owned
            companies over which the Company exercises significant influence but
            not control, are accounted for using the equity method. Under the
            equity method, the Company's proportionate share of the affiliate's
            net income or loss is included in the consolidated statement of
            operations.

      (b)   REVENUES

            Revenues represent the invoiced value of goods, net of value-added
            tax ("VAT") and other sales taxes, supplied to customers. Revenues
            are recognized upon delivery and acceptance of goods by the
            customers. The Company permits the return of damaged or defective
            products and accounts for these returns as deduction from sales.

      (c)   SHIPPING AND HANDLING FEES AND COSTS

            Costs for transportation of products to customers is recorded as a
            component of selling, general and administrative expense (see note
            17).

      (d)   CASH AND CASH EQUIVALENTS

            The Company considers cash on hand, demand deposits with banks and
            liquid investments with an original maturity of three months or less
            when purchased to be cash and cash equivalents. Included in cash and
            cash equivalents as of December 31, 2003 and 2004 were Renminbi
            deposits of Rmb21 (US$3) and Rmb637 (US$77), respectively.

      (e)   IMPAIRMENT

            In accordance with Statement of Financial Accounting Standards
            ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
            Long-Lived Assets," the Company evaluates the impairment of
            long-lived assets based on the projection of undiscounted cash flows
            whenever events or changes in circumstances indicate that the
            carrying amounts of such assets may not be recoverable. In the event
            such cash flows are not expected to be sufficient to recover the
            recorded value of the assets, the assets are written down to their
            estimated fair values (see note 4).

                                     F - 11
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (f)   INCOME TAXES

            The Company accounts for income taxes using the liability method in
            accordance with SFAS No. 109, "Accounting for Income Taxes". Under
            this method, deferred tax assets and liabilities are recognized for
            the future tax consequences attributable to differences between the
            financial statement carrying amounts of existing assets and
            liabilities and their respective tax bases and to operating loss and
            tax credit carry forwards. Deferred tax assets and liabilities are
            measured using enacted tax rates expected to apply when those
            temporary differences are expected to reverse. Valuation allowances
            are established to reduce the amount of deferred tax assets if it is
            considered more likely than not that some portion of, or all of, the
            deferred tax asset will not be realized.

      (g)   VAT AND CONSUMPTION TAX ("CT")

            All of the Group's PRC entities are subject to VAT and CT. Such
            taxes are recognized on an accrual basis and revenues are recorded
            net of these taxes.

      (h)   FOREIGN CURRENCIES

            The PRC entities of the Group maintain their books and records in
            Renminbi, their functional currency. Foreign currency transactions
            are translated into Renminbi at the applicable exchange rates quoted
            by the People's Bank of China (the "unified exchange rates")
            prevailing at the dates of the transactions. Monetary assets and
            liabilities denominated in foreign currencies are translated into
            Renminbi using the applicable unified exchange rates prevailing at
            the respective balance sheet dates. Non-monetary assets and
            liabilities are translated at the unified exchange rates prevailing
            at the time the assets or liabilities were acquired. The resulting
            exchange differences are included in the consolidated statement of
            operations.

            The translation of Renminbi (Rmb) amounts into United States dollar
            (US$) amounts are included solely for the convenience of readers in
            the United States of America and have been made at US$1.00 =
            Rmb8.28, the unified exchange rate on December 31, 2004. No
            representation is made that the Renminbi amounts could have been, or
            could be, converted into United States dollar at that or at any
            other rate.

                                     F - 12
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (i)   PROFIT APPROPRIATION

            In accordance with the relevant laws and regulations for
            Sino-foreign equity joint venture enterprises, the PRC entities is
            required to make appropriation of 5% of after tax profit as prepared
            in accordance with accounting principles generally accepted in the
            PRC to non-distributable reserve funds as determined by the Board of
            Director of the PRC entities. These reserves include a general
            reserve fund, an enterprise expansion fund, and a staff welfare and
            incentive bonus fund. The general reserve fund is used to offset
            future extraordinary losses. The PRC entities may, upon resolution
            passed by the shareholders, convert the general reserve fund into
            capital. The enterprises expansion fund is used for the expansion of
            the PRC entities' operation and can be converted to capital subject
            to approval by the relevant authorities. The staff welfare and
            incentive bonus fund is used for the collective welfare of the
            employees of the PRC entities. In addition, certain of the PRC
            entities were granted special reserve fund by the government for
            specific projects carried out by the relevant PRC entities. The
            appropriation for the staff welfare and incentive bonus fund is
            charged to consolidated statements of operations of the PRC
            entities. All other reserve funds are included in retained earnings
            of the PRC entities but can only be used for specific purpose and
            are not distributable as cash dividend.

            Included in the accumulated deficit of the Group as of December
            2002, 2003 and 2004 was non-distributable reserves attributable to
            the Group of Rmb39,708, Rmb524 and Rmb1,736, respectively.

      (j)   BASIC AND DILUTED (LOSS) EARNINGS PER SHARE

            The Company calculates basic and diluted (loss) earnings per share
            in accordance with SFAS No. 128, "Earnings Per Share". Basic (loss)
            earnings per share is computed using the weighted-average number of
            common shares outstanding during the year. Diluted (loss) earnings
            per share is computed using the weighted-average number of common
            shares and common stock equivalent shares outstanding during the
            year. Common stock equivalent shares such as shares issuable upon
            the exercise of stock options are excluded from the computation if
            their effect is anti-dilutive. During 2002 and 2003, all outstanding
            options were anti-dilutive (see note 11). There were no outstanding
            share options during fiscal 2004.

      (k)   USE OF ESTIMATES

            The preparation of financial statements in conformity with U.S. GAAP
            requires management to make estimates and assumptions that affect
            the reported amounts of assets and liabilities and disclosures of
            contingent assets and liabilities at the date of the financial
            statements and the reported amounts of revenues and expenses during
            the reporting period. Actual results may differ from those
            estimates.

                                     F - 13
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (l)   FINANCIAL INSTRUMENTS

            The Company recognizes all derivative instruments on the balance
            sheet at fair value in accordance with SFAS No. 133, "Accounting for
            Derivative Instruments and Hedging Activities". The Company does not
            purchase derivative instruments to manage risks.

            The Group's financial instruments that are exposed to concentration
            of credit risk consist primarily of its cash and cash equivalents,
            other receivables, notes receivable, amount due from ultimate parent
            company, advances to affiliates and convertible notes. The Group's
            cash and cash equivalents are high-quality deposits placed with
            banking institutions with high credit ratings; therefore, the credit
            risk is limited. Other receivables comprise principally interest
            receivable from note holders. As of December 31, 2004, the notes
            receivable and related interest receivable are due from six parties
            and the Group has reviewed their credit worthiness and does not
            expect to incur significant losses for uncollected accounts. The
            Group has also reviewed the credit worthiness and financial position
            of its ultimate parent company and affiliates for credit risks
            associated with amount due from an ultimate parent company, advances
            to affiliates and convertible notes receivable from an affiliate.
            These entities have good credit standing and the Group does not
            expect to incur significant losses for uncollected advances from
            these entities.

            The carrying value of current financial assets and current financial
            liabilities approximate their fair value due to the short-term
            nature of these instruments. The fair value of convertible notes
            receivable as of December 31, 2003 and 2004 was Rmb89,947 and
            Rmb113,363, respectively, which was determined based on the
            estimated net amount the Company would receive as of December 31,
            2003 and 2004 from the note issuer, the interest rates of similar
            instruments from market, and the estimated fair value of the call
            option embedded in the convertible note.

      (m)   COMPREHENSIVE (LOSS) INCOME

            The Company reports comprehensive income in accordance with SFAS No.
            130, "Reporting Comprehensive Income". Comprehensive income consists
            of net income (loss) and other gains and losses affecting
            shareholders' equity that, under U.S. GAAP are excluded from net
            income (loss). Comprehensive (loss) income for 2002, 2003 and 2004
            includes translation adjustment relating to an affiliate.
            Comprehensive (loss) income has been disclosed within the
            consolidated statements of operations and comprehensive (loss)
            income.

