<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

                        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:

<TABLE>
<CAPTION>
                      NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS       WHICH REGISTERED
-------------------   ------------------------
<S>                   <C>
        N/A                      N/A
</TABLE>

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 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required 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" 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 Rmb8.07, the exchange rate quoted by the People's Bank of
China on December 31, 2005. 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

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

<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, 2001,
2002, 2003, 2004 and 2005.

     The Consolidated Statements of Operating Data for each of the three years
in the period ended December 31, 2005 and the Consolidated Balance Sheet Data as
of December 31, 2004 and 2005 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, 2001 and 2002 and the
Consolidated Balance Sheet Data as of December 31, 2001, 2002 and 2003, 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,
                                                         ---------------------------------------------------------------------
                                                            2001        2002       2003         2004              2005
                                                           (a)(b)      (a)(b)    (a)(b)(c)      (b)               (b)
                                                         ---------   ---------   ---------   ---------   ---------------------
                                                            Rmb         Rmb         Rmb         Rmb         Rmb         US$
<S>                                                      <C>         <C>         <C>         <C>         <C>         <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues                                                 2,087,885   2,610,076   2,808,369          --          --          --
Income (loss) from operations                               89,461     172,096     100,746     (13,344)    (27,522)     (3,410)
(Loss) profit from continuing operations                    36,425     (62,943)    (56,781)    181,942     (26,324)     (3,262)
Loss from discontinued operations (a)                     (171,784)   (199,838)     (7,760)         --          --          --
Net (loss) income                                         (135,359)   (262,781)    (64,541)    181,942     (26,324)     (3,262)
Net income (loss) from operations per share                   9.92       19.09       11.17       (1.48)       (3.05)      (0.38)
Basic and diluted earnings (loss) from continuing
   operations per common share (b)                            4.04       (6.98)      (6.30)      20.18       (2.92)      (0.36)
Basic and diluted loss from discontinued
   operations per common share (a) & (b)                    (19.05)     (22.16)      (0.86)         --          --          --
Basic and diluted (loss) earnings per common share (b)      (15.01)     (29.14)      (7.16)      20.18       (2.92)      (0.36)
Weighted-average number of common share
   outstanding (b)                                       9,017,310   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                                                  0.17          --          --          --          --          --
   - in US$                                                  0.02          --          --          --          --          --
CONSOLIDATED BALANCE SHEETS DATA :
Total assets                                            2,978,965   2,880,680     509,666     791,326     684,273      84,790
Shareholders' equity                                      804,197     535,206     472,825     667,981     662,598      82,104
Supervoting common stock - par value US$0.01 per
   share                                                      244         244         244         244         244          30
Common stock - par value US$0.01 per share                    526         526         526         526         526          65
</TABLE>

Notes:

(a)  The 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 earnings (loss) 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 2001 to 2005 is based on the weighted-average number of common stock
     outstanding during the years ended December 31, from 2001 to 2005. The
     weighted-average number of common stock outstanding for 2001, 2002, 2003,
     2004 and 2005 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 end 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 Rmb8.07,
the exchange rate quoted by the People's Bank of China on December 31, 2005. For
the purpose of this annual report, the latest practicable date with respect to
share and certain exchange rate information is June 30, 2006. As of June 30,
2006, the exchange rate quoted by the People's Bank of China ("PBOC") was at
US$1.00 to Rmb7.99. No representation is made that the Renminbi amounts could
have been,

<PAGE>

or could be, converted into U.S. Dollars at that or at any other rate.

     The following table sets forth the average unified exchange rates as of and
during the years ended December 31, 2001, 2002, 2003, 2004 and 2005

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                        --------------------------------
                                        2001   2002   2003   2004   2005
(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   8.18
</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>
June 30, 2006                        8.01   7.99
May 31, 2006                         8.01   7.99
April 30, 2006                       8.03   8.01
March 31, 2006                       8.06   8.03
February 28, 2006                    8.07   8.05
January 31, 2006                     8.08   8.07
</TABLE>

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

RISK FACTORS

The risks below are not only ones that we face. Some risks may not yet be known
to us and some that we do not currently believe to be material could later turn
out to be material. Any of these risk factors could materially 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 SUCESSFULLY ITS BUSSINESS 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

<PAGE>

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, 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 TO 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

     Prior to May 19, 2006, China Strategic Holdings Limited ("CSH") directly
and beneficially held all 3,000,000 shares of supervoting common stock and
1,629,200 shares of common stock and also had an indirect interest equivalent to
349,630 share of common stock. Effective May 19, 2006, CSH transferred all of
those interests to a wholly-owned subsidiary of Group Dragon Investments Limited
("GDI"). As a result, GDI controls 88.8% of the voting rights of the outstanding
capital stock of the Company and GDI 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, GDI'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 GDI.

     Following the completion of the Group Reorganization (for details, see
"Important Events of the Company's Business since the Beginning of 2005" of Item
4) Hanny Holdings Limited ("Hanny"), an indirect shareholder of each of CSH and
GDI, reported ownership of 436,032,120 shares, or 98.92% of the outstanding
shares, of GDI, and become the ultimate parent company of the Company.

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.

<PAGE>

     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 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 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.

<PAGE>

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 operation 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. dollars and other currencies.

<PAGE>

     As of December 31, 2005, 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 monitor closely its foreign currency exposure and requirements and
to arrange foe hedging facilities when necessary.

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"), depending 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. If the Company were to become subject to
the requirements of the 1940 Act, the Company's operations and results would be
negatively impacted, including among other possible effects, the inability of
the Company to raise capital through the offer and sale of its securities in the
United States. The Company would be unable to continue operating as it currently
does and might need to acquire or sell assets that it would not otherwise
acquire or sell in order to avoid becoming and "investment company" as defined
under the 1940 Act.

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
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.

<PAGE>

     We do not believe that we were a PFIC for 2005. 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 2005 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 2005.

     With respect to 2006 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 2006 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 DEMAGE TO
THE COMPANY'S BUSINESS AND FINANCIAL RESULTS

     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

<PAGE>

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.

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.

FAILURE TO ESTABLISH AND MAINTAIN EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL
REPORTING COULD HAVE A MATERIAL AND ADVERSE EFFECT ON THE ACCURACY IN REPORTING
OUR FINANCIAL RESULTS OR PREVENTING FRAUD

<PAGE>

     We are subject to the reporting obligations under the U.S. securities laws.
The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, has
adopted rules requiring public companies to include a report of management on
the effectiveness of such companies' internal control over financial reporting
in its annual report. In addition, an independent registered public accounting
firm for a public company must attest to and report on management's assessment
of the effectiveness of our company's internal control over financial reporting.
These requirements will first apply to our annual report on Form 20-F for the
fiscal year ending December 31, 2007. It's possible that management may not be
able to conclude that our internal control over financial reporting is
effective. Even if our management concludes that our internal control over
financial reporting is effective, our independent registered public accounting
firm may still decline to attest to our management's assessment or may issue a
report that is qualified if such firm is not satisfied with our internal control
over financial reporting or the level at which our controls are documented,
designed, operated or reviewed, or if such firm interprets the relevant
requirements differently from us. In addition, during the course of such
evaluation, documentation and testing, we may identify deficiencies which we may
not be able to remedy in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements. Moreover, effective internal controls
are necessary for us to produce reliable financial reports and are important in
helping prevent financial fraud. If we are not able to conclude that our
internal control over financial reporting is effective or cannot provide
reliable financial reports on a timely basis or prevent financial fraud, our
business and operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our stock could
drop significantly.

THE FINANCIAL COSTS AND ADMINISTRATIVE BURDENS OF IMPLEMENTING THE
SARBANES-OXLEY ACT OF 2002 COULD MATERIALLY AND ADVERSELY AFFECT OUR FINANCIAL
RESULTS AND FINANCIAL CONDITION

     To date, the Company has been exempted from some of the regulations under
the Sarbanes-Oxley Act of 2002 that are applicable to U.S. public companies.
Except for the provisions of Section 404 of the Sarbanes-Oxley Act, all of the
provisions of that act that will apply to the Company have now been implemented.
These rules require the Company to make a number of changes in some of its
corporate governance, securities disclosure and compliance practices. In
addition, the SEC and the U.S. stock exchanges have implemented additional
corporate governance requirements. Compliance with the U.S. corporate governance
rules applicable to the Company will significantly increase the Company's legal,
financial and accounting costs, and the Company expects these increased costs to
continue in the future.

THE COMPANY IS SUBJECT TO ADDITIONAL RISKS THAT MAY AFFECT IN GENERAL

     In addition to the risks listed above, other risk factors that could cause
actual results and developments to differ materially from those expressed or
implied include, but are not limited to terrorist attacks or war; import, export
and tariff regulations; changes to tax rates; and the ability to enter into, and
resulting success of, future business combinations, acquisitions and
dispositions.

<PAGE>

                       ITEM 4. INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

     The Company was incorporated as an exempted company 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 legal name of the Company is "China Enterprises Limited" and the
Company is registered in Hong Kong under the commercial name of "China Tire
Holdings Limited" due to local company registration considerations.

     Information about the Company, is available through the Internet
http://www.chinaenterpriseslimited.com. The principal place of business and the
executive offices of the Company are 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 2005

     On February 4, 2005, the Company further entered into a placing and
subscription agreement with Wing On Travel (Holding) Limited ("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 diluted
to 21.1%. The Company recorded a net unrealized gain totaling Rmb17,760,000 as
an increase of additional paid in capital during the fiscal year 2005.

     During the period between February 2005 and April 2005, the Company also
purchased 6,967,700 shares of Wing On at the open market at prices ranging from
HK$1.68 to HK$1.90 per share. The interest of Wing On held by the Company was
accordingly increased from approximately 21.1% to 22.82%.

     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 22.82% to 27.74% upon conversion of the convertible
notes into share of HK$1.00 each in Wing On by the Company.

     The Company, through an indirect wholly-owned subsidiary, entered into a
conditional sale and purchase agreement dated June 16, 2004 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
"Xiang Zhang Garden"). 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.

<PAGE>

The aggregate consideration for the Xiang Zhang Garden is Rmb450 million. The
Company paid the first deposit of Rmb50 million in cash to the Vendor upon
signing of the agreement; and subsequently in February 2005, 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 institutions and
secured by the Xiang Zhang Garden. 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 Xiang Zhang Garden from the seller to the
Company.

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

Further the Company had advanced an additional Rmb8 million to Jiu Sheng
Pursuant to this additional agreement and the aggregate sum paid by the Company
to Jiu Sheng amounted to Rmb58 million as of December 31, 2005.

In June 2005, the Company had commenced legal proceedings against Jiu Sheng,
among other things, to demand Jiu Sheng to fulfill its obligations under the
above two agreements and applied to a PRC court an injunction order on Xiang
Zhang Garden to stop the Xiang Zhang Garden from being transferred (the
"Injunction Order(s)"). It had also come to the attention of the Company that
one of the three secured creditors of Jiu Sheng and the Main Contractor had
already applied to and been granted the Injunction Orders and they, together
with the other two secured creditors, had priority over the Company on Xiang
Zhang Garden.

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.

On June 22, 2006, the People's High Court of Shanghai City ruled the case in
favor of the Company and demanded Jiu Sheng to continue fulfilling its
obligations under the agreement dated February 3, 2005 and to cooperate with the
Company to effect the release of the Injunction Orders and settlement of the
related liabilities with its creditors so as to proceed with the transfer of
legal title of Xiang Zhang Garden to the Company. The judgment also, among other
things, demanded Jiu Sheng to pay Rmb5,900,000 to the Company as compensation
for the breach of the sale and purchase agreements. The directors of the Company
have consulted its legal counsel and are in the process of enforcing the ruling
to effect the acquisition of Xiang Zhang Garden in consideration of the
following:

(a)  the usage of the Xiang Zhang Garden can be changed to both commercial and
     residential when the Company obtains the legal title to Xiang Zhang Garden
     and makes the application to the relevant authority;

<PAGE>

(b)  the acquisition of the Xiang Zhang Garden, on a completion basis, is
     expected to bring economic benefits to the Company taking into account of
     the estimated market value of the Xiang Zhang Garden as of May 19, 2006;
     and

(c)  the ability of the Company to meet the cash flow requirements to finance
     the acquisition and completion of Xiang Zhang Garden, 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)2 to this annual report.

     China Strategic Holdings Limited ("CSH"), the parent company of the
Company, had been informed by two substantial shareholders of CSH, 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 CSH 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 CSH, 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 (collectively as the "Group
Reorganization"), which resolutions were approved and passed at the
Extraordinary General Meeting of CSH held on October 6, 2005, that would
result in below:

(i)  CSH 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 CSH which are engaged in property
     development, and investment holding business (including the Company) and
     vessels for sand mining, and all other associates of CSH 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 CSH, and its
     subsidiaries; and

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

The Group Reorganization was completed on May 19, 2006.

As a result of the Group Reorganization, GDI indirectly beneficially owns all
3,000,0000 shares of supervoting common stock and 2,239,800 shares of common
stock.

Following the completion of the Group Reorganization, according to an
announcement made by Hanny Holdings Limited, an indirect shareholder of each of
CSH and GDI ("Hanny"), Hanny made an offer for the outstanding shares of GDI not
held indirectly by Hanny. The offer was completed on June 16, 2006. As a result
of the completion of the offer, Hanny reported ownership of 436,032,120 shares,
or 98.92% of the

<PAGE>

outstanding shares, of GDI, and become the ultimate parent company of the
Company.

     On March 23, 2006, Wing On entered into agreements 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$300.0 million
(Rmb312.3 million), settled 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 five years from the date of issue, at the Company's
discretion, at an initial conversion price of HK$0.79 per share of Wing On,
subject to adjustments. The transaction was completed on June 8, 2006.

<PAGE>

PRINCIPAL CAPITAL EXPENDITURES

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

<TABLE>
<CAPTION>
                                                            2003       2004      2005
                                                           RMB'000   RMB'000   RMB'000
                                                          --------   -------   -------
<S>                                                       <C>        <C>       <C>
Purchase of property, plant and equipment                 (256,872)       --      (344)
Proceeds from disposal of property, plant and equipment      4,601        --        --
Investments in and advances to affiliates, net            (197,358)   72,142   (37,122)
Proceeds from disposal of a business component, net       (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 year ended December 31, 2003, the Company principally engaged in
the manufacturing and trading of tires business. And for the years ended
December 31, 2004 and 2005, 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, 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 Xiang Zhang Garden.

     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 and
2005 were greatly depended on the share of results of its affiliates, including
the tire business and the travel business. 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.

TIRE BUSINESS

During the first nine months of 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. In September 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 years ended December 31, 2004
and 2005, 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.

                              HANGZHOU ZHONGCE SALES IN UNITS
                                      JAN TO SEPT 2003
                           -------------------------------------
<TABLE>
<CAPTION>
                                                     CHANGE FROM
TYPE OF TIRES                 UNITS     % OF TOTAL    PRIOR YEAR
-------------              ----------   ----------   -----------
<S>                         <C>            <C>        <C>
Motor Vehicle Tires
   Passenger Car            1,374,624      25.83%       35.00%
   Truck and Light Truck    3,633,721      68.27%       -6.33%
   Tractor                    266,575       5.01%      -23.59%
   Others                      47,458       0.89%       56.72%
                           ----------     ------
Total                       5,322,378     100.00%        0.87%
                           ==========     ======
Bicycle Tires              34,965,304                  -13.99%
Wheelbarrow Tires           2,318,035                  -14.88%
</TABLE>

<TABLE>
<CAPTION>
                           HANGZHOU ZHONGCE SALES (SALES TAX
                                       EXCLUDED)
                                    JAN TO SEPT 2003
                           ---------------------------------
TYPE OF MOTOR VEHICLE             SALES
TIRES                            RMB'000    % OF TOTAL
---------------------           ---------   ----------
<S>                        <C>              <C>
   Bias Tires                     811,003        39.68%
   Radial Tires                 1,232,646        60.32%
                                ---------   ----------
Total                           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 - 2003

<TABLE>
<CAPTION>
                           % OF
                         REVENUE
                           2003
REGION                   JAN-SEPT
------                   --------
<S>                      <C>
Eastern China (l)          32.9%
Northern China (2)         22.0%
Western China (3)           5.8%
Southwestern China (4)      6.1%
Southern China (5)         12.2%
Export (6)                 21.0%
                          -----
Total                     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: 2003

<TABLE>
<CAPTION>
                       2003
                     AVERAGE
                       COST
                   PER TON (1)
                   -----------
<S>                <C>
Natural Rubber         9,180
Synthetic Rubber      10,150
Carbon Black           3,680
Nylon Cord            19,850
Steel Thread           4,180
Steel Cord            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 Hong Kong 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 2005, Hong Kong's economy was picked up together with many
countries around the world. Wing On has put considerable resources into its
inbound business and the results are promising. Following the opening of the
Hong Kong Disney Land and the AsiaWorld-Expo in 2005, the Skyrail to Po Nin
Monastery (Ngong Ping 360) and the Wetland Park in mid-2006, the number of
incoming visitors to and transit through Hong Kong is expected to grow to a
significant extent. Turnover and the loss before taxation of Wing On for the
year ended December 31, 2005 attained HK$1,816 million (equivalent to Rmb1,890
million) and HK$14.4 million (equivalent to Rmb15.0 million) respectively
(2004: HK$1,722 million (equivalent to Rmb1,832 million) and HK$15.0 million
(equivalent to Rmb15.8 million) respectively).
<PAGE>

ORGANIZATIONAL STRUCTURE

     The Company is part of a group of companies whose ultimate parent company
was CSH (the "CSH Group") as of December 31, 2005. 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, 2005.

                         -------------------------------
                         |             CSH             |
                         |    (Listed in Hong Kong)    |
                         | (Incorporated in Hong Kong) |
                         |    (Investment Holding)     |
                         -------------------------------
                                        |
                                        |55.22%
                         -------------------------------
                         |         The Company         |
                         |      (Traded on OTCBB)      |
                         |  (Incorporated in Bermuda)  |
                         -------------------------------
                                        |
                                        |
                         |-----------------------------|
                         |26.0%                        |27.74%
             -------------------------   ----------------------------
             |    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, 2005. 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>

     The chart below illustrates the simplified position of the Company after
the Group Reorganization which was completed on May 19, 2006. As a result of the
Group Reorganization, GDI indirectly beneficially owns all 3,000,0000 shares of
supervoting common stock and 2,239,800 shares of common stock.

     Following the completion of the Group Reorganization, according to an
announcement made by Hanny , an indirect shareholder of each of CSH and GDI ,
Hanny made an offer for the outstanding shares of GDI not held indirectly by
Hanny. The offer was completed on June 16, 2006. As a result of the completion
of the offer, Hanny reported ownership of 436,032,120 shares, or 98.92 % of the
outstanding shares, of GDI.

                      ------------------------------------
                      | Group Dragon Investments Limited |
                      |              ("GDI")             |
                      |       (Incorporated in BVI)      |
                      |       (Investment Holding)       |
                      ------------------------------------
                                        |
                                        |55.22%
                      ------------------------------------
                      |            The Company           |
                      |         (Traded on OTCBB)        |
                      |     (Incorporated in Bermuda)    |
                      ------------------------------------
                                        |
                                        |
                     |-------------------------------------|
                     |26.0%                                |27.74%
             -------------------------      -----------------------------
             |    Hangzhou Zhongce   |      |          Wing On          |
             | (Incorporated in PRC) |      |   (Listed in Hong Kong)   |
             |  (Tire Manufacturing) |      | (Incorporated in Bermuda) |
             |                       |      |    (Investment Holding)   |
             -------------------------      -----------------------------

           CONSOLIDATED PRINCIPAL SUBSIDIARIES AS OF DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                                       COMPANY'S
                                                                   OWNERSHIP INTEREST
                            COUNTRY OF                           ---------------------
CONSOLIDATED SUBSIDIARY   INCORPORATION   PRINCIPAL ACTIVITIES   DIRECTLY   INDIRECTLY
-----------------------   -------------   --------------------   --------   ----------
<S>                       <C>             <C>                    <C>        <C>
Container                      BVI        Investment holding       100%         --
Century Lead                   BVI        Investment holding       100%         --
</TABLE>

<PAGE>

<TABLE>
<S>                       <C>             <C>                    <C>        <C>
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       100%         --
Honest Map                     BVI        Investment holding       100%         --
Leading Returns                BVI        Investment holding       100%         --
Ventures Kingdom               BVI        Investment holding       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.

CHINA

     The Company have maintained representative office in the PRC upon
establishment of Rosedale in Shanghai for the monitoring the acquisition of the
properties.
<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 along with our Consolidation Financial Statements included as Item 18 of
this Report, including the accompanying notes, that are included in this annual
report on Form 20-F. The following discussion of operating results and the
financial review and prospects as well as our consolidated financial statements
have been presented and prepared in accordance with US GAAP.

OPERATING RESULTS

OVERVIEW

     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 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

<PAGE>

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, as at
December 31, 2005, 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.

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.

     Shanghai, the largest city in China, is the showcase of China's fast growth
and a bonanza of tourist attractions, 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 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 2005 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

<PAGE>

Statements.

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

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 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, 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 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.

     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

<PAGE>

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, 2003, 2004 and
2005 (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>
                                                2003    2004   2005
                                               ------   ----   ----
<S>                                            <C>      <C>    <C>
Revenues:                                      100.00%    --     --
Cost of revenues                               (89.11%)  n/a    n/a
Gross Profit                                    10.89%   n/a    n/a
Selling, general and administrative expenses    (7.31%)  n/a    n/a
Interest income                                  0.33%   n/a    n/a
Interest expenses                               (1.18%)  n/a    n/a
Provision for income taxes                      (0.38%)  n/a    n/a
Net loss                                        (2.30%)  n/a    n/a
</TABLE>

Fiscal year ended December 31, 2005 compared with fiscal year ended December 31,
2004

The Company

     Selling, general and administrative expenses, these costs comprise
expenditure of personnel and administrative functions, including accounting,
information technology, human resources, legal and administration, as well as
pension, healthcare and bonus. The selling, general and administrative expenses
in 2005 amounted Rmb27.5 million, an increase of Rmb14.2 million or 106.2%,
compared to Rmb13.3 million in 2004. The increase in our administrative expenses
during the current year is mainly due to certain legal and professional costs
incurred to date on the transaction acquiring a property situated in Shanghai,
the PRC. In addition increased activity at Rosedale resulted insignificant
increases in their administrative expenses.

     Operating loss from continuing operations amounted to Rmb27.5 million in
fiscal year 2005 as compared with operating loss of Rmb13.3 million in fiscal
year 2004. The Rmb27.5 million on operating loss from continuing operations
mainly represented administrative expenses incurred for the year ended December
31, 2005.

<PAGE>

     Interest income amounted to Rmb13 million in 2005, a decrease of Rmb8.5
million or 39.46%, compared to Rmb21.5 million in 2004. This decrease is
mainly due to significant declining balance of notes receivable during the
fiscal year 2005.

     Loss from continuing operations for the year ended December 31, 2005
increased to Rmb26.3 million compared to a profit of Rmb181.9 million for the
last year. The loss for the fiscal year 2005 consisted primarily of a loss upon
a decrease in fair value of the call option associated with the convertible note
of Wing On totaling Rmb42.9 million and the Company's share of profit of
Hangzhou Zhongce and Wing On in an amount of Rmb 35.1 million.

     For the year ended December 31, 2005, the Company recorded a consolidated
net loss of Rmb26.3 million, or Rmb2.92 per share. By comparison, the net income
and the net income per share in 2004 was Rmb181.9 million and Rmb20.18,
respectively.

Tire Business

     For the year ended December 31, 2005, Hangzhou Zhongce recorded a
consolidated turnover of approximately Rmb6,506 million, an increase of
approximately 29.6% as compared to the same period in 2004 of approximately
Rmb5,021 million. The audited consolidated net profit for the year ended
December 31, 2005 increased from approximately Rmb110.1 million for the last
corresponding period to approximately Rmb141.3 million for the current year.

Travel Business

     For the year ended December 31, 2005, Wing On recorded a consolidated
turnover of approximately HK$1,816 million (equivalent to Rmb1,890 million), an
increase of approximately 5.4% as compared to the same period in 2004 of
approximately HK$1,722 million (equivalent to Rmb1,832 million). The audited
consolidated net loss for the year ended December 31, 2005 decreased from net
loss of approximately HK$15.0 million (equivalent to Rmb15.9 million) for the
last corresponding period to net loss of approximately HK$14.3 million
(equivalent to Rmb14.9 million) for the current year.