      (n)   SEGMENT INFORMATION

            The Company reports information about operating segments on a basis
            consistent with the Company's internal organization structure as
            well as information about geographic areas and major customers in
            accordance with SFAS No. 131, "Disclosures about Segments of an
            Enterprise and Related Information".

                                     F - 14
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (o)   RELATED PARTIES

            Parties are considered to be related to the Company if the parties
            that, directly or indirectly, through one or more intermediaries,
            control, are controlled by, or are under common control with the
            Company. Related parties also include principal owners of the
            Company, its management, members of the immediate families of
            principal owners of the Company and its management and other parties
            with which the Company may deal if one party controls or can
            significantly influence the management or operating policies of the
            other to an extent that one of the transacting parties might be
            prevented from fully pursuing its own separate interests. A party
            which can significantly influence the management or operating
            policies of the transacting parties or if it has an ownership
            interest in one of the transacting parties and can significantly
            influence the other to an extent that one or more of the transacting
            parties might be prevented from fully pursuing its own separate
            interests is also a related party.

      (p)   STOCK-BASED COMPENSATION

            The Company accounts for stock-based employee compensation
            arrangements in accordance with the provisions of Accounting
            Principles Board Opinion ("APB") No. 25, "Accounting for Stock
            Issued to Employees", and has adopted the disclosure-only
            requirements of SFAS No. 123, "Accounting of Stock-Based
            Compensation". Compensation expense related to employee stock
            options is recorded only if, on the measurement date, the quoted
            market price of the underlying stock exceeds the exercise price.

            In December 2004, the Financial Accounting Standards Board ("FASB")
            issued SFAS No. 123R "Share-Based Payment". This statement is a
            revision to SFAS No. 123 and supersedes APB No. 25 (see Note 2(s)).

      (q)   ADVERTISING EXPENSES

            The Company expenses advertising costs as incurred. Advertising
            expenses were Rmb7,550, Rmb5,145 and RmbNil for the years ended
            December 31, 2002, 2003 and 2004, respectively.

      (r)   DILUTION OF INTEREST IN EQUITY AFFILIATE/SUBSIDIARY

            The Company records the gains or losses arising from issuance by an
            equity affiliate or subsidiary of its own stock in additional
            paid-in capital account within shareholders' equity in the
            consolidated financial statements.

                                     F - 15
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      (s)   RECENT ACCOUNTING PRONOUNCEMENTS

            In December 2004, the FASB issued SFAS No. 123R that will require
            compensation costs related to share-based payment transactions to be
            recognized in the financial statements. With limited exceptions, the
            amount of compensation cost will be measured based on the grant-date
            fair value of the equity or liability instruments issued. In
            addition, liability awards will be remeasured each reporting period.
            Compensation cost will be recognized over the period that an
            employee provides service in exchange for the award. SFAS No. 123R
            replaces SFAS No. 123, and supersedes APB Opinion No. 25. SFAS No.
            123R is effective as of the beginning of the first annual reporting
            period that begins after June 15, 2005. The Company does not expect
            the adoption of SFAS No. 123R to have a material impact on the
            Company's financial position, cash flows or results of operations.

            In December 2004, the FASB issued SFAS No. 153, "Exchanges of
            Nonmonetary Assets, an amendment of APB Opinion No. 29." SFAS No.
            153 is based on the principle that exchanges of nonmonetary assets
            should be measured based on the fair value of the assets exchanged.
            APB Opinion No. 29, "Accounting for Nonmonetary Transactions,"
            provided an exception to its basic measurement principle (fair
            value) for exchanges of similar productive assets. Under APB Opinion
            No. 29, an exchange of a productive asset for a similar productive
            asset was based on the recorded amount of the asset relinquished.
            SFAS No. 153 eliminates this exception and replaces it with an
            exception of exchanges of nonmonetary assets that do not have
            commercial substance. SFAS No. 153 is effective for the Company as
            of July 1, 2005. The Company will apply the requirements of SFAS No.
            153 prospectively and does not expect its adoption to have a
            material impact on the Company's financial position, cash flows or
            result of operations.

      (t)   RECLASSIFICATIONS

            Certain prior year amounts in the accompanying consolidated
            financial statements have been reclassified to conform to the
            current year presentation. These reclassifications had no effect on
            the results of operations or financial position for any year
            presented.

                                     F - 16
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

3.    DIVESTITURE

      On September 30, 2003, the Company completed the sale of its 25% equity
      interest in HZ, for Rmb164,660 in cash, and recognized a loss of Rmb1,158
      on the sale. As a result of this transaction, the Company's equity
      interest in HZ is reduced from 51% to 26%, and the Company can only
      exercise significant influence but not control over HZ, which becomes an
      equity method affiliate of the Company. The Company has included the
      results of the operations of HZ for the nine-month period ended September
      30, 2003 in its consolidated financial statements for the year ended
      December 31, 2003, and has accounted for HZ's results of operations from
      October 1, 2003 to December 31, 2003 and for the year ended December 31,
      2004 using equity method of accounting.

      See note 4 for other divestitures that have been classified as
      discontinued operations.

4.    DISCONTINUED OPERATIONS

      During 2002, the Company disposed of certain of its subsidiaries which
      included Double Happiness Tyre Industries Corporation Limited ("DH"),
      Yantai C.S.I. Rubber Co., Limited ("YT"), Shandong C.S.I. Synthetic Fiber
      Co., Limited ("SD") and Yinchuan C.S.I. (Greatwall) Rubber Co., Ltd.
      ("YC").

      (a)   DH

            DH consisted of a bias tire factory and a radial tire factory under
            construction. All of DH's revenue was contributed by the bias tire
            factory as trading and manufacturing activities were only carried
            out in this factory. In fiscal 1995, DH temporarily suspended
            construction of the radial tire factory. Total costs incurred for
            the factory up to December 31, 2002, net of provisions, were
            approximately Rmb39,886, and had been included in
            construction-in-progress under property, plant and equipment.

            In late September 2001, the Company's management adopted a plan to
            dispose of its entire interest in DH and subsequently entered into a
            share transfer agreement with a third party to dispose of its entire
            interest in the bias tire factory only for a consideration of
            Rmb41,000. Although the completion of the sale was pending upon
            certain approvals being obtained from government authorities, the
            Company transferred substantially all its risks and benefits of
            ownership of the factory to the buyer in early December 2001 and had
            ceased to account for the results of operations and the assets and
            liabilities of the factory from the disposal date. The sales
            proceeds were received by the Company in cash during fiscal 2001.

                                     F - 17
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

4.    DISCONTINUED OPERATIONS - continued

      (a)   DH - continued

            The Company had also recognized an impairment loss of Rmb31,187 in
            fiscal 2001 for the planned disposition of the radial tire factory
            calculated on the basis of anticipated sales value of Rmb30,000
            which was expected to be received in fiscal 2002 less a loss of
            Rmb73,728 from the waiver of loan advances by the Company to the
            factory.

            The estimated selling price of Rmb30,000 was derived from prior
            discussions with potential purchasers of the factory; however, the
            market conditions worsened in fiscal 2002 and, as a result, the
            factory remained unsold as of December 31, 2002. The Company
            recognized an additional impairment expense of Rmb42,479 in the
            fourth quarter of fiscal 2002 to write down the net assets of the
            factory to a nominal value of Rmb1 in view of the deteriorating
            market conditions.

            In June 2003, the Company entered into a share transfer agreement
            with a third party and completed the disposition of the radial tire
            factory for a consideration of Rmb10,000. The Company recognized a
            gain on such disposition of Rmb11,211 in 2003.

            Interest expense incurred on the outstanding loans used to finance
            the construction of the factory, amounting to Rmb7,000 and Rmb743
            for the years ended December 31, 2002 and 2003, respectively, has
            been included in loss from discontinued operations.