Fiscal year ended December 31, 2004 compared with fiscal year ended December 31,
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

<PAGE>

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 fiscal year 2003. 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 Rmb92.3 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 Rmb5,021 million, an increase of
approximately 32.3% as compared to the same period in 2003 of approximately
Rmb3,796 million. The audited consolidated net profit for the year ended
December 31, 2004 increased from approximately Rmb106.3 million for the fiscal
year 2003 to approximately Rmb110.1 million for the fiscal year 2004.

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 loss for the year ended December 31, 2004 decreased from net
loss of approximately HK$428.3 million (equivalent to Rmb456.4 million) for the
fiscal year 2003 to net loss of approximately HK$15.0 million (equivalent to
Rmb15.9 million) for the fiscal year 2004.

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 10 to the
Consolidated Financial Statements of

<PAGE>

the Company included in "Item 18. Financial Statements".

LIQUIDITY AND CAPITAL RESOURCES

     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 calculated by current assets less current
liabilities of Rmb112.3 million and Rmb117.1 million as of December 31, 2005 and
2004, respectively.

     In 2005, the net cash used in operating activities was approximately
Rmb13.8 million compared with Rmb12.9 million provided by operating activities
in 2004. The net cash used in investing activities and provided by financing
activities in 2005 was approximately Rmb46.7 million and Rmb33.8 million,
respectively; compared with Rmb18.4 million provided by investing activities and
Rmb27.7 million used in financing activities in 2004, which was mainly due to
the increase of equity ownership in Wing On.

     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. Other than the subscription of a new convertible note from Wing On
and the consideration of the Xiang Zhang Garden located in Shanghai payable upon
the grant and drawdown of loans to be granted by PRC banks or financial
institutions and secured by the Properties, 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 2005 following the disposal of the Hangzhou Zhongce
Group in 2003. For the year ended December 31, 2005, the Company had used RMB0.3
million for the purchase of property, plant and equipment, compared with nil
expenditure for the year ended December 31, 2004.

     In addition, cash and cash equivalents of the Company from continuing
operations decreased from Rmb41.4 million at December 31, 2004 to Rmb14.7
million at December 31, 2005 of which approximately Rmb10.0 million
(approximately US$1.2 million) 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.

<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

     On June 16, 2004, the Company entered into a conditional agreement with an
independent third party in relation for the proposed acquisition of the
Xiang Zhang Garden for a total consideration of Rmb450 million. A deposit of
Rmb50 million was paid by Manwide on behalf of the Company upon signing of the
agreement and an additional deposit of Rmb8 million 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
Xiang Zhang Garden. The remaining Rmb12 million will be financed by internal
resources of the Company and will be due upon completion of the transfer of the
ownership of the Xiang Zhang Garden 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 2005 has affirmed the Company's consistent positive outlook for 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 2005, 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 2005, 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.

As a condition precedent to the application of 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.

<PAGE>

               ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     The directors, executive officers and senior management of the Company as
of December 31, 2005 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      2001 (1)
                             and Director of the Company
Chan Ling, Eva         40    Deputy Chairman and Director of        2004 (1)
                             the Company
Dorothy Law            36    Director                               2000
Richard Whittall       47    Independent Director and Audit         2000
                             Committee Member of the Company
David Edwin Bussmann   53    Independent Director and Audit         2000 (2)
                             Committee Member of the Company
Lien Kait Long         58    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

(3)  Dr. Allan Yap and Mr. David Edwin Bussmann resigned as an executive
     director and independent non-executive director of CSH respectively on June
     16, 2006

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 24 years' experience in finance, investment and banking. Dr. Yap is the
managing director of Hanny Holdings Limited ("Hanny") 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 in Canada and the Frankfurt Stock Exchange in Germany, and
an executive chairman of PSC Corporation Limited and Intraco Limited and Tat
Seng Packaging Group Limited, all are 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 a director of the Company. She has 18
years' experience in auditing, 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 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

<PAGE>

Bachelor of Laws degrees from the University of British Columbia in Canada. Ms.
Law is a Barrister and 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 53, is an independent director and an audit
committee member of the Company. Mr. Bussmann has more than 20 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 58, 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 12
years' of experiences in auditing, financial reporting and corporate finance.
Mr. Chow is also a Vice President of Hanny.

     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, 2005, 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.

     The following table summarizes the compensation are received by our
executive and non-executive directors in the year 2005.

<PAGE>

DIRECTORS' COMPENSATION

<TABLE>
<CAPTION>
NAME                SALARY (RMB)   TOTAL (RMB)
----                ------------   -----------
<S>                 <C>            <C>
Executive
Yap, Allan             161,400       161,400
Chan Ling, Eva         161,400       161,400
Non-Executive
Dorothy Law            161,400       161,400
Lien Kait Long         161,400       161,400
Richard Whittall       161,400       161,400
David E. Bussmann      161,400       161,400
</TABLE>

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. The annual
general meeting of the Company will be held on September 29, 2006, all six
existing members will be 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 August 25, 2006, 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. Before the disposition of
Yinchuan and Hangzhou Zhongce by the Company, there were approximately 10,000
employees. As of December 31, 2003, 2004 and 2005, 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 14(b) 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, 2005, 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 and public
announcement of CSH and Hanny pursuant to Hong Kong Stock Exchange rules, as of
July 2, 2006, 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>
Group Dragon Investment Limited(1)         5,239,500                55.2%
Peconic Partners LLC(2)                      878,875                 9.7%
</TABLE>

(1)  Consists of 3,000,000 shares of supervoting common stock, each share having
     10 votes on resolutions of shareholders, and 2,239,800 of common stock,
     each share having 1 vote on resolutions of shareholders, As part of the
     Group Reorganization, effective on May 19, 2006, CSH transferred to a
     wholly-owned subsidiary of GDI 2,239,800 shares of the Company's common
     stock previously held indirectly and 3,000,000 shares of the Company's
     supervoting common stock previously held directly. As a result of the Group
     Reorganization, CSH does not have beneficial ownership of any shares of
     either of the Company's class of common stock. GDI has shared voting and
     dispositive control over 3,000,000 shares of the Company's supervoting
     common stock, or 100% of the total number of supervoting common stock
     outstanding, and 2,239,800 shares of the Company's common stock, or 37.22%
     of the total common stock outstanding. As of June 16, 2006, Hanny Holdings
     Limited indirectly owns 436,032,120 shares of GDI, or 98.92% of the total
     common stock outstanding of GDI. For a discussion of the Group
     Reorganization, see "Item 4. Information on the Company - History and
     Development of the Company.

(2)  According to Amendment No. 15 to a report on Schedule 13G filed on February
     7, 2006 (the "Amended Schedule 13G"), Peconic Partners LLC (formerly known
     as FLA Advisers LLC), an investment adviser registered with the U.S.
     Securities and Exchange Commission ("Peconic Partners") had shared voting
     and dispositive control over 878,875 shares of common stock or 9.7% for the
     total number of shares outstanding. Peconic shares investment and
     dispositive power over the shares with various investment advisory clients
     of Peconic, including Peconic International Fund, Ltd. (formerly FLA
     International Fund Ltd.), a Bermuda company which reported shared ownership
     with Peconic Partners of 489,400 shares or 5.4% of the total outstanding.
     According to Amended Schedule 13G, various client of the reporting persons
     (Peconic Partners and Peconic International Fund Ltd.) have the right to
     receive or the power to direct the receipt of dividends from, or the
     proceeds from the sale of the shares of Company's common stock reflected in
     the Amended Schedule 13G..

     According to the shareholders list, dated May 19, 2006, provided to the
Company by its transfer agent, there are 76 shareholders (representing all
issued common stock of 6,017,310 shares) of record of the Company's common
stock. Among them, 75 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 ULTIMATE PARENT COMPANY

     The amounts due from/to ultimate parent company are unsecured, non-interest
bearing and have no fixed terms of repayment. The aggregate amount was
approximately Rmb4,030,000 and Rmb37,426,000 as at December 31, 2003 and 2004,
respectively. As at December 31, 2005, the Company has a balance due to ultimate
parent company amounted to Rmb7,149,000.

DUE TO A FELLOW SUBSIDIARY

     The amount due to fellow subsidiary was unsecured, non-interest bearing and
had no fixed terms of repayment. The aggregate amount as of December 31, 2004
was Rmb50,000,000, compared with nil balances as of December 31, 2003 and 2005.

ADVANCE TO AN AFFILIATE

     The amount advance to an affiliate was unsecured, interest bearing and
repayable upon demand. The aggregate amount was approximately Rmb95,695,000 and
Rmb91,384,000 as at December 31, 2003 and 2004, respectively. As at December 31,
2005, the Company has a balance on advance to an affiliate amounted
Rmb110,972,000 and other than the aggregated amounted to Rmb93,421,000 is due on
December 31, 2006, the remainder is repayable upon demand.

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 Rmb5,708,000,
Rmb6,192,000 and Rmb4,798,000 for the years ended December 31, 2003, 2004 and
2005, respectively.

SALES TO/PURCHASES FROM RELATED PARTIES

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

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

<PAGE>

     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. There was no sales to/purchases from related parties for
the years ended December 31, 2004 and 2005, in consequence of the
deconsolidation effect of Hangzhou Zhongce upon the disposal of a major interest
in September 2003.

RELATED PARTY GUARANTEES

There have been no related parties transactions during the most recent two
years, other than as described above, nor are there proposed to be any material
transactions at present to which we or any of our subsidiaries are or were a
party and in which any executive or independent director, or 10% shareholder, or
any relative or spouse thereof or any relative of such spouse, who shared a home
with this person, or who is a director or executive officer of any parent or
subsidiary of ours, had or is to have a direct or indirect material interest.
Furthermore, during our three most recent years, there has been no outstanding
indebtedness to us or any of our subsidiaries owed by any of our executive or
independent directors or any associate thereof.

<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 2003, 2004 and 2005, 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 2003, 2004 and 2005, 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 in June 2003. For the years ended December 31,
2004 and 2005, the Company did not receive any dividend from Hangzhou Zhongce
upon the disposal of a major interest in September 2003.

SIGNIFICANT CHANGES

     CSH, the parent company of the Company, had been informed by two
substantial shareholders of CSH, 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 CSH upon the Capital Reorganization having become
effective) from each of the two substantial shareholders, which shares represent
approximately an aggregate of 30.6% of the issued share capital of CSH, 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 (collectively as the "Group
Reorganization"), which resolutions were

<PAGE>

approved and passed at the Extraordinary General Meeting of CSH held on October
6, 2005, that would result in below:

(iv) CSH 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;

(v)  all other subsidiaries of CSH carrying on sand mining business, property
     development, and investment holding business (including the Company), and
     all other associates of CSH 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 CSH, and its subsidiaries; and

(vi) the distribution in specie of the GDI shares to the shareholders of CSH
     whose names appear on the register of members of CSH on the record date on
     the basis of one GDI share for one consolidated share of CSH.

The Group Reorganization was completed on May 19, 2006.

As a result of the Group Reorganization, GDI indirectly beneficially owns all
3,000,0000 shares of supervoting common stock and 2,239,800 shares of common
stock.

Following the completion of the Group Reorganization, according to an
announcement made by Hanny, an indirect shareholder of each of CSH and GDI,
Hanny made an offer for the outstanding shares of GDI not held indirectly by
Hanny. The offer was completed on June 16, 2006. As a result of the completion
of the offer, Hanny reported ownership of 436,032,120 shares, or 98.92 % of the
outstanding shares, of GDI, and become the ultimate parent company of the
Company.

     On March 23, 2006, Wing On entered into agreements 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 issue new convertible
notes to the Company or its nominee for a consideration of HK$300.0 million
(Rmb312.3 million), settled 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 five years from the date of issue, at the Company's
discretion, at an initial conversion price of HK$0.79 per share of Wing On,
subject to adjustments. The transaction was completed on June 8, 2006.

<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,
2005.

<TABLE>
<CAPTION>
YEAR ENDED          HIGH    LOW
----------          ----   ----
<S>                 <C>    <C>
December 31, 2005   2.30   0.31
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
</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, 2005 and each of the most recent period.

<TABLE>
<CAPTION>
QUARTER ENDED        HIGH    LOW
-------------        ----   ----
<S>                  <C>    <C>
June 30, 2006        2.55   1.63
March 31, 2006       2.59   0.40
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
</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>
June 30, 2006       2.55   2.25
May 31, 2006        2.25   1.85
April 30, 2006      2.05   1.63
March 31, 2006      2.00   1.63
February 28, 2006   2.59   1.63
January 31, 2006    1.62   0.40
</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 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 Xiang Zhang
Garden, 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.

     A conditional subscription agreement dated March 23, 2006 entered into
between the Company and Wing On in relation to the subscription by the Company
of the HK$300 million 2% convertible exchangeable notes due 2011 of Wing On
which entitle the holders thereof to convert the outstanding principal into Wing
On shares at the initial conversion price of HK$0.79 per share of Wing On.

EXCHANGE CONTROLS

CERTAIN FOREIGN ISSUER CONSIDERATIONS

<PAGE>

     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 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.

<PAGE>

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 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

<PAGE>

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, 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

<PAGE>

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 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

<PAGE>

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 pegged 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 pegged 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, 2005, the Company had no open forward contracts or
option contracts. The Company's cash on hand as of December 31, 2005 was Rmb14.7
million of which approximately Rmb10.0

<PAGE>

million equivalents (approximately US$1.2 million) were held in U.S. dollar
deposit.

INTEREST RATE FLUCTUATIONS

The Company did not have any short-term or long-term debt as of December 31,
2004 and 2005.

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 2005, 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 is an
independent director 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 two fiscal years in the period ended December
31, 2005, 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 2005 and 2004.

<TABLE>
<CAPTION>
                       2005      2004
                     US$'000   US$'000
                     -------   -------
<S>                  <C>       <C>
Audit Fees             469       315
Audit-Related Fees      --        --
Tax Fees (1)            --        --
All Other Fees          --        --
                       ---       ---
Total                  469       315
                       ===       ===
</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.

All tax services provided to the Company by Deloitte Touche Tohmatsu in 2005
and 2004 were pre-approved by the audit committee.

<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.

See the Index to Consolidated Financial Statements accompany this report
beginning page F-1.

     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, 2003, 2004
and 2005, 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 years ended December 31, 2004 and 2005. 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
three years ended December 31, 2005, 2004 and 2003, including a reconciliation
to U.S. GAAP, are set out as follows.
<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 2003, 2004 AND 2005

<TABLE>
<CAPTION>
CONTENTS                                                                PAGE(S)
--------                                                              ----------
<S>                                                                   <C>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   F-1
CONSOLIDATED INCOME STATEMENTS                                            F-2
CONSOLIDATED BALANCE SHEETS                                            F-3 & F-4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                              F-5
CONSOLIDATED CASH FLOW STATEMENTS                                      F-6 & F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                        F-8 - F-79
</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 at 31 December 2005
and 2004 and the related consolidated statements of income, changes in equity,
and cash flows for the three years ended 31 December 2005, 2004 and 2003, all
expressed in Hong Kong dollars. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 at 31 December 2005
and 2004 and the results of their operations and their cash flows for the three
years ended 31 December 2005, 2004 and 2003 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 profit for the year ended 31 December 2005 and loss for the two
years ended 31 December 2004 and 2003 and the determination of equity and
financial position at 31 December 2005 and 2004, to the extent summarized in
note 55.

DELOITTE TOUCHE TOHMATSU
Certified Public Accountants
Hong Kong, 31 March 2006 (31 July 2006 as to note 52)


                                      F-1

<PAGE>

WING ON TRAVEL (HOLDINGS) LIMITED

CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2003, 2004 and 2005

<TABLE>
<CAPTION>
                                                                  NOTES       2005          2004          2003
                                                                  -----   -----------    ----------   -----------
                                                                            HK$'000        HK$'000      HK$'000
                                                                                         (Restated)    (Restated)
<S>                                                               <C>     <C>            <C>          <C>
Turnover                                                            7      1,815,718     1,722,177     1,416,235
Direct operating costs                                                    (1,469,298)   (1,426,652)   (1,258,481)
                                                                          ----------     ---------    ----------
Gross profit                                                                 346,420       295,525       157,754
Other operating income                                              9         20,415        20,784        22,536
Distribution costs                                                           (53,041)      (51,039)      (38,809)
Administrative expenses                                                     (259,810)     (241,063)     (202,699)
Discount on acquisition of subsidiaries                           43(a)       34,574            --            --
Decrease in fair value of investments held for trading                       (14,761)           --            --
Net unrealized holding loss on other investments                                  --          (127)       (2,849)
Increase in fair value of investment property                       17           619         2,000           170
Realized gain on derivative financial instruments                              5,650            --            --
Reversal of impairment loss (impairment loss recognized)
   in respect of leasehold land and buildings                       16         4,874         4,511          (301)
Reversal of impairment loss (impairment loss recognized)
   in respect of properties under construction                      16           900        (1,100)       (2,400)
Impairment loss recognized in respect of
   available-for-sale investments                                 19(b)       (1,167)           --            --
Impairment loss recognized in respect of investments
   in securities                                                                  --        (5,659)      (26,974)
Release of negative goodwill arising from acquisition
   of subsidiaries                                                  22            --         1,863            --
Amortization of goodwill arising on acquisition of subsidiaries                   --            --          (496)
Loss on disposal of investment securities                                         --            --       (31,098)
Loss on disposal of interest in a co-operative joint venture                      --            --       (20,000)
Finance costs                                                       10       (59,376)      (66,282)      (34,916)
Share of results of associates                                      18         8,006          (195)     (114,431)
Loss on partial disposal of subsidiaries                                      (3,177)           --            --
Gain (loss) on disposal of associates                                             --        37,930       (23,471)
Impairment loss recognized in respect of interest in
   an associate                                                                   --            --       (31,717)
Loss on disposal of discontinued operation                          44            --            --       (32,697)
                                                                          ----------     ---------    ----------
Profit (loss) before taxation                                       11        30,126        (2,852)     (382,398)
Taxation credit                                                     13         2,108            23         1,718
                                                                          ----------     ---------    ----------
Profit (loss) for the year                                                    32,234        (2,829)     (380,680)
                                                                          ==========     =========    ==========
Attributable to:
   Shareholders of the parent                                                 31,109         8,556      (380,680)
   Minority interests                                                          1,125       (11,385)           --
                                                                          ----------     ---------    ----------
                                                                              32,234        (2,829)     (380,680)
                                                                          ==========     =========    ==========
Dividends                                                           14         8,752            --            --
                                                                          ==========     =========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                              HK$            HK$          HK$
                                                                                         (Restated)   (Restated)
<S>                                                               <C>     <C>            <C>          <C>
Earnings (loss) per share
  Basic                                                             15          0.07          0.04         (2.08)
                                                                                ====          ====         =====
  Diluted                                                           15           N/A           N/A          N/A
                                                                                ====          ====         =====
</TABLE>

See notes to consolidated financial statements.


                                       F-2

<PAGE>

CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER 2005

<TABLE>
<CAPTION>
                                               NOTES      2005         2004
                                               -----   ---------   ----------
                                                        HK$'000      HK$'000
                                                                   (Restated)
<S>                                            <C>     <C>         <C>
Non-current assets
   Property, plant and equipment                 16    1,702,860    1,708,682
   Investment property                           17           --        3,400
   Interest in associates                        18      220,422        1,989
   Available-for-sale investments                19       92,625           --
   Investments in securities                     20           --       93,789
   Goodwill                                      21       50,862       50,215
   Negative goodwill                             22           --      (72,651)
   Investment deposits                           24      201,419      221,695
   Club debenture, at cost                                   713          713
                                                       ---------    ---------
                                                       2,268,901    2,007,832
                                                       ---------    ---------
Current assets
   Property held for sale, at cost                            98           98
   Inventories                                   25        6,113        5,807
   Amounts due from related companies            26       65,177        6,522
   Amounts due from associates                   27      122,449          391
   Trade and other receivables                   28      324,505      276,500
   Loan receivables                              29      180,926      131,000
   Investments held for trading                  30        9,086           --
   Investments in securities                     20           --        2,778
   Tax recoverable                                            37           31
   Pledged bank deposits                         47        6,925        6,800
   Trading cash balances                         31          284          246
   Bank balances and cash                                 43,103      134,317
                                                       ---------    ---------
                                                         758,703      564,490
Asset classified as held for sale                17        4,019           --
                                                       ---------    ---------
                                                         762,722      564,490
                                                       ---------    ---------
Current liabilities
   Trade and other payables                      32      277,368      234,441
   Loans from related companies                  33      361,500      260,778
   Amounts due to associates                     27       11,016       11,327
   Amounts due to related companies              34       48,289       17,598
   Obligations under finance leases - amount
      due within one year                        35           62          378
   Borrowings - amount due within one year       36       38,325       57,066
                                                       ---------    ---------
                                                         736,560      581,588
                                                       ---------    ---------
Net current assets (liabilities)                          26,162      (17,098)
                                                       ---------    ---------
Total assets less current liabilities                  2,295,063    1,990,734
                                                       ---------    ---------
</TABLE>


                                       F-3

<PAGE>

<TABLE>
<CAPTION>
                                               NOTES      2005        2004
                                               -----   ---------   ----------
                                                        HK$'000      HK$'000
                                                                   (Restated)
<S>                                            <C>     <C>         <C>
Non-current liabilities
   Loans from related companies                  33           --     112,098
   Obligations under finance leases - amount
      due after one year                         35           31          93
   Borrowings - amount due after one year        36      271,308     300,395
   Convertible notes                             37           --      41,350
   Promissory note                               38      365,000     365,000
   Deferred taxation                             39      244,680     243,354
                                                       ---------   ---------
                                                         881,019   1,062,290
                                                       ---------   ---------
Net assets                                             1,414,044     928,444
                                                       =========   =========
Capital and reserves
   Share capital                                 40      437,586     322,267
   Reserves                                      42      541,390     307,875
                                                       ---------   ---------
Equity attributable to shareholders of the
   parent                                                978,976     630,142
Minority interests                                       435,068     298,302
                                                       ---------   ---------
Total equity                                           1,414,044     928,444
                                                       =========   =========
</TABLE>

See notes to consolidated financial statements.