      (b)   YT

            In the fourth quarter of fiscal 2001, the Company decided to sell
            its interests in YT as a result of the change in business climate on
            the demand of traditional pneumatic tire. The Company subsequently
            entered into a share transfer agreement with a third party to
            dispose of its entire interest in YT and the respective
            shareholder's advance of Rmb20,167 for an aggregate consideration of
            Rmb26,000. The sale was completed in 2002 and the direct selling
            costs were Rmb550. The Company recognized a gain on such disposition
            of Rmb7,967 in 2002.

      (c)   SD

            In January 2002, the Company signed a transfer agreement to sell its
            entire interest in SD to its Chinese joint venture partner for a
            consideration of Rmb10. The sale was completed in July 2002 upon
            obtaining approval from the relevant government authorities. The
            Company transferred substantially all its risks and benefit of
            ownership of SD to the buyer and recognized a gain on such
            disposition of Rmb12,177 in the third quarter of 2002.

                                     F - 18
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

4.    DISCONTINUED OPERATIONS - continued

      (d)   YC

            In the second quarter of 2002, the Company recognized an impairment
            loss provision for the long-lived assets of YC of Rmb174,384. Due to
            poor operating results and continued weakness in markets operated by
            YC, the Company reviewed and revised the projected future operating
            results of YC and determined that its expected future undiscounted
            cash flows were less than the carrying amount of its long-lived
            assets resulting in the recognition of this non-cash impairment
            charge.

            In the second half of fiscal 2002, the Company initiated a process
            to sell YC. The Company recognized an additional non-cash impairment
            charge of Rmb74,785 to write down the carrying value of the
            long-lived assets of YC representing management's best estimate of
            the loss to be recognized on the sale.

            In January 2003, the Company entered into a share transfer agreement
            with the Chinese joint venture partner of YC to dispose of its
            entire interest in YC for an initial aggregate consideration of
            Rmb35,000 approximating the carrying value as of December 31, 2002.

            In September 2003, the Company entered into a supplemental agreement
            with the Chinese joint venture partner of YC to reduce the sale
            consideration to Rmb29,000. The sale was completed in January 2003
            and the Company recognized a loss on this disposition of Rmb14,724
            in 2003.

      Accordingly, the operating results of DH, YT, SD and YC have been
      segregated from continuing operations and reported as a separate line item
      on the consolidated statement of operations.

      Operating results of the discontinued operations are summarized below:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ---------------------------
                                                                2002       2003     2004
                                                              --------    ------   ------
                                                                 Rmb        Rmb      Rmb
<S>                                                           <C>         <C>      <C>
Revenues..................................................     621,653         -        -
                                                              ========    ======   ======
Loss from operations of discontinued components before
 income taxes and minority interests (including
 impairment write-downs for those business components of
 Rmb291,648 in 2002, RmbNil in 2003 and 2004, gain on
 disposition of Rmb20,144 in 2002, loss on disposition
 of Rmb7,017 in 2003 and RmbNil in 2004, respectively),
 net of applicable income tax of RmbNil
 in 2002, 2003 and 2004...................................    (345,012)   (7,760)       -
Minority interests........................................     145,174         -        -
                                                              --------    ------   ------
Loss from discontinued operations ........................    (199,838)   (7,760)       -
                                                              ========    ======   ======
</TABLE>

                                     F - 19
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

5.    NOTES RECEIVABLE

      The notes, carrying interest at commercial rates, are unsecured and
      receivable from unrelated parties. Other than Rmb26,183 which is repayable
      on demand, the remaining balance is due in 2005.

6.    INVESTMENTS IN AND ADVANCES TO AFFILIATES

      WING ON:

      In April 2002, Million Good subscribed for 4,800,000,000 new ordinary
      shares of HK$0.01 each ("Subscription Shares") in Wing On, representing
      approximately 34.6% of the then outstanding share capital of Wing On, at
      an issue price of HK$0.027 per Subscription Shares for an aggregate
      subscription price of HK$132,715 (Rmb140,784, including transaction costs
      of Rmb3,304), pursuant to an agreement entered into in February 2002. The
      excess of the equity in the fair value of net assets of Wing On over
      Million Good's aggregate investment costs of Rmb146,552 was allocated on a
      pro rata basis to Wing On's non-current assets pursuant to the rules
      specified in SFAS No. 141, "Business Combinations" and out of which
      Rmb84,538 was allocated to property, plant and equipment that are subject
      to depreciation and amortisation. As a result, Million Good has a
      different basis in those assets than Wing On has, and such difference is
      amortised over the average depreciable lives of the underlying property,
      plant and equipment. The remainder was allocated to other equity method
      affiliates and long-term investments of Wing On.

      As part of the acquisition of an equity interest in Wing On, Million Good
      also subscribed for a two-year convertible note (the "Old Note") issued by
      Wing On in the principal amount of HK$120,000 (Rmb127,284). In July 2002,
      Million Good exercised certain of its conversion rights under the terms of
      the Old Note, resulting in the issuance of 1,100,000,000 new ordinary
      shares of Wing On to Million Good. This additional investment amounted to
      HK$47,639 (Rmb50,531) which comprised HK$15,373 (Rmb16,306) of the
      carrying value of the Old Note (net of unamortized discount on
      subscription) and the fair value of the related convertible feature of
      HK$32,266 (Rmb34,225). No conversion rights were exercised by Million Good
      or other convertible note holders during fiscal 2003.

      On January 13, 2004, March 17, 2004 and May 4, 2004, Wing On entered into
      agreements with the Company and another holder of its convertible notes in
      relation to the issuance of new convertible notes, whereby Wing On issued
      new convertible notes to the Company (the "New Note") for a consideration
      of HK$155,000 (Rmb164,873), of which HK$84,800 (Rmb89,947) was settled by
      the cancellation of the Company's then unsettled Old Note and the
      remaining balance was satisfied in cash by the Company. The New Note is
      convertible into new shares of Wing On during a period of three years from
      the date of issue, at an initial conversion price of HK$0.02 per share,
      subject to adjustments.

      In October and November 2004, the Company exercised certain of its
      conversion rights under the terms of the New Note, resulting in the
      issuance of 5,000,000,000 new ordinary shares of Wing On to Million Good.
      The additional investment amounted to HK$100,000 (Rmb106,370) which
      represented the carrying value of the New Note. In November 2004, the
      Group disposed of its 2,250,000,000 shares in Wing On at the price of
      HK$0.02 per share to unrelated parties, resulting in a gain on disposal of
      Rmb23,040.

                                     F - 20
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

6.    INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

      WING ON: - CONTINUED

      In November 2004, the Company also entered into two placing and
      subscription agreements with Wing On and a placing broker (the "Placing
      Agent") pursuant to which the Placing Agent agreed to place 6,000,000,000
      shares of HK$0.01 each in Wing On then held by the Company at the price of
      HK$0.028 per share to independent investors and the Company would
      subscribe for up to 6,000,000,000 new shares in Wing On at the same price
      of HK$0.028 per share. This "top-up placing" arrangement was agreed by the
      Company as the major shareholder of Wing On in order to expedite the
      capital raising activities of Wing On. The first placing and subscription
      agreement and the second placing and subscription agreement related to the
      placing and the conditional subscription of 3,660,000,000 and
      2,340,000,000 shares in Wing On, respectively. The subscription of the
      shares under the second placing and subscription agreement was conditional
      upon, among others, the approval of the independent shareholders of Wing
      On. As such, the Company is entitled to complete the second placement
      without the obligation to complete the second subscription. In December
      2004, the Company completed the first placing and subscription agreement
      and the second placement. As of December 31, 2004, proceeds received from
      the second placement were shown in the balance sheet as subscription
      payable and was settled when the second subscription was completed in
      January 2005. Details of these are set out in note 19.