                                      F-4
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2005

<TABLE>
<CAPTION>
                                                                                Investment
                                                                                 property    Convertible
                                           Share        Share       Special    revaluation      notes      Translation   Goodwill
                                          capital      premium      reserve      reserve       reserve       reserve      reserve
                                         ---------   ----------   ----------   -----------   -----------   -----------   --------
                                         HK$'000       HK$'000      HK$'000      HK$'000       HK$'000       HK$'000      HK$'000
                                                                  (Note 42b)
<S>                                      <C>         <C>          <C>          <C>           <C>           <C>           <C>
At 1 January 2003
   - as originally stated                  183,167    1,019,606       55,554         573            --         (111)      (9,767)
   - effects of changes in accounting
      policies (notes 2 and 3)                  --           --           --        (573)       20,468           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
   - as restated                           183,167    1,019,606       55,554          --        20,468         (111)      (9,767)
                                         ---------   ----------   ----------     -------       -------      -------       ------
Exchange difference arising on
   translation of financial statements
   of operations outside Hong Kong              --           --           --          --            --         (286)          --
Share of reserve of an associate                --           --           --          --            --           73           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
Net expense recognized directly
   in equity                                    --           --           --          --            --         (213)          --
Loss for the year                               --           --           --          --            --           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
Total recognized income and
   expense for the year                         --           --           --          --            --         (213)          --
                                         ---------   ----------   ----------     -------       -------      -------       ------
                                           183,167    1,019,606       55,554          --        20,468         (324)      (9,767)
Transfer to investments in
   securities on reclassification
   of investments                               --           --           --          --            --           --        9,767
Acquisition of a subsidiary                     --           --           --          --            --           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
At 31 December 2003                        183,167    1,019,606       55,554          --        20,468         (324)          --
                                         ---------   ----------   ----------     -------       -------      -------       ------
Exchange difference arising on
   translation of financial statements
   of operations outside Hong Kong              --           --           --          --            --         (757)          --
Profit (loss) for the year                      --           --           --          --            --           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
Total recognized income and
   expense for the year                         --           --           --          --            --         (757)          --
                                         ---------   ----------   ----------     -------       -------      -------       ------
                                           183,167    1,019,606       55,554          --        20,468       (1,081)          --
Recognition of equity component
   of convertible notes                         --           --           --          --        75,863           --           --
Conversion into shares from
   convertible notes                       102,500      102,500           --          --       (62,213)          --           --
Issue of shares                             36,600       65,880           --          --            --           --           --
Share issue expenses                            --       (3,832)          --          --            --           --           --
Acquisition of subsidiaries                     --           --           --          --            --           --           --
Realization on liquidation of
   a subsidiary                                 --           --           --          --            --         (847)          --
Transfer due to redemption of
   convertible notes                            --           --           --          --       (20,468)          --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
At 31 December 2004                        322,267    1,184,154       55,554          --        13,650       (1,928)          --
Opening balance adjustments
   arising from adoption of new
   accounting policies (notes 2
   and 3)                                       --           --           --          --            --           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
At 1 January 2005, as restated             322,267    1,184,154       55,554          --        13,650       (1,928)          --
                                         ---------   ----------   ----------     -------       -------      -------       ------
Exchange difference arising on
   translation of financial statements
   of operations outside Hong Kong              --           --           --          --            --       11,015           --
Profit for the year                             --           --           --          --            --           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
Total recognized income and
   expense for the year                         --           --           --          --            --       11,015           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
                                           322,267    1,184,154       55,554          --        13,650        9,087           --
Conversion into shares from
   convertible notes                        27,919       27,081           --          --       (13,650)          --           --
Issue of shares                             87,400      118,920           --          --            --           --           --
Share issue expenses                            --       (6,482)          --          --            --           --           --
Acquisition of subsidiaries                     --           --           --          --            --           --           --
Partial disposal of subsidiaries                --           --           --          --            --           --           --
Cancellation of share premium
   (note 42a)                                   --   (1,323,673)   1,323,673          --            --           --           --
Set off against accumulated
   losses                                       --           --   (1,120,764)         --            --           --           --
Dividends                                       --           --           --          --            --           --           --
Dividends paid to  minority
   shareholders of subsidiaries                 --           --           --          --            --           --           --
                                         ---------   ----------   ----------     -------       -------      -------       ------
At 31 December 2005                        437,586           --      258,463          --            --        9,087           --
                                         =========   ==========   ==========     =======       =======      =======       ======

<CAPTION>
                                                                   Attributable to
                                                     Accumulated    shareholders
                                         Statutory     (losses)         of the        Minority
                                          reserves      profits         parent        interests      Total
                                         ---------   -----------   ---------------   ----------   ----------
                                          HK$'000      HK$'000         HK$'000         HK$'000      HK$'000
<S>                                      <C>         <C>           <C>               <C>          <C>
At 1 January 2003
   - as originally stated                      150     (594,596)       654,576               --      654,576
   - effects of changes in accounting
      policies (notes 2 and 3)                  --       (6,959)        12,936               --       12,936
                                          --------   ----------       --------       ----------   ----------
   - as restated                               150     (601,555)       667,512               --      667,512
                                          --------   ----------       --------       ----------   ----------
Exchange difference arising on
   translation of financial statements
   of operations outside Hong Kong              --           --           (286)              --         (286)
Share of reserve of an associate                --           --             73               --           73
                                          --------   ----------       --------       ----------   ----------
Net expense recognized directly
   in equity                                    --           --           (213)              --         (213)
Loss for the year                               --     (380,680)      (380,680)              --     (380,680)
                                          --------   ----------       --------       ----------   ----------
Total recognized income and
   expense for the year                         --     (380,680)      (380,893)              --     (380,893)
                                          --------   ----------       --------       ----------   ----------
                                               150     (982,235)       286,619               --      286,619
Transfer to investments in
   securities on reclassification
   of investments                               --           --          9,767               --        9,767
Acquisition of a subsidiary                     --           --             --           29,778       29,778
                                          --------   ----------       --------       ----------   ----------
At 31 December 2003                            150     (982,235)       296,386           29,778      326,164
                                          --------   ----------       --------       ----------   ----------
Exchange difference arising on
   translation of financial statements
   of operations outside Hong Kong              --           --           (757)              --         (757)
Profit (loss) for the year                      --        8,556          8,556          (11,385)      (2,829)
                                          --------   ----------       --------       ----------   ----------
Total recognized income and
   expense for the year                         --        8,556          7,799          (11,385)      (3,586)
                                          --------   ----------       --------       ----------   ----------
                                               150     (973,679)       304,185           18,393      322,578
Recognition of equity component
   of convertible notes                         --           --         75,863               --       75,863
Conversion into shares from
   convertible notes                            --        9,506        152,293               --      152,293
Issue of shares                                 --           --        102,480               --      102,480
Share issue expenses                            --           --         (3,832)              --       (3,832)
Acquisition of subsidiaries                     --           --             --          279,909      279,909
Realization on liquidation of
   a subsidiary                                 --           --           (847)              --         (847)
Transfer due to redemption of
   convertible notes                            --       20,468             --               --           --
                                          --------   ----------       --------       ----------   ----------
At 31 December 2004                            150     (943,705)       630,142          298,302      928,444
Opening balance adjustments
   arising from adoption of new
   accounting policies (notes 2
   and 3)                                       --       72,651         72,651               --       72,651
                                          --------   ----------       --------       ----------   ----------
At 1 January 2005, as restated                 150     (871,054)       702,793          298,302    1,001,095
                                          --------   ----------       --------       ----------   ----------
Exchange difference arising on
   translation of financial statements
   of operations outside Hong Kong              --           --         11,015            4,724       15,739
Profit for the year                             --       31,109         31,109            1,125       32,234
                                          --------   ----------       --------       ----------   ----------
Total recognized income and
   expense for the year                         --       31,109         42,124            5,849       47,973
                                          --------   ----------       --------       ----------   ----------
                                               150     (839,945)       744,917          304,151    1,049,068
Conversion into shares from
   convertible notes                            --        1,623         42,973               --       42,973
Issue of shares                                 --           --        206,320               --      206,320
Share issue expenses                            --           --         (6,482)              --       (6,482)
Acquisition of subsidiaries                     --           --             --          110,945      110,945
Partial disposal of subsidiaries                --           --             --           25,977       25,977
Cancellation of share premium
   (note 42a)                                   --           --             --               --           --
Set off against accumulated
   losses                                       --    1,120,764             --               --           --
Dividends                                       --       (8,752)        (8,752)              --       (8,752)
Dividends paid to  minority
   shareholders of subsidiaries                 --           --             --           (6,005)      (6,005)
                                          --------   ----------       --------       ----------   ----------
At 31 December 2005                            150      273,690        978,976          435,068    1,414,044
                                          ========   ==========       ========       ==========   ==========
</TABLE>

See notes to consolidated financial statements.


                                       F-5
<PAGE>

CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005

<TABLE>
<CAPTION>
                                                                             2005       2004         2003
                                                                           -------   ----------   ----------
                                                                           HK$'000     HK$'000      HK$'000
                                                                                     (Restated)   (Restated)
<S>                                                                        <C>       <C>          <C>
Cash flows from operating activities
   Profit (loss) before taxation                                            30,126      (2,852)    (382,398)
   Adjustments for:
      Share of results of associates                                        (8,006)        195      114,431
      Depreciation and amortization of property, plant and equipment        60,743      57,057       24,575
      Interest income                                                       (4,722)     (3,381)      (1,150)
      Interest expenses                                                     59,358      66,149       32,457
      Finance lease charges                                                     18         133        2,459
      Loss on disposal of property, plant and equipment                        480         220       28,587
      Loss on partial disposal of subsidiaries                               3,177          --           --
      (Gain) loss on disposal of associates                                     --     (37,930)      23,471
      Loss on disposal of other investments                                     --          11          465
      Allowance for irrecoverable trade debts                                  476       1,262           --
      Increase in fair value of investment property                           (619)     (2,000)        (170)
      Impairment loss recognized in respect of available-for-sale
         investments                                                         1,167          --           --
      Impairment loss recognized in respect of investments in securities        --       5,659       26,974
      (Reversal of impairment loss) impairment loss recognized in
         respect of properties under construction                             (900)      1,100        2,400
      (Reversal of impairment loss) impairment loss recognized
         in respect of leasehold land and buildings                         (4,874)     (4,511)         301
      Discount on acquisition of subsidiaries                              (34,574)         --           --
      Release of negative goodwill arising from acquisition
         of subsidiaries                                                        --      (1,863)          --
      Amortization of goodwill arising on acquisition of subsidiaries           --          --          496
      Decrease in fair value of investments held for trading                14,761          --           --
      Net unrealized holding loss on other investments                          --         127        2,849
      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
      Impairment loss recognized in respect of interest in an associate         --          --       31,717
                                                                           -------    --------     --------
Operating cash flows before movement in working capital                    116,611      79,376       (9,206)
                                                                           -------    --------     --------
Movement in working capital
   (Increase) decrease in inventories                                         (306)        254          540
   Decrease (increase) in amounts due from related companies                 1,439      (3,594)      (1,972)
   Decrease (increase) in amounts due from associates                        8,980       1,916       (7,282)
   (Increase) decrease in trade and other receivables                      (47,407)    139,499      (46,582)
   (Increase) decrease in trading cash balances                                (38)        170          747
   Increase (decrease) in trade and other payables                          40,697    (111,100)      26,950
   Decrease in amounts due to associates                                      (481)       (807)     (13,354)
   Increase (decrease) in amounts due to related companies                  30,113     (77,065)       1,340
                                                                           -------    --------     --------
                                                                            32,997     (50,727)     (39,613)
                                                                           -------    --------     --------
</TABLE>


                                      F-6

<PAGE>

<TABLE>
<CAPTION>
                                                                 NOTES     2005        2004         2003
                                                                 -----   --------   ----------   ----------
                                                                          HK$'000     HK$'000      HK$'000
                                                                                    (Restated)   (Restated)
<S>                                                              <C>     <C>        <C>          <C>
Cash generated from (used in) operations                                  149,608      28,649      (48,819)
Interest paid                                                             (57,735)    (53,578)     (12,429)
Finance lease charges paid                                                    (18)       (133)      (2,459)
Taxation in other jurisdictions (paid) refunded                               (63)         28          724
                                                                         --------    --------     --------
Net cash from (used in) operating activities                               91,792     (25,034)     (62,983)
                                                                         --------    --------     --------
Cash flows from investing activities
   Proceed on partial disposal of subsidiaries                             22,800          --           --
   Interest received                                                        4,722       3,381        1,150
   Proceeds from disposal of property, plant and equipment                  1,671       9,908       41,611
   Acquisition of subsidiaries                                     43    (151,298)    (47,387)          --
   Advances to related companies                                          (60,090)         --           --
   Net cash outflow of loans advanced to certain
      companies and individuals                                           (49,926)    (36,050)      (9,678)
   Purchase of property, plant and equipment                              (30,040)    (18,669)     (23,028)
   Capital contribution to an associate                                   (24,038)         --           --
   Purchase of investments held for trading                               (21,069)         --           --
   Payment for investment deposits                                           (474)   (221,695)          --
   (Increase) decrease in pledged bank deposits                              (125)     (6,410)         412
   Proceeds from disposals of associates and advances                          --     188,988       13,219
   Acquisition of associates and advances                                      --     (82,135)          --
   Purchase of other investments                                               --         (58)      (5,571)
   Purchase of investment securities                                           --          (1)          --
   Refund of other long term investment                                        --      70,500           --
   Proceeds from disposal of other investments                                 --          12        4,860
   Investment in an associate                                                  --          --          (82)
   Disposal of discontinued operation (net of cash and
      cash equivalents disposed of)                                            --          --       26,911
                                                                         --------    --------     --------
Net cash (used in) from investing activities                             (307,867)   (139,616)      49,804
                                                                         --------    --------     --------
Cash flows from financing activities
   Proceeds from issue of new shares for cash,
      net of expenses of HK$6,482,000
      (2004: HK$3,832,000 and 2003: nil)                                  199,838      98,648           --
   New bank loans and other loans raised                                   14,424       5,569       61,096
   Repayment of bank loans and other loans                                (34,071)    (89,599)    (209,909)
   Net cash (outflow) inflow from loans from related companies            (11,376)    141,564      224,838
   Dividends paid                                                          (8,752)         --           --
   Dividends paid to minority shareholders of subsidiaries                 (6,005)         --           --
   Repayment of obligations under finance leases                             (378)     (1,182)      (4,619)
   Proceeds from issue of convertible notes                                    --      70,200           --
   Redemption of convertible notes                                             --     (64,325)          --
                                                                         --------    --------     --------
Net cash from financing activities                                        153,680     160,875       71,406
                                                                         --------    --------     --------
Net (decrease) increase in cash and cash equivalents                      (62,395)     (3,775)      58,227
Cash and cash equivalents at beginning of the year                        106,136     111,709       53,793
Effect of foreign exchange rate changes                                      (638)     (1,798)        (311)
                                                                         --------    --------     --------
Cash and cash equivalents at end of the year                       46      43,103     106,136      111,709
                                                                         ========    ========     ========
</TABLE>

See notes to consolidated financial statements.


                                      F-7
<PAGE>

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2005

1.   GENERAL

     Wing On Travel (Holdings) Limited (together with its subsidiaries referred
     to as 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 addresses of the registered office and
     principal place of business of the Company are disclosed in the corporate
     information of the annual report.

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

     The Company is engaged in the business of providing package tours, travel
     and other related services and hotel operation.

     These consolidated financial statements have been prepared for the special
     purpose of filing with the United States Securities and Exchange Commission
     for the 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.   APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS

     In the current year, the Company has applied, for the first time, a number
     of new Hong Kong Financial Reporting Standards ("HKFRSs"), Hong Kong
     Accounting Standards ("HKASs") and Interpretations ("INTs") (hereinafter
     collectively referred to as "new HKFRSs") issued by the Hong Kong Institute
     of Certified Public Accountants ("HKICPA") that are effective for
     accounting periods beginning on or after 1 January 2005. The application of
     the new HKFRSs has resulted in a change in the presentation of the
     consolidated income statement, consolidated balance sheet and consolidated
     statement of changes in equity. In particular, the presentation of minority
     interests and share of tax of associates has been changed as required by
     HKAS 1 "Presentation of financial statements". The changes in presentation
     have been applied retrospectively. The adoption of the new HKFRSs has
     resulted in changes to the Company's accounting policies in the following
     areas that have an effect on how the results for the current and/or prior
     accounting years are prepared and presented.

     Business combinations

     In the current year, the Company has applied HKFRS 3 "Business
     combinations" ("HKFRS 3") which is effective for business combinations for
     which the agreement date is on or after 1 January 2005. The principal
     effects of the application of HKFRS 3 to the Company are summarized below:


                                      F-8

<PAGE>

2.   APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS - continued

     Business combinations - continued

     Goodwill

     In previous years, goodwill arising on acquisition prior to 1 April 2001
     was held in reserves, and goodwill arising on acquisition after 1 April
     2001 was capitalized and amortized over its estimated useful life. The
     Company has applied the relevant transitional provisions in HKFRS 3.
     Goodwill previously recognized in reserves was transferred to investments
     in securities on reclassification of investments during the year ended 31
     December 2003. With respect to goodwill previously capitalized on the
     consolidated balance sheets, the Company has discontinued amortizing such
     goodwill from 1 January 2005 onwards and such goodwill will be tested for
     impairment at least annually. Goodwill arising on acquisition after 1
     January 2005 is measured at cost less accumulated impairment losses (if
     any) after initial recognition. As a result of this change in accounting
     policy, no amortization of goodwill has been charged in the current year.
     Comparative figures for 2003 and 2004 have not been restated (see note 3
     for the financial impact).

     Excess of the Company's interest in the net fair value of acquiree's
     identifiable assets, liabilities and contingent liabilities over cost
     (previously known as "negative goodwill")

     In accordance with HKFRS 3, any excess of the Company's interest in the net
     fair value of acquiree's identifiable assets, liabilities and contingent
     liabilities over the cost of acquisition ("discount on acquisition") is
     recognized immediately in profit or loss in the period in which the
     acquisition takes place. In previous years, negative goodwill arising on
     acquisition was presented as a deduction from assets and released to income
     based on an analysis of the circumstances from which the balance resulted.
     In accordance with the relevant transitional provisions in HKFRS 3, the
     Company has derecognized all negative goodwill on 1 January 2005, which was
     previously presented as a deduction from assets, with a corresponding
     adjustment to the Company's accumulated (losses) profits (see note 3 for
     the financial impact).

     Financial instruments

     In the current year, the Company has applied HKAS 32 "Financial
     instruments: disclosure and presentation" ("HKAS 32") and HKAS 39
     "Financial instruments: Recognition and measurement" ("HKAS 39"). HKAS 32
     requires retrospective application. HKAS 39, which is effective for annual
     periods beginning on or after 1 January 2005, generally does not permit the
     recognition, derecognition or measurement of financial assets and
     liabilities on a retrospective basis. The principal effects resulting from
     the implementation of HKAS 32 and HKAS 39 are summarized below:

     Convertible notes

     The principal impact of HKAS 32 on the Company is in relation to
     convertible notes issued by the Company that contain both liability and
     equity components. Previously, convertible notes were classified as
     liabilities on the consolidated balance sheet. HKAS 32 requires an issuer
     of a compound financial instrument that contains both financial liability
     and equity components to separate the compound financial instrument into
     the liability and equity components on initial recognition and to account
     for these components separately. In subsequent periods, the liability
     component is carried at amortized cost using the effective interest method.
     Because HKAS 32 requires retrospective application, comparative figures for
     2003 and 2004 have been restated in order to reflect the increase in
     effective interest on the liability component (see note 3 for the financial
     impact).


                                      F-9

<PAGE>

2.   APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS - continued

     Financial instruments - continued

     Classification and measurement of financial assets and financial
     liabilities

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

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

     On 1 January 2005, the Company classified and measured its debt and equity
     securities in accordance with the transitional provisions of HKAS 39. As a
     result of the adoption of HKAS 39, the Company has redesignated
     "investments in securities" recorded in the consolidated balance sheet at 1
     January 2005 amounting to HK$93,789,000 as "available-for-sale investments"
     and HK$2,778,000 as "investments held for trading".

     Financial assets and financial liabilities other than debt and equity
     securities

     From 1 January 2005 onwards, the Company has classified and measured its
     financial assets and financial liabilities other than debt and equity
     securities (which were previously outside the scope of SSAP 24) in
     accordance with the requirements of HKAS 39. As mentioned above, financial
     assets under HKAS 39 are classified as "financial assets at fair value
     through profit or loss", "available-for-sale financial assets", "loans and
     receivables" or "held-to-maturity financial assets". Financial liabilities
     are generally classified as "financial liabilities at fair value through
     profit or loss" or "other financial liabilities". Financial liabilities at
     fair value through profit or loss are measured at fair value, with changes
     in fair value being recognized in profit or loss directly. "Other financial
     liabilities" are carried at amortized cost using the effective interest
     method after initial recognition. These requirements of HKAS 39 did not
     have any financial impact to the Company.


                                      F-10

<PAGE>

2.   APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS - continued

     Financial instruments - continued

     Derivatives and hedging

     From 1 January 2005 onwards, all derivatives that are within the scope of
     HKAS 39 are required to be carried at fair value at each balance sheet date
     regardless of whether they are deemed as held for trading or designated as
     effective hedging instruments. Under HKAS 39, derivatives (including
     embedded derivatives separately accounted for from the non-derivative host
     contracts) are deemed as held-for-trading financial assets or financial
     liabilities, unless they qualify and are designated as effective hedging
     instruments. The corresponding adjustments on changes in fair values would
     depend on whether the derivatives are designated as effective hedging
     instruments, and if so, the nature of the item being hedged. For
     derivatives that are deemed as held for trading, changes in fair values of
     such derivatives are recognized in profit or loss for the period in which
     they arise. Since there were no derivative financial instruments as at 1
     January 2005, accordingly, opening balance adjustments have not been made.

     Hotel properties

     Hong Kong Interpretation 2 "The appropriate accounting policies for hotel
     properties" ("HK INT 2") clarifies the accounting policy for owner-operated
     hotel properties. In previous years, the Company's self-operated hotel
     properties were carried at cost less accumulated impairment loss and were
     not subject to depreciation. HK INT 2 requires owner-operated properties to
     be classified as property, plant and equipment in accordance with HKAS 16
     "Property, plant and equipment", and therefore be accounted for either
     using the cost model or the revaluation model. The Company has resolved to
     account for these hotel properties using the cost model. In the absence of
     any specific transitional provisions in HK INT 2, the new accounting policy
     has been applied retrospectively. Comparative figures have been restated
     (see note 3 for the financial impact).

     Owner-occupied leasehold interest in land

     In previous years, owner-occupied leasehold land and buildings were
     included in property, plant and equipment and measured using the cost
     model. In the current year, the Company has applied HKAS 17 "Leases" ("HKAS
     17"). Under HKAS 17, the land and buildings elements of a lease of land and
     buildings are considered separately for the purposes of lease
     classification, unless the lease payments cannot be allocated reliably
     between the land and buildings elements, in which case, the entire lease is
     generally treated as a finance lease. To the extent that the allocation of
     the lease payments between the land and buildings elements can be made
     reliably, the leasehold interests in land are reclassified to prepaid lease
     payments under operating leases, which are carried at cost and amortized
     over the lease term on a straight line basis. This change in accounting
     policy has been applied retrospectively. Alternatively, where the
     allocation between the land and buildings elements cannot be made reliably,
     the leasehold interests in land continue to be accounted for as property,
     plant and equipment. As the directors consider the allocation between the
     land and buildings elements cannot be made reliably, no restatement has
     been made in the financial statements.


                                      F-11

<PAGE>

2.   APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS - continued

     Investment properties

     In the current year, the Company has, for the first time, applied HKAS 40
     "Investment property" ("HKAS 40"). The Company has elected to use the fair
     value model to account for its investment properties which requires gains
     or losses arising from changes in the fair value of investment properties
     to be recognized directly in the profit or loss for the year in which they
     arise. In previous years, investment properties under the predecessor SSAP
     were measured at open market values, with revaluation surplus or deficit
     credited or charged to investment property revaluation reserve unless the
     balance on this reserve was insufficient to cover a revaluation decrease,
     in which case the excess of the revaluation decrease over the balance on
     the investment property revaluation reserve was charged to the income
     statement. Where a decrease had previously been charged to the income
     statement and a revaluation surplus subsequently arose, that increase was
     credited to the income statement to the extent of the decrease previously
     charged. The Company has applied the relevant transitional provisions in
     HKAS 40 and elected to apply HKAS 40 retrospectively. Comparative figures
     for 2003 and 2004 have been restated (see note 3 for the financial impact).

     Deferred taxes related to investment properties

     In previous years, deferred tax consequences in respect of revalued
     investment properties were assessed on the basis of the tax consequence
     that would follow from recovery of the carrying amount of the properties
     through sale in accordance with the predecessor Interpretation. In the
     current year, the Company has applied Hong Kong Standing Interpretations
     Committee Interpretation 21 "Income taxes - recovery of revalued
     non-depreciable assets" (HK(SIC) INT 21") which removes the presumption
     that the carrying amount of investment properties are to be recovered
     through sale. Therefore, the deferred tax consequences of the investment
     properties are now assessed on the basis that reflects the tax consequences
     that would follow from the manner in which the Company expects to recover
     the property at each balance sheet date. In the absence of any specific
     transitional provisions in HK(SIC) INT 21, this change in accounting policy
     has been applied retrospectively but did not have any financial impact to
     the Company.