      From May through September of 2002, several note holders of Wing On
      exercised the conversion right under the Old Note and Wing On also
      repurchased certain of its ordinary shares through unsolicited block
      transactions. From October through November of 2004, another note holder
      of the New Note exercised their conversion right under the New Note. These
      transactions resulted in a net dilution of the Company's interest in Wing
      On and the recognition by the Company of a net unrealized loss on dilution
      of Rmb5,622, and an unrealized gain of Rmb14,306 during each of the years
      ended December 31, 2002 and 2004, respectively, recorded in addition
      paid-in-capital. The Company also recorded its share of unrealized loss of
      Rmb626 in additional paid-in capital as a result of dilution of interest
      in a subsidiary of Wing On during fiscal 2002.

      HZ:

      In June 2003, the Group entered into a share transfer agreement for the
      disposition of a 25% equity interest in its then 51% owned subsidiary, HZ
      (which in turn owns a 51.24% equity interest of FCJ). HZ and FCJ are
      hereinafter collectively referred to as "HZ Tire". The sale was completed
      in September 2003 and as a result of this disposition, HZ Tire became an
      equity affiliate of the Group. See note 1 for details of HZ and note 16
      for segment information of HZ Tire prior to the disposition.

                                     F - 21
<PAGE>


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

6.    INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

      The following table presents summarized comparative financial information
      for the Company's investments in 50% or less owned investments, over which
      the Company has the ability to exercise significant influence but does not
      control, which are accounted for using the equity method:

<TABLE>
<CAPTION>
                                                                2002                  2003                 2004
                                                              ---------            ---------            ---------
                                                                 Rmb                  Rmb                  Rmb
<S>                                                           <C>                  <C>                  <C>
Revenues.............................................         1,603,559            5,307,123            6,853,459
Operating (loss) gain................................          (258,975)             (83,656)             232,267
Net (loss) gain......................................          (323,191)            (355,237)              94,148
Current assets.......................................           671,185            2,106,765            2,590,185
Non-current assets...................................         1,416,045            1,575,892            4,206,376
Current liabilities..................................           735,234            2,277,462            3,410,373
Non-current liabilities..............................           511,772              326,991            1,439,385
Shareholders' equity.................................           840,224            1,027,988            1,438,236
</TABLE>

      Advances to the affiliates are Rmb95,695 and Rmb91,384 as adjusted for the
      equity method loss of Rmb60,906 and RmbNil as of December 31, 2003 and
      2004, respectively. As of December 31, 2004, other than aggregated
      advances to an affiliate of Rmb78,743 which bear interest at Hong Kong
      Prime Rate, the amounts are interest free. Advances to affiliates are
      repayable upon demand except for an amount of RMB78,743 which is repayable
      in nine months upon serving a demand notice by the Company to the
      affiliate; however, the Company has agreed not to require repayment prior
      to January 2006. An allowance relating to these advances amounting to
      Rmb4,451, Rmb2,619 and Rmb530 was charged to expense as a component of
      selling, general and administrative expenses for fiscal 2002, 2003 and
      2004.

      Equity ownership percentages for these affiliates are presented below:

<TABLE>
<CAPTION>
                                                             Place of
                                                          incorporation/
AFFILIATE                                                  registration          2003          2004
---------                                                 --------------        ------        ------
<S>                                                       <C>                   <C>           <C>
Wing On.............................................        Bermuda              32.21%        19.58%
X One Holding Limited...............................        Hong Kong            33.33%        33.33%
HZ..................................................        PRC                     26%           26%
</TABLE>

                                     F - 22
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

7.    CONVERTIBLE NOTE RECEIVABLE FROM AN AFFILIATE, NET/DERIVATIVE INSTRUMENT

      As of December 31, 2003, the Old Note consisted of Rmb81,448 principal
      amount, net of unamortized discount on subscription of the Old Note. The
      Old Note bore interest at a rate of 2% per annum payable semi-annually in
      arrears. The unsettled Old Note was cancelled upon the issuance of the New
      Note (see note 6). As of December 31, 2004, the New Note consisted of
      Rmb45,008 principal amount, net of unamortized discount on subscription of
      the New Note. The New Note bears interest at a rate of 2% per annum
      payable semi-annually in arreas. The Company has a right to convert the
      New Note into ordinary shares of Wing On at a rate per share equal to
      HK$0.02, subject to adjustments, at any time prior to the New Note's
      maturity date, which will be three years from the date the New Note is
      issued.

      In accordance with SFAS No. 133 "Accounting for Derivative Instruments and
      Hedging Activities", as amended, the conversion option element of the Old
      Note and New Note represents an embedded derivative instrument which must
      be accounted for separately from the Note and, as such, to be measured at
      fair value when initially recorded and at subsequent reporting dates. The
      fair value of this conversion option, representing a discount on
      subscription of the Old Note and the New Note, was estimated using the
      Black-Scholes option pricing model at the date of its subscription and as
      of each subsequent balance sheet date. The impact of changes in fair value
      of this conversion option, taking into account the portion of the
      conversion option exercised during fiscal 2002, 2003 and 2004 (see note
      6), was loss of Rmb45,328, RmbNil and gain of Rmb59,929, which have been
      recognized in the consolidated statement of operations for fiscal 2002,
      2003 and 2004, respectively.

8.    DEPOSIT PAID FOR ACQUISITION OF PROPERTIES

      On June 16, 2004, Manwide entered into a conditional sale and purchase
      agreement with Shanghai Jiu Cheng Investment Limited ("Jiu Cheng"), an
      unrelated property developer, for the acquisition of a parcel of land
      situated in Shanghai, the PRC (the "Land") and the 24-storey building and
      carpark being constructed (the "Building", hereinafter with the Land are
      collectively referred to as the "Xiang Zhang Garden").

      The total consideration for the acquisition of Xiang Zhang Garden, on a
      completion basis, is Rmb450,000. A deposit of Rmb50,000 was paid by
      Manwide to Jiu Cheng on June 18, 2004 and recorded as deposit paid for
      acquisition of properties as of December 31, 2004.

      The remaining consideration of Rmb400,000 is to be settled by the
      assumption of bank loans of Rmb380,000 and cash consideration of Rmb20,000
      upon the grant of bank loan and the transfer of the ownership of Xiang
      Zhang Garden to Manwide. The closing of the acquisition is subject to
      certain conditions precedent.

                                     F - 23
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

8.    DEPOSIT PAID FOR ACQUISITION OF PROPERTIES - CONTINUED

      According to the conditional sale and purchase agreement, prior to the
      completion of the acquisition, Jiu Cheng should (i) obtain the certificate
      in respect of the land use rights of the Land and the ownership of the
      Building; (ii) obtain an approval from the relevant government authorities
      in Shanghai that the authorized usage of the properties be changed from
      office to both commercial and residential and that all relevant fees and
      charges arising from the sale of the Land payable to the relevant
      government authorities having been settled in full; (iii) agree with
      Manwide on the specification of installation, fixtures and furniture and
      other internal decoration of the properties; (iv) procure all the
      contractors engaged in the development/construction of the properties to
      enter into agreements with Manwide to bind these contractors with
      obligations to Manwide to rectify all defects of the properties which may
      arise after the completion of the development/construction; and (v)
      procure the granting of a loan ("Loan") to be granted by PRC banks to
      Manwide to finance the remaining consideration.

      Provided that if the conditions are not fulfilled on or before June 1,
      2005, Manwide shall agree to a further extension of not less than 60 days
      without imposing any fine on Jiu Cheng. If the conditions are not
      fulfilled within the extended period, Manwide shall be entitled to
      terminate the agreement and Jiu Cheng shall refund the deposit to Manwide
      together with interests accrued during the period from the date of the
      agreement to the date of deposit is refunded and calculated on the
      relevant prevailing market interest rate.

      It is one of the conditions for completion of the acquisition that Jiu
      Cheng should obtain approval for the change of authorized usage of the
      properties from office to both commercial and residential. Should Jiu
      Cheng fail to obtain such approval within 150 days from the date of the
      agreement, Manwide is entitled to either (i) to proceed with the agreement
      in accordance with the existing terms and conditions; or (ii) to acquire
      the 1st to 7th floors and the 23rd floor of the properties together with
      the two levels underground carparks for a consideration of Rmb70,000.