                                      F-12

<PAGE>

2.   APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS - continued

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

<TABLE>
<S>                   <C>
HKAS 1  (Amendment)   Capital disclosure (1)
HKAS 19 (Amendment)   Actuarial gains and losses, group plans and
                      disclosures (2)
HKAS 21 (Amendment)   Net investment in a foreign operation (2)
HKAS 39 (Amendment)   Cash flow hedge accounting of forecast intragroup
                      transactions (2)
HKAS 39 (Amendment)   The fair value option (2)
HKAS 39 and HKFRS 4   Financial guarantee contracts (2)
   (Amendments)
HKFRS 6               Exploration for and evaluation of mineral resources (2)
HKFRS 7               Financial instruments: Disclosures (1)
HK(IFRIC) - INT 4     Determining whether an arrangement contains a lease (2)
HK(IFRIC) - INT 5     Rights to interests arising from decommissioning,
                      restoration and environmental rehabilitation funds (2)
HK(IFRIC) - INT 6     Liabilities arising from participating in a specific
                      market - waste electrical and electronic equipment (3)
HK(IFRIC) - INT 7     Applying the restatement approach under HKAS 29
                      "Financial Reporting in Hyperinflationary Economies" (4)
</TABLE>

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

(2)  Effective for annual periods beginning on or after 1 January 2006.

(3)  Effective for annual periods beginning on or after 1 December 2005.

(4)  Effective for annual periods beginning on or after 1 March 2006.

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

     The effects of the changes in the accounting policies described above on
     the results for the current and prior years are as follows:

<TABLE>
<CAPTION>
                                                  2005      2004      2003
                                                -------   -------   -------
                                                HK$'000   HK$'000   HK$'000
<S>                                             <C>       <C>       <C>
Recognition of discount on acquisition
   directly in the income statement              34,574        --        --
Decrease in amortization of goodwill              2,543        --        --
Increase in fair value of investment property       619     2,000       163
Depreciation of owner-operated hotel
   properties                                   (30,119)  (30,119)       --
Increase in interest on the liability
   component of convertible notes                (1,623)  (12,571)   (9,871)
Decrease in negative goodwill released
   to income                                     (1,863)       --        --
                                                -------   -------   -------
Increase in profit (loss) for the year            4,131   (40,690)   (9,708)
                                                =======   =======   =======
</TABLE>


                                      F-13

<PAGE>

3.   SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES - continued

     An analysis of the increase in profit (loss) for the year by line items
     presented according to their function is as follows:

<TABLE>
<CAPTION>
                                                  2005      2004      2003
                                                -------   -------   -------
                                                HK$'000   HK$'000   HK$'000
<S>                                             <C>       <C>       <C>
Discount on acquisition of subsidiaries          34,574        --        --
Decrease in amortization of goodwill              2,543        --        --
Increase in fair value of investment property       619     2,000       163
Increase in administrative expenses             (30,119)  (30,119)       --
Increase in finance costs                        (1,623)  (12,571)   (9,871)
Decrease in negative goodwill released
   to income                                     (1,863)       --        --
                                                -------   -------    ------
                                                  4,131   (40,690)   (9,708)
                                                =======   =======    ======
</TABLE>

     The cumulative effects of the application of the new HKFRSs as at 31
     December 2004 and 1 January 2005 are summarized below:

<TABLE>
<CAPTION>
                                       At       Effect    Effect    Effect   Effect       At       Effect   Effect     At
                                  31 December     of        of       of       of     31 December     of      of     1 January
                                     2004      HK INT 2   HKAS 1   HKAS 32  HKAS 40      2004     HKFRS 3  HKAS 39     2005
                                  -----------  --------  --------  -------  -------  -----------  -------  -------  ----------
                                    HK$'000    HK$'000    HK$'000  HK$'000  HK$'000     HK$'000   HK$'000  HK$'000    HK$'000
                                  (Originally                                         (Restated)                    (Restated)
                                    stated)
<S>                               <C>          <C>       <C>       <C>      <C>      <C>          <C>      <C>      <C>
Balance sheet items affected:
Property, plant and equipment      1,738,801   (30,119)        --       --      --    1,708,682        --       --   1,708,682
Available-for-sale investments            --        --         --       --      --           --        --   93,789      93,789
Investments in securities             96,567        --         --       --      --       96,567        --  (96,567)         --
Negative goodwill                    (72,651)       --         --       --      --      (72,651)   72,651       --          --
Investments held for trading              --        --         --       --      --           --        --    2,778       2,778
Convertible notes                    (55,000)       --         --   13,650      --      (41,350)       --       --     (41,350)
Other assets and liabilities        (762,804)       --         --       --      --     (762,804)       --       --    (762,804)
                                   ---------   -------   --------   ------  ------    ---------    ------  -------   ---------
Total effects on assets
   and liabilities                   944,913   (30,119)        --   13,650      --      928,444    72,651       --   1,001,095
                                   =========   =======   ========   ======  ======    =========    ======  =======   =========
Share capital and other reserves   1,560,197        --         --       --      --    1,560,197        --       --   1,560,197
Investment property revaluation
   reserve                             2,736        --         --       --  (2,736)          --        --       --          --
Convertible notes reserve                 --        --         --   13,650      --       13,650        --       --      13,650
Accumulated losses                  (930,191)  (16,250)        --       --   2,736     (943,705)   72,651       --    (871,054)
Minority interests                        --   (13,869)   312,171       --      --      298,302        --       --     298,302
                                   ---------   -------   --------   ------  ------    ---------    ------  -------   ---------
Total effects on equity              632,742   (30,119)   312,171   13,650      --      928,444    72,651       --   1,001,095
Minority interests                   312,171        --   (312,171)      --      --           --        --       --          --
                                   ---------   -------   --------   ------  ------    ---------    ------  -------   ---------
                                     944,913   (30,119)        --   13,650      --      928,444    72,651       --   1,001,095
                                   =========   =======   ========   ======  ======    =========    ======  =======   =========
</TABLE>

     The financial effects of the application of the new HKFRSs to the Company's
     equity at 1 January 2004 are summarized below:

<TABLE>
<CAPTION>
                                        As
                                    originally   Effect of   Effect of   Effect of       As
                                      stated       HKAS 1     HKAS 32     HKAS 40     restated
                                   -----------   ---------   ---------   ---------   ----------
                                     HK$'000      HK$'000     HK$'000     HK$'000      HK$'000
<S>                                <C>           <C>         <C>         <C>         <C>
Share capital and other reserves    1,258,153          --          --        --       1,258,153
Investment property revaluation
   reserve                                736          --          --      (736)             --
Convertible notes reserve                  --          --      20,468        --          20,468
Accumulated losses                   (965,568)         --     (17,403)      736        (982,235)
Minority interests                         --      29,778          --        --          29,778
                                    ---------     -------     -------      ----      ----------
Total effects on equity               293,321      29,778       3,065        --         326,164
Minority interests                     29,778     (29,778)         --        --              --
                                    ---------     -------     -------      ----      ----------
                                      323,099          --       3,065        --         326,164
                                    =========     =======     =======      ====      ==========
</TABLE>


                                      F-14

<PAGE>

3.   SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES - continued

     The financial effects of the application of the new HKFRSs to the Company's
     equity at 1 January 2003 are summarized below:

<TABLE>
<CAPTION>
                                       As                                   At
                                   originally   Effect of   Effect of    1 January
                                     stated      HKAS 32     HKAS 40       2003
                                   ----------   ---------   ---------   ----------
                                     HK$'000     HK$'000     HK$'000      HK$'000
                                                                        (Restated)
<S>                                <C>          <C>         <C>         <C>
Share capital and other reserves   1,248,599          --        --      1,248,599
Investment property
   revaluation reserve                   573          --      (573)            --
Convertible notes reserve                 --      20,468        --         20,468
Accumulated losses                  (594,596)     (7,532)      573       (601,555)
                                   ---------     -------      ----      ---------
Total effects on equity              654,576      12,936        --        667,512
                                   =========     =======      ====      =========
</TABLE>

4.   SIGNIFICANT ACCOUNTING POLICIES

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

     The consolidated financial statements have been prepared in accordance with
     HKFRSs issued by HKICPA. In addition, the consolidated financial statements
     include applicable disclosures required by the Rules Governing the Listing
     of Securities on the Stock Exchange and by the Hong Kong Companies
     Ordinance.

     Basis of consolidation

     The consolidated financial statements incorporate the financial statements
     of the Company and its subsidiaries. All inter-company transactions and
     balances within the Company are eliminated on consolidation.

     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.

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


                                      F-15
<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Goodwill

     Goodwill arising on acquisition prior to 1 January 2005

     Goodwill arising on an acquisition of a subsidiary for which the agreement
     date is before 1 January 2005 represents the excess of the cost of
     acquisition over the Company's interest in the fair value of the
     identifiable assets and liabilities of the relevant subsidiary 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 retained earnings at the time when
     the business to which the goodwill relates is disposed of or when a
     cash-generated unit to which the goodwill relates becomes impaired.

     For previously capitalized goodwill arising on acquisition after 1 April
     2001, the Company has discontinued amortization from 1 January 2005
     onwards, and such goodwill is tested for impairment annually, and whenever
     there is an indication that the cash generating unit to which the goodwill
     relates may be impaired (see the accounting policy below).

     Goodwill arising on acquisition on or after 1 January 2005

     Goodwill arising on an acquisition of a subsidiary for which the agreement
     date is on or after 1 January 2005 represents the excess of the cost of
     acquisition over the Company's interest in the fair value of the
     identifiable assets, liabilities and contingent liabilities of the relevant
     subsidiary at the date of acquisition. Such goodwill is carried at cost
     less any accumulated impairment losses.

     Capitalized goodwill arising on an acquisition of a subsidiary is presented
     separately in the consolidated balance sheet.

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

     On subsequent disposal of a subsidiary, the attributable amount of goodwill
     capitalized is included in the determination of the amount of profit or
     loss on disposal.

     Excess of an acquirer's interest in the net fair value of an acquiree's
     identifiable assets, liabilities and contingent liabilities over cost
     ("discount on acquisition")

     A discount on acquisition arising on an acquisition of a subsidiary for
     which an agreement date is on or after 1 January 2005 represents the excess
     of the net fair value of an acquiree's identifiable assets, liabilities and
     contingent liabilities over the cost of the business combination. Discount
     on acquisition is recognized immediately in profit or loss.

     As explained in note 3 above, all negative goodwill at 1 January 2005 has
     been derecognized with a corresponding adjustment to the Company's
     accumulated (losses) profits.


                                      F-16

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Investments in associates

     The results and assets and liabilities of associates are incorporated in
     the consolidated financial statements using the equity method of
     accounting. Under the equity method, investments in associates are carried
     in the consolidated balance sheet at cost as adjusted for post-acquisition
     changes in the Company's share of the profit or loss and of changes in
     equity of the associate, less any identified impairment loss. When the
     Company's share of losses of an associate equals or exceeds its interest in
     that associate, the Company discontinues recognizing its share of further
     losses. An additional share of losses is provided for and a liability is
     recognized only to the extent that the Company has incurred legal or
     constructive obligations or made payments on behalf of that associate.

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

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

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

     Sales of goods are recognized when goods are delivered and title has been
     passed.

     Sales of other assets are recognized upon the execution of a binding sale
     agreement.

     Property, plant and equipment

     Property, plant and equipment other than properties under construction are
     stated at cost or fair value less subsequent accumulated depreciation and
     amortization and accumulated impairment losses.

     Depreciation and amortization is provided to write off the cost or fair
     value of items of property, plant and equipment other than properties under
     construction over their estimated useful lives, using the straight line
     method.


                                      F-17

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Property, plant and equipment - continued

     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 accumulated
     impairment losses. 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.

     The land and buildings elements of a lease of land and buildings are
     considered separately for the purposes of lease classification, unless the
     lease payments cannot be allocated reliably between the land and buildings
     elements, in which case, the entire lease is generally treated as a finance
     lease.

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

     Investment properties

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

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

     Financial instruments

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


                                      F-18

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Financial instruments - continued

     FINANCIAL ASSETS

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

     Financial assets at fair value through profit or loss

     Financial assets at fair value through profit or loss represent financial
     assets held for trading. At each balance sheet date subsequent to initial
     recognition, financial assets at fair value through profit or loss are
     measured at fair value, with changes in fair value recognized directly in
     profit or loss in the period in which they arise.

     Loans and receivables

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

     Available-for-sale financial assets

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

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


                                      F-19

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Financial instruments - continued

     FINANCIAL LIABILITIES AND EQUITY

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

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

     Other financial liabilities

     Other financial liabilities including trade and other payables, loans from
     related companies, amounts due to associates, amounts due to related
     companies, obligations under finance leases, borrowings and promissory note
     are subsequently measured at amortized cost, using the effective interest
     rate method.