      However, the conditions stated above for the change of use of Xiang Zhang
      Garden had not been fulfilled within the said period and accordingly, Jiu
      Cheng and the Group entered into another agreement dated February 3, 2005
      pursuant to which, among other things, (i) the Group will pay, on behalf
      of Jiu Cheng, RMB22,000 to the main contractor of Xiang Zhang Garden (the
      "Main Contractor"); and (ii) the amount paid by the Group in (i) will be
      deducted from the sales consideration of Xiang Zhang Garden.

      Further, the Group had advanced an additional RMB8,000 to Jiu Cheng
      pursuant to this additional agreement and the aggregate sum paid by the
      Group to Jiu Cheng amounted to RMB58,000 as of the date of this report.

      In June 2005, the Group had commenced legal proceedings against Jiu Cheng,
      among other things, to demand Jiu Cheng to fulfill its obligations under
      the above two agreements and applied to a PRC court an injunction order on
      Xiang Zhang Garden to stop Xiang Zhang Garden from being transferred (the
      "Injunction Order(s)"). It had also come to the attention of the Group
      that one of the three secured creditors of Jiu Cheng and the Main
      Contractor had already applied to and being granted the Injunction Orders
      and they, together with the other two secured creditors, had priority over
      the Group on Xiang Zhang Garden.

                                     F - 24
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

8.    DEPOSIT PAID FOR ACQUISITION OF PROPERTIES - CONTINUED

      As a condition precedent to the application of the Injunction Order, the
      Group had issued a counter guarantee of RMB402,000 to an institution in
      the PRC which provided a guarantee of the same amount to the PRC court on
      behalf of the Group.

      At the same time, the directors of the Group are also in discussion with
      Jiu Cheng for settlement of the above matters; however, there can be no
      assurance that such matter can be resolved and settled with Jiu Cheng
      eventually.

      Despite the above developments, the directors of the Group have consulted
      its legal counsel and decided to proceed with the acquisition of Xiang
      Zhang Garden in consideration of the following:

      (a)   the legal title of Xiang Zhang Garden can be transferred to the
            Group when the debts of Jiu Cheng owed to the three secured
            creditors and the Main Contractor are settled by the Group;

      (b)   the usage of Xiang Zhang Garden can be changed to both commercial
            and residential when the Group obtains the legal title to Xiang
            Zhang Garden and makes the application to the relevant authority;

      (c)   the acquisition of Xiang Zhang Garden, on a completion basis, is
            expected to bring economic benefits to the Group taking into account
            of the estimated market value of Xiang Zhang Garden as of June 30,
            2005; and

      (d)   the ability of the Group to meet the cash flow requirements to
            finance the acquisition and completion of Xiang Zhang Garden, given
            the current financial position of the Group and financial resources
            available to the Group from internally generated funds, advances
            from its holding companies and/or financial institutions.

9.    PROVISION FOR INCOME TAXES

      The components of profit (loss) from continuing operations before income
      taxes and minority interests are as follows:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                               -------------------------------------
                                                                 2002           2003          2004
                                                               --------       --------       -------
                                                                 Rmb             Rmb           Rmb
<S>                                                            <C>            <C>            <C>
The PRC..............................................           154,900        117,650        29,696
All other jurisdictions..............................          (131,045)      (117,499)      152,246
                                                               --------       --------       -------
                                                                 23,855            151       181,942
                                                               ========       ========       =======
</TABLE>

                                     F - 25
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

9.   PROVISION FOR INCOME TAXES - CONTINUED

     The Company was incorporated under the laws of Bermuda and, under current
     Bermuda law, is not subject to tax on income or on capital gains. The
     Company has received an undertaking from the Ministry of Finance of Bermuda
     pursuant to the provisions of the Exempted Undertakings Tax Protection Act,
     1966, as amended, that in the event that Bermuda enacts any legislation
     imposing tax computed on profits or income, including any dividend or
     capital gains withholding tax, or computed on any capital asset, gain or
     appreciation, or any tax in the nature of estate duty or inheritance tax,
     then the imposition of any such tax shall not be applicable to the Company
     or to any of its operations or the shares, debentures or other obligations
     of the Company until March 28, 2016. This undertaking is not to be
     construed so as to (i) prevent the application of any such tax or duty on
     such person as an ordinary resident in Bermuda; or (ii) prevent the
     application of any tax payable in accordance with the provision of the Land
     Tax Act, 1967 or otherwise payable in relation to any land leased to the
     Company in Bermuda.

     Except as stated in the following paragraphs, the Group's PRC entities and
     subsidiaries are subject to income taxes calculated at tax rates (ranging
     from 15% to 44%) on the taxable income as reported in the statutory
     financial statements adjusted for taxation based on tax laws prevailing at
     their respective places of incorporation and operations.

     In accordance with the relevant income tax laws applicable to Sino-foreign
     joint ventures in the PRC, the Group's PRC entities, other than FCJ, having
     a joint venture term of not less than 10 years and engaging in production
     industries, are fully exempt from the Chinese State unified income tax for
     two years starting from the first profit-making year (after utilization of
     available accumulated losses carried forward), followed by a 50% reduction
     of the Chinese State unified income tax for the next three years thereafter
     ("tax holiday"). In accordance with the same tax laws, the PRC entities,
     other than FCJ, are also exempt from the PRC local income tax. Accumulated
     losses brought forward by the PRC entities, not exceeding a period of five
     years, can be offset against the profits to arrive at the assessable
     profits for income tax computation purposes. A summary of the tax
     concessions available to the PRC entities for fiscal 2002 is as follows:

<TABLE>
<CAPTION>
                    CHINESE STATE
                       UNIFIED     CHINESE LOCAL      CONCESSION FROM         CONCESSION              YEAR OF
                     INCOME TAX     INCOME TAX         CHINESE STATE         FROM CHINESE            COMMENCEMENT
PRC ENTITIES          RATE (%)       RATE (%)        UNIFIED INCOME TAX    LOCAL INCOME TAX        OF TAX HOLIDAY
------------          --------       --------        ------------------    ----------------        --------------
<S>                 <C>            <C>               <C>                   <C>                     <C>
    HZ                  15.0           1.5           None                  Full exemption for           1993
                                                                           10 years starting
                                                                           from the commencement
                                                                           of tax holiday

    DH                  24.0           3.0           None                  Same as HZ                   1992

    YC                  24.0           3.0           Specifically          Full exemption for           1994
                                                     allowed to extend     6 years starting from
                                                     the 50% reduction     commencement of
                                                     for 2001              tax holiday followed
                                                                           by a 50% reduction
                                                                           for the next 4 years
                                                                           thereafter

    FCJ                 30.0           3.0           None                  None                          N/A
</TABLE>

                                      F - 26
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

9.   PROVISION FOR INCOME TAXES - CONTINUED

     During fiscal 2003 and 2004, the PRC entities are not entitled to any tax
     concessions as all tax concession periods have expired. During fiscal 2002,
     if the PRC entities were neither in the tax holiday period nor had they
     been specifically allowed special tax concessions, they would have recorded
     additional income tax expenses of Rmb1,960, the consolidated net loss would
     have been increased by Rmb1,000, and basic and diluted net loss per share
     would have been increased to Rmb29.03 for the year ended December 31, 2002.

     The PRC entities are required to provide for VAT and CT which are the
     principal taxes on the sales of tangible goods and the provision of certain
     specified services. The general VAT rate applicable to the PRC entities is
     17% while CT is calculated at 10% on the domestic sales amount, except that
     the 10% CT on radial tire products was abolished since January 1, 2001. VAT
     and CT are recognized on an accrual basis and sales are recorded net of
     these taxes.

     The reconciliation of the effective income tax rate based on profit (loss)
     from continuing operations before income taxes and minority interests to
     the statutory income tax rates in Hong Kong, the PRC and the United States
     is as follows:

<TABLE>
<CAPTION>
                                                                2002                  2003                  2004
                                                                ----                  ----                  ----
                                                                Rmb                   Rmb                    Rmb
<S>                                                             <C>                   <C>                   <C>
Weighted average statutory tax rates.................             17%                   18%                   17%
Effect of tax holiday................................             (8%)                   -                     -
Permanent differences relating to non-taxable
 income and non-deductible expenses..................             74%                8,272%                  (17%)
Valuation allowance..................................             (5%)                   -                     -
Others...............................................             (4%)              (1,275%)                   -
                                                                  --                ------                   ---
Effective tax rate...................................             74%                7,015%                    -
                                                                  ==                ======                   ===
</TABLE>

Provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                               2002                  2003                  2004
                                                               ----                  ----                  ----
                                                                Rmb                   Rmb                   Rmb
<S>                                                            <C>                  <C>                    <C>
Current..............................................          23,847               13,732                    -

Deferred.............................................          (5,071)              (3,140)                   -
Adjustment of valuation allowance....................          (1,079)                   -                    -
                                                               ------               ------                   --
                                                               (6,150)              (3,140)                   -
                                                               ------               ------                   --

                                                               17,697               10,592                    -
                                                               ======               ======                   ==
</TABLE>

                                      F - 27
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

9. PROVISION FOR INCOME TAXES - CONTINUED

     The tax impact of temporary differences gives rise to the following
     deferred tax assets:

<TABLE>
<CAPTION>
                                                                                      2003                  2004
                                                                                      ----                  ----
                                                                                       Rmb                   Rmb
<S>                                                                                  <C>                   <C>
Tax losses carried forward.................................................           16,562                16,562
Valuation allowance for deferred tax assets................................          (16,562)              (16,562)
                                                                                     -------               -------

                                                                                           -                     -
                                                                                     =======               =======
</TABLE>

     As of December 31, 2003 and 2004, the tax losses from continuing operations
     carried forward derived principally from subsidiaries subject to US income
     tax, which amounted to Rmb37,641 and expire at various times through 2006.
     The loss carry forwards can only be utilized by the subsidiaries generating
     the losses. The valuation allowance refers to the deferred tax assets that
     are not more likely than not going to be realized.

10.  CAPITAL STOCK

     CAPITAL STOCK

     Each share of Supervoting Common Stock is entitled to 10 votes whereas each
     share of Common Stock is entitled to one vote. The Common Stock is
     identical to the Supervoting Common Stock as to the payment of dividends.
     Except for the difference in voting rights described above, the Supervoting
     Common Stock and the Common Stock rank pari passu in all respects.

     SHARE CAPITAL

     The Company was incorporated with an initial share capital of 1,200,000
     Common Stock with a par value of US$0.01 each which was later reclassified
     to Supervoting Common Stock. On May 14, 1993, the authorized share capital
     of the Company was further increased from US$12 to US$700 by the creation
     of 50,000,000 shares of Common Stock of par value US$0.01 each and
     18,800,000 shares of Supervoting Common Stock of par value US$0.01 each.
     6,000,000 shares of Supervoting Common Stock (including the 1,200,000
     Common Stock reclassified to Supervoting Common Stock) were issued to the
     ultimate parent company of the Company as a consideration for the transfer
     of two PRC entities to the Company and on June 23, 1993, the Company
     redeemed 3,000,000 shares of its outstanding Supervoting Common Stock at
     their par value of US$0.01 per share.

     There were no movements in share capital of the Company during fiscal 2002,
     2003 or 2004.

                                      F - 28
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

11.  STOCK OPTIONS

     Pursuant to an executive stock option scheme adopted on June 7, 1994, the
     Company grants options to officers and employees, and directors who are
     also employees, of the Company and its subsidiaries to subscribe Common
     Stock of the Company, subject to a maximum of 910,000 shares. Shares of
     Common Stock to be issued upon the exercise of options will be authorized
     and unissued shares. An independent committee (the "Committee") of the
     Board of Directors, consisting of non-employee directors has been formed to
     monitor and consider the granting of options under the scheme. The
     subscription price will be determined by the Committee, and will not be
     less than 80% of the average closing market price of shares of Common Stock
     over the five trading days immediately preceding the date of offer of the
     option.

     A summary of stock options activity during the three years ended December
     31, 2002, 2003 and 2004 is as follows:

<TABLE>
<CAPTION>
                                                                                                  WEIGHTED
                                                                                                  AVERAGE
                                                                                     NUMBER OF    EXERCISE
                                                                                      SHARES        PRICE
                                                                                     ---------    --------
                                                                                                    US$
<S>                                                                                  <C>          <C>
Outstanding at January 1, 2002 and December 31, 2002.......................           20,000         9.94
Lapsed.....................................................................          (20,000)        9.94
                                                                                     -------

Outstanding at December 31, 2003 and 2004..................................                -
                                                                                     =======
</TABLE>

     No stock options were granted in fiscal 2002, 2003 or 2004.

     All the above share options vested immediately upon the date of grant and
     the exercise prices were set at 100% of the market prices of the shares of
     the Company prevailing at the dates of grant. Accordingly, no compensation
     expense was recognized in the consolidated statements of operations.

12.  OBLIGATIONS AND COMMITMENTS

     As of December 31, 2004, the Group had outstanding capital commitments for
     acquisition of properties amounting to approximately Rmb400,000.

     Prior to the full disposition of its tire manufacturing and trading
     subsidiaries in September 2003, the Group leased certain of its warehouses
     under non-cancellable operating leases expiring at various dates through
     2008. Rental expense under these operating leases was Rmb4,397 and Rmb2,250
     for the years ended December 31, 2002 and 2003, respectively. As of
     December 31, 2004, the Group's subsidiaries did not have any significant
     commitments under operating leases.

                                      F - 29
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

12.  OBLIGATIONS AND COMMITMENTS - CONTINUED

     Prior to the full disposition of its tire manufacturing and trading
     subsidiaries in September 2003, the Company also recorded an estimate of
     the product warranty obligation at the time of sale based on the Company's
     historical experience. Details of the changes in product warranty provision
     are as follows:

<TABLE>
<CAPTION>
                                                             CONTINUING               DISCONTINUED
                                                             OPERATIONS                OPERATIONS
                                                       ---------------------        -----------------
                                                       2002            2003          2002      2003
                                                      -------        -------        ------   --------
                                                       Rmb              Rmb          Rmb      Rmb
<S>                                                   <C>            <C>            <C>      <C>
Balance at beginning of year............               19,972         23,720        18,000    13,337
Warranties paid.........................              (56,183)       (46,019)       (9,988)        -
Warranty provision......................               59,931         66,799         5,325         -
Eliminated on disposition of
  business components...................                    -        (44,500)            -   (13,337)
                                                      -------        -------        ------   -------

Balance at end of year..................               23,720              -        13,337         -
                                                      =======        =======        ======   =======
</TABLE>

13.  DISTRIBUTION OF PROFIT

     Dividends from the PRC entities will be declared based on the profits as
     reported in their statutory financial statements. Such profits will be
     different from the amounts reported under U.S. GAAP. As of December 31,
     2003 and 2004, the Company had no subsidiaries established in the PRC and
     the Company's affiliates in the PRC had an aggregate accumulated profits of
     Rmb106,454 and Rmb199,320, respectively, as reported in their statutory
     financial statements.

     The Company did not propose or pay any dividends for the years ended
     December 31, 2002, 2003 and 2004 on the outstanding Supervoting Common
     Stock and Common Stock.

                                     F - 30
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

14.  RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS

     (a)  DUE FROM/TO RELATED COMPANIES

          As of December 31, 2002, the amounts due from related companies
          primarily arise from sales of tires and are unsecured, non-interest
          bearing and repayable at the end of credit periods granted ranging
          from 90 days to 180 days. The management reviewed the recoverability
          of these receivables during fiscal 2002 and recognized a net recovery
          of Rmb5,016 in the consolidated statement of operations for fiscal
          2002.

          As of December 31, 2003 and 2004, the amount due from ultimate parent
          company was unsecured, non-interest bearing and had no fixed repayment
          terms.

          As of December 31, 2004, the amount due to a fellow subsidiary was
          unsecured, non-interest bearing and had no fixed repayment terms. As
          the fellow subsidiary has confirmed not to demand repayment of the
          amount within one year from the balance sheet date, the amount is
          shown as non-current.

          As of December 31, 2003 and 2004, the Company had no amounts due
          from/to related companies as a result of the disposition of its
          subsidiaries in the PRC.

     (b)  MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

          Pursuant to a management and administrative services agreement between
          the Company and the ultimate parent company in 1993 and renewed in
          1997, 2000 and 2003, for a term of three years, the ultimate parent
          company will provide certain management services to the Company for an
          annual fee of US$30 (Rmb248). In addition, the Company has agreed to
          reimburse the ultimate parent company for administrative services of
          approximately Rmb4,731, Rmb5,708 and Rmb6,200 for the years ended
          December 31, 2002, 2003 and 2004, respectively, rendered on behalf of
          the Company on a cost plus 5% basis.

     (c)  SALES TO/PURCHASES FROM RELATED PARTIES

          HZ recorded sales to related companies of approximately Rmb209,112 and
          Rmb194,971 that have been reflected in the Company's consolidated
          financial statements for the years ended December 31, 2002 and 2003,
          respectively.

          HZ paid subcontracting charges to an affiliate of approximately
          Rmb199,373 and Rmb277,470 for tire processing that have been reflected
          in the Company's consolidated financial statements for the years ended
          December 31, 2002 and 2003, respectively.

          These transactions were carried out after negotiations between HZ and
          the respective related companies in the ordinary course of business
          and on the basis of the estimated market value as determined by
          management of HZ.

                                     F - 31
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

15.  STAFF RETIREMENT PLANS

     All of the Chinese employees of the PRC entities are entitled to an annual
     pension on retirement, which is equal to their ending basic salaries at
     their retirement dates. The Chinese government is responsible for the
     pension liabilities to these retired employees. The PRC entities are only
     required to make specified contributions to the state-sponsored retirement
     plan calculated at rates ranging from 20% to 23.5% of average monthly
     salaries for the years ended December 31, 2002 and 2003. The expenses
     reported in the consolidated statements of operations related to these
     arrangements were Rmb26,549 and Rmb17,940 for the years ended December 31,
     2002 and 2003, respectively.

16.  SEGMENT INFORMATION

     After the Group's disposition of HZ in September 2003 (see note 3), the
     Group had no reportable segments. Prior to such divestiture, the Group
     operated principally in the tire manufacturing industry and had only one
     reportable segment for continuing operations based on HZ Tire, the
     Company's major PRC entities operating in Hangzhou. This reportable segment
     was a strategic business unit and was managed separately. The accounting
     policies of this segment were the same as those described in the summary of
     significant accounting policies. All intercompany transactions had been
     eliminated.

     The remaining segment included other subsidiaries of the Company except for
     DH, SD, YT and YC which are presented separately under the discontinued
     operations segment. Corporate identifiable assets included primarily cash.
     The chief operating decision maker evaluated the operating income of each
     segment in assessing performance and allocating resources between segments.

<TABLE>
<CAPTION>
                                                                              2002
                                                 -----------------------------------------------------------------
                                                                                                      DISCONTINUED
                                                             CONTINUING  OPERATIONS                    OPERATIONS
                                                 -----------------------------------------------------------------
(RMB)                                             HZ TIRE        OTHERS      CORPORATE       TOTAL
                                                 ---------       -------     ---------     ---------
<S>                                              <C>             <C>         <C>           <C>        <C>
Revenues ....................................    2,610,076             -           -       2,610,076       621,653
Depreciation and amortization ...............       63,687             -           -          63,687        42,328
Impairment loss provision for long-lived
  assets ....................................            -             -           -               -       291,648
Change in fair value of call option .........            -       (45,328)          -         (45,328)            -
Operating income (loss) .....................      188,429        (4,854)    (11,479)        172,096       (70,965)
Equity in (earnings) losses of affiliates ...       (3,591)       93,111           -          89,520             -
Gain on disposition of discontinued
  components ................................            -             -           -               -        20,144
Capital expenditures ........................      210,264             -           -         210,264        77,272
Identifiable assets .........................    1,969,286       148,181      44,345       2,161,812       718,868
Included in identifiable assets above are
  the following:
  - Investments in and advances to affiliates      137,156        95,826           -         232,982             -
  - Deferred income taxes assets ............       14,277             -           -          14,277             -
</TABLE>

                                     F - 32
<PAGE>
\
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

16.  SEGMENT INFORMATION - CONTINUED

<TABLE>
<CAPTION>
                                                                                  2003
                                                 ------------------------------------------------------------------
                                                                                                       DISCONTINUED
                                                                   CONTINUING OPERATIONS                OPERATIONS
                                                 ------------------------------------------------------------------
(RMB)                                             HZ TIRE        OTHERS        CORPORATE     TOTAL
                                                 ---------       -------       ---------   ---------
<S>                                              <C>             <C>           <C>         <C>         <C>
Revenues ....................................    2,808,369             -             -     2,808,369         -
Depreciation and amortization ...............       50,889             -             -        50,889         -
Operating income (loss) .....................      121,849          (456)      (20,647)      100,746         -
Equity in (earnings) losses of affiliates ...      (15,120)       92,568             -        77,448         -
Impairment loss provision for advance to
  affiliate .................................            -         2,619             -         2,619         -
Loss on disposition of discontinued
  components ................................            -             -             -             -    (7,017)
Capital expenditures ........................      256,872             -             -       256,872         -
Identifiable assets .........................      176,547       310,123        22,996       509,666         -
Included in identifiable assets above are
  the following:
  - Investments in and advances to affiliates      176,547       133,279             -       309,826         -
</TABLE>

     Revenues of the Group are primarily derived from sales of tires and their
     geographical analysis of revenues is as follows:

<TABLE>
<CAPTION>
                                                 CONTINUING OPERATIONS                 DISCONTINUED OPERATIONS
                                             -----------------------------           ---------------------------
                                                YEAR ENDED DECEMBER 31,                YEAR ENDED DECEMBER 31,
                                              2002                 2003               2002                 2003
                                              ----                 ----               ----                 ----
                                              Rmb                  Rmb                 Rmb                  Rmb
<S>                                         <C>                  <C>                 <C>                  <C>
PRC............................             2,061,236            2,248,825           422,878                  -
Middle East Countries..........               165,664              101,718            99,682                  -
US and Canada..................               137,933              143,054            67,178                  -
Others.........................               245,243              314,772            31,915                  -
                                            ---------            ---------           -------               ----
                                            2,610,076            2,808,369           621,653                  -
                                            =========            =========           =======               ====
</TABLE>

17.  OTHER SUPPLEMENTAL INFORMATION

     The following items are included in the consolidated statements of
     operations:

<TABLE>
<CAPTION>
                                                CONTINUING OPERATIONS                  DISCONTINUED OPERATIONS
                                           ---------------------------------      --------------------------------
                                                 YEAR ENDED DECEMBER 31,               YEAR ENDED DECEMBER 31,
                                            2002         2003          2004        2002           2003       2004
                                           ------       ------        ------      ------         ------     ------
                                            Rmb           Rmb          Rmb         Rmb            Rmb        Rmb
<S>                                        <C>          <C>           <C>         <C>            <C>        <C>
Foreign exchange losses (gain),
  net .........................              (152)      (1,810)          21          153            -           -
Sales taxes....................            40,639       48,954            -       33,137            -           -
Shipping and handling costs....            62,707       80,296            -       34,072            -           -
</TABLE>

                                     F - 33
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

           (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES, PER SHARE/
                 SHARE OPTION DATA AND UNLESS OTHERWISE STATED)

18.  LEGAL PROCEEDINGS

     On June 7, 2004, the Company, Orion Tire and a major United States
     manufacturer of tires and rubber products (the "Tire Manufacturer") had
     entered into a settlement and general release agreement and agreed to
     compromise, settle and forever resolve all dispute and matters between them
     relating to certain legal proceedings which commenced in 1994. Pursuant to
     the terms of the agreement, the claim lodged by Orion Tire against the Tire
     Manufacturer to the US Court of Appeals for further proceeding was
     dismissed and subject to the fulfillment of certain conditions, which,
     among others, include a payment by the Tire Manufacturer to Orion Tire for
     an amount up to US$350,000 within two years from the date of the agreement.

19.  SUBSEQUENT EVENTS

     In addition to those disclosed in note 8, subsequent to December 31, 2004,
     the following events have taken place:

     (a)  On January 31, 2005, the Company subscribed 2,340,000,000 of new
          shares of HK$0.01 each in Wing On at the price of HK$0.028 per share
          under the second placing and subscription agreement as mentioned in
          note 6 upon approval by the independent shareholders of Wing On at the
          special general meeting held on January 11, 2005.

     (b)  On February 4, 2005, the Company entered into a placing and
          subscription agreement with Wing On and Tai Fook Securities Company
          Limited ("Tai Fook") pursuant to which Tai Fook agreed to place up to
          6,400,000,000 shares in Wing On then held by the Company at the price
          of HK$0.022 per share to independent investors and the Company would
          subscribe for up to 6,400,000,000 new shares of Wing On at the same
          price of HK$0.022 per share. The subscription was completed on
          February 18, 2005.

          Following the issue of shares in Wing On pursuant to the placing and
          subscription agreement dated February 4, 2005, the conversion price of
          the convertible notes was adjusted to HK$0.0197 per share in
          accordance with its terms and conditions. On March 14, 2005, the day
          immediately preceding the effective date of the share consolidation of
          every one hundred shares of HK$0.01 each in the issued and unissued
          ordinary share capital of Wing On into one share of HK$1.00 each. The
          conversion price at the note was adjusted to HK$1.97 per new
          consolidated share.

     (c)  On April 29, 2005, the Company exercised all of the conversion rights
          of the convertible note of HK$55,000 (Rmb58,803) at the adjusted
          conversion price of HK$1.97 per share under the terms of the New Note,
          resulting in the issuance of 27,918,781 new ordinary shares of Wing On
          to Million Good.

                                   * * * * * *
                                     F - 34
<PAGE>

                                ITEM 19. EXHIBITS

The following exhibits are filed as part of this annual report:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
<S>            <C>
1              Memorandum and Articles of Association (incorporated by reference
               to Exhibit 1 to the Company's Form 20-F for the fiscal year ended
               December 31, 2001, Document Control Number: 02048962)

4(a)1          Contract dated January 8, 2003 between Ningxia Yinchuan Rubber
               Manufacturing, the Chinese joint venture partner of Yinchuan CSI,
               as buyer and the Company as seller for the sale of seller's
               interest in Yinchuan CSI (incorporated by reference to Exhibit
               4(a)2 to the Company's Form 20-F for the fiscal year ended
               December 31, 2002, Document Control Number: 3822216)

4(a)2          Contract dated June 15, 2003 between Hangzhou Industrial &
               Commercial Trust & Investment Co. Ltd. as buyer and the Company
               as seller for the sale of 25% interests in Hangzhou Zhongce
               (incorporated by reference to Exhibit 4(a)3 to the Company's Form
               20-F for the fiscal year ended December 31, 2002, Document
               Control Number: 3822216)

4(a)3          Contract dated January 13, 2004 between Wing On and the Company
               for the issue of 2% convertible note to the Company or its
               nominee

4(a)4          Contract dated June 16, 2004 between Shanghai Jiu Sheng
               Investment Company Limited and the Company for the acquisition of
               the Properties

4(a)5          Contract dated November 30, 2004 among the Company, Wing On and
               the placing agent for the placing and subscription of 3,660
               million shares of Wing On at a price of HK$0.028 per share

4(a)6          Contract dated November 30, 2004 among the Company, Wing On and
               the placing agent for the placing and subscription of 2,340
               million shares of Wing On at a price of HK$0.028 per share

4(a)7          Contract dated February 4, 2005 among the Company, Wing On and
               the placing agent for the placing and subscription of 6,400
               million shares of Wing On at a price of HK$0.022 per share

4(c)4          Executive Share Option Scheme (incorporated by reference to
               Exhibit 4(c) to the Company's Form 20-F for the fiscal year ended
               December 31, 2001, Document Control Number: 02048962)
</TABLE>

<PAGE>

<TABLE>
<S>            <C>
8              Subsidiaries of the Company

12(1)          Certification of the CEO of the Company pursuant to Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended

12(2)          Certification of the CFO of the Company pursuant to Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended

13(1)          Certification of the CEO of the Company pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

13(2)          Certification of the CFO of the Company pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

14(1)          Code of Ethics for Chief Executive and Senior Financial Officers
</TABLE>

<PAGE>

                                   SIGNATURES

      The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

                                                      CHINA ENTERPRISES LIMITED
                                                             (REGISTRANT)

                                                      /s/ Chow Chun Man, Jimmy
                                                     --------------------------
                                                         CHOW CHUN MAN, JIMMY
                                                       Chief Financial Officer

Date: March 14, 2006

<PAGE>

                                 EXHIBITS INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER         DESCRIPTION
<S>            <C>
1              Memorandum and Articles of Association (incorporated by reference
               to Exhibit 1 to the Company's Form 20-F for the fiscal year ended
               December 31, 2001, Document Control Number: 02048962)

4(a)1          Contract dated January 8, 2003 between Ningxia Yinchuan Rubber
               Manufacturing, the Chinese joint venture partner of Yinchuan CSI,
               as buyer and the Company as seller for the sale of seller's
               interest in Yinchuan CSI (incorporated by reference to Exhibit
               4(a)2 to the Company's Form 20-F for the fiscal year ended
               December 31, 2002, Document Control Number: 3822216)

4(a)2          Contract dated June 15, 2003 between Hangzhou Industrial &
               Commercial Trust & Investment Co. Ltd. as buyer and the Company
               as seller for the sale of 25% interests in Hangzhou Zhongce
               (incorporated by reference to Exhibit 4(a)3 to the Company's Form
               20-F for the fiscal year ended December 31, 2002, Document
               Control Number: 3822216)

4(a)3          Contract dated January 13, 2004 between Wing On and the Company
               for the issue of 2% convertible note to the Company or its
               nominee

4(a)4          Contract dated June 16, 2004 between Shanghai Jiu Sheng
               Investment Company Limited and the Company for the acquisition of
               the Properties

4(a)5          Contract dated November 30, 2004 among the Company, Wing On and
               the placing agent for the placing and subscription of 3,660
               million shares of Wing On at a price of HK$0.028 per share

4(a)6          Contract dated November 30, 2004 among the Company, Wing On and
               the placing agent for the placing and subscription of 2,340
               million shares of Wing On at a price of HK$0.028 per share

4(a)7          Contract dated February 4, 2005 among the Company, Wing On and
               the placing agent for the placing and subscription of 6,400
               million shares of Wing On at a price of HK$0.022 per share

4(c)4          Executive Share Option Scheme (incorporated by reference to
               Exhibit 4(c) to the Company's Form 20-F for the fiscal year ended
               December 31, 2001, Document Control Number: 02048962)
</TABLE>

<PAGE>

<TABLE>
<S>            <C>
8              Subsidiaries of the Company

12(1)          Certification of the CEO of the Company pursuant to Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended.

12(2)          Certification of the CFO of the Company pursuant to Rule
               13a-14(a) of the Securities Exchange Act of 1934, as amended.

13(1)          Certification of the CEO of the Company pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

13(2)          Certification of the CFO of the Company pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

14(1)          Code of Ethics for Chief Executive and Senior Financial Officers
</TABLE>