     Convertible notes

     Convertible notes issued by the Company that contain both financial
     liability and equity components are classified separately into respective
     liability and equity components on initial recognition. On initial
     recognition, the fair value of the liability component is determined using
     the prevailing market interest of similar non-convertible debts. The
     difference between the proceeds of the issue of the convertible notes and
     the fair value assigned to the liability component, representing the
     embedded call option for the holder to convert the loan notes into equity,
     is included in equity (convertible notes reserve).

     In subsequent periods, the liability component of the convertible notes is
     carried at amortized cost using the effective interest method. The equity
     component, represented by the option to convert the liability component
     into ordinary shares of the Company, will remain in convertible notes
     reserve until the embedded option is exercised (in which case the balance
     stated in convertible notes reserve will be transferred to share premium).
     Where the option remains unexercised at the expiry date, the balance stated
     in convertible notes reserve will be released to the accumulated profits.
     No gain or loss is recognized in profit or loss upon conversion or
     expiration of the option.

     Transaction costs that relate to the issue of the convertible notes are
     allocated to the liability and equity components in proportion to the
     allocation of the proceeds. Transaction costs relating to the equity
     component are charged directly to equity. Transaction costs relating to the
     liability component are included in the carrying amount of the liability
     portion and amortized over the period of the convertible notes using the
     effective interest method.

     Equity instruments

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


                                      F-20

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Financial instruments - continued

     DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING

     The Company uses derivative financial instruments to hedge its exposure
     against changes in the fair value certain of its investments held for
     trading. Such derivatives are measured at fair value regardless of whether
     they are designated as effective hedging instruments.

     The Company's derivative financial instruments do not meet the requirements
     of hedge accounting in accordance with HKAS 39, accordingly, such
     derivatives are deemed as financial assets held for trading or financial
     liabilities held for trading. Changes in fair values of such derivatives
     are recognized directly in profit or loss.

     DERECOGNITION

     Financial assets are derecognized when the rights to receive cash flows
     from the assets expire or, the financial assets are transferred and the
     Company has transferred substantially all the risks and rewards of
     ownership of the financial assets. On derecognition of a financial asset,
     the difference between the asset's carrying amount and the sum of the
     consideration received and the cumulative gain or loss that had been
     recognized directly in equity is recognized in profit or loss.

     For financial liabilities, they are removed from the Company's consolidated
     balance sheet (i.e. when the obligation specified in the relevant contract
     is discharged, cancelled or expires). The difference between the carrying
     amount of the financial liability derecognized and the consideration paid
     is recognized in profit or loss.

     Non-current assets held for sale

     Non-current assets and disposal groups are classified as held for sale if
     their carrying amount will be recovered principally through a sale
     transaction rather than through continuing use. This condition is regarded
     as met only when the sale is highly probable and the asset (or disposal
     group) is available for immediate sale in its present condition.

     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.


                                      F-21

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Impairment (other than goodwill)

     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.

     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.

     Taxation

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

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

     Deferred tax is recognized on differences between the carrying amount of
     assets and liabilities in the consolidated financial statements and the
     corresponding tax bases used in the computation of taxable profit, and is
     accounted for using the balance sheet liability method. Deferred tax
     liabilities are generally 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 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 profit or loss, except when it relates to
     items charged or credited directly to equity, in which case the deferred
     tax is also dealt with in equity.


                                      F-22

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Leasing

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

     The Company as lessor

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

     The Company as lessee

     Assets held under finance leases are recognized as assets of the Company at
     their fair value at the inception of the lease or, if lower, at the present
     value of the minimum lease payments. The corresponding liability to the
     lessor is included in the consolidated balance sheet as a finance lease
     obligation. Lease payments are apportioned between finance charges and
     reduction of the lease obligation so as to achieve a constant rate of
     interest on the remaining balance of the liability. Finance charges are
     charged directly to profit or loss.

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

     Borrowing costs

     All borrowing costs are recognized as and included in finance costs in the
     consolidated income statement in the period in which they are incurred.

     Foreign currencies

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

     Exchange differences arising on the settlement of monetary items, and on
     the translation of monetary items, are recognized in profit or loss in the
     period in which they arise. Exchange differences arising on the
     re-translation of non-monetary items carried at fair value are included in
     profit or loss for the period except for differences arising on the
     re-translation of non-monetary items in respect of which gains and losses
     are recognized directly in equity, in which cases, the exchange differences
     are also recognized directly in equity.


                                      F-23

<PAGE>

4.   SIGNIFICANT ACCOUNTING POLICIES - continued

     Foreign currencies - continued

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

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

     Retirement benefit costs

     Payments to the Company's defined contribution retirement benefit plans,
     state-managed retirement benefit schemes and/or the Mandatory Provident
     Fund Scheme are charged as expenses as they fall due.

5.   KEY SOURCES OF ESTIMATION UNCERTAINTY

     Estimated impairment of goodwill

     Determining whether goodwill is impaired requires an estimation of the
     value in use of the cash-generating units to which goodwill has been
     allocated. The value in use calculation requires the Company to estimate
     the future cash flows expected to arise from the cash-generating unit and a
     suitable discount rate in order to calculate the present value. Where the
     actual future cash flows are less than expected, a material impairment loss
     may arise. As at 31 December 2005, the carrying amount of goodwill is
     HK$50,862,000. Details of the recoverable amount calculation are disclosed
     in note 23.

6.   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

     The Company's major financial instruments include trade and other
     receivables, loan receivables, amounts due from associates, amounts due
     from related companies, bank balances and cash, trade and other payables,
     loans from related companies, borrowings, convertible notes and promissory
     note. Details of these financial instruments are disclosed in respective
     notes. The risks associated with these financial instruments and the
     policies on how to mitigate these risks are set out below. The management
     manages and monitors these exposures to ensure appropriate measures are
     implemented on a timely and effective manner.


                                      F-24

<PAGE>

6.   FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES - continued

     Currency risk

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

     Fair value interest rate risk

     The Company's fair value interest rate risk relates to its fixed-rate
     borrowings. However, the management considered the risk is insignificant to
     the Company.

     Cash flow interest rate risk

     The Company's cash flow interest rate risk relates primarily to
     variable-rate bank borrowings. The Company currently does not have any
     policy on cash flow hedges of interest rate risk. However, the management
     monitors interest rate exposure and will consider hedging significant
     interest rate risk should the need arise.

     Credit risk

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

7.   TURNOVER

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

<TABLE>
<CAPTION>
                                 2005        2004        2003
                              ---------   ---------   ---------
                               HK$'000     HK$'000     HK$'000
<S>                           <C>         <C>         <C>
Travel and related services   1,591,962   1,532,143   1,291,906
Hotel and leisure services      223,756     190,034          --
Transportation services              --          --     124,329
                              ---------   ---------   ---------
                              1,815,718   1,722,177   1,416,235
                              =========   =========   =========
</TABLE>


                                      F-25
<PAGE>

8.   BUSINESS AND GEOGRAPHICAL SEGMENTS

     Business segments

     During the two years ended 31 December 2005 and 2004, 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.

     Segment information about these businesses is presented 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 2005
TURNOVER
External sales                                   1,591,962    223,756          --       1,815,718
Inter-segment sales                                     --      1,264      (1,264)             --
                                                 ---------    -------      ------       ---------
Total                                            1,591,962    225,020      (1,264)      1,815,718
                                                 =========    =======      ======       =========
Inter-segment sales are charged at prevailing
   market price.

RESULTS
Segment results                                     56,427     28,249          --          84,676
                                                 =========    =======      ======
Interest income                                                                             4,722
Discount on acquisition of subsidiaries                 --     34,574          --          34,574
Realized gain on derivative financial
   instruments                                                                              5,650
Increase in fair value of investment
   property                                                                                   619
Impairment loss recognized in respect
   of available-for-sale investments                                                       (1,167)
Decrease in fair value of investments
   held for trading                                                                       (14,761)
Unallocated corporate expenses                                                            (29,640)
Finance costs                                                                             (59,376)
Share of results of associates                        (396)     8,402          --           8,006
Loss on partial disposal of subsidiaries                --     (3,177)         --          (3,177)
                                                                                        ---------
Profit before taxation                                                                     30,126
Taxation credit                                                                             2,108
                                                                                        ---------
Profit for the year                                                                        32,234
                                                                                        =========
</TABLE>


                                      F-26

<PAGE>

8.   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>
At 31 December 2005
ASSETS
Segment assets                                   903,727     1,754,845     2,658,572
Interest in associates                            20,823       199,599       220,422
Unallocated corporate assets                                                 152,629
                                                                           ---------
Consolidated total assets                                                  3,031,623
                                                                           =========
LIABILITIES
Segment liabilities                              279,116        57,546       336,662
Unallocated corporate liabilities                                          1,280,917
                                                                           ---------
Consolidated total liabilities                                             1,617,579
                                                                           =========
OTHER INFORMATION
Capital additions                                 24,672         6,761        31,433
Goodwill arising from acquisition of
   subsidiaries                                      647            --           647
Depreciation and amortization of
   property, plant and equipment                   6,088        54,655        60,743
Reversal of impairment loss in respect of
   leasehold land and buildings                   (4,874)           --        (4,874)
Reversal of impairment loss in respect of
   properties under construction                    (900)           --          (900)
Loss on disposal of property, plant and
   equipment                                         175           305           480
Allowance for irrecoverable trade debts              476            --           476
                                                 =======     =========     =========
</TABLE>


                                      F-27

<PAGE>

8.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Business segments - continued

<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       3,582          --          52,931
                                                =========     =======      ======
Interest income                                                                             3,381
Increase in fair value of investment
   property                                                                                 2,000
Net unrealized holding loss on other
   investments                                                                               (127)
Impairment loss recognized in respect
   of investments in securities                                                            (5,659)
Unallocated corporate expenses                                                            (26,831)
Finance costs                                                                             (66,282)
Share of results of associates                       (195)         --          --            (195)
Gain on disposal of associates                     37,930          --          --          37,930
                                                                                        ---------
Loss before taxation                                                                       (2,852)
Taxation credit                                                                                23
                                                                                        ---------
Loss for the year                                                                          (2,829)
                                                                                        =========
</TABLE>


                                      F-28

<PAGE>

8.   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>
At 31 December 2004
ASSETS
Segment assets                                   728,181     1,667,209     2,395,390
Interest in associates                             1,989            --         1,989
Unallocated corporate assets                                                 174,943
                                                                           ---------
Consolidated total assets                                                  2,572,322
                                                                           =========
LIABILITIES
Segment liabilities                              198,949        62,723       261,672
Unallocated corporate liabilities                                          1,382,206
                                                                           ---------
Consolidated total liabilities                                             1,643,878
                                                                           =========
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        52,853        57,057
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>


                                      F-29
<PAGE>

8.   BUSINESS AND GEOGRAPHICAL SEGMENTS - continued

     Business segments - continued

<TABLE>
<CAPTION>
                                                Continuing
                                                 operation    Discontinued
                                                Travel and      operation
                                                  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                                    (60,214)      (20,169)           --          (80,383)
                                                 =========       =======        ======
Interest income                                                                                   1,150
Increase in fair value of investment
   property                                                                                         170
Net unrealized holding loss on other
   investments                                                                                   (2,849)
Loss on disposal of investments in
   securities                                                                                   (31,098)
Unallocated corporate expenses                                                                  (32,156)
Finance costs                                                                                   (34,916)
Loss on disposal of associates                     (23,471)           --            --          (23,471)
Share of results of associates                    (114,431)           --            --         (114,431)
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                                                                           (382,398)
Taxation credit                                                                                   1,718
                                                                                              ---------
Loss for the year                                                                              (380,680)
                                                                                              =========
</TABLE>


                                      F-30

<PAGE>

8.   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 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
                                 ---------------------   -------------------
                                    2005        2004       2005       2004
                                 ---------   ---------   -------   ---------
                                  HK$'000     HK$'000    HK$'000     HK$'000
<S>                              <C>         <C>         <C>       <C>
The People's Republic of China
   (excluding Hong Kong) (the
   "PRC")                        1,300,296   1,348,309     2,262   1,074,210
Hong Kong                        1,340,663   1,034,736    28,855     677,865
South-east Asia                    144,202     120,914       925         137
Japan and Korea                     23,771      64,710        --          --
Others                               2,269       1,664        38          52
                                 ---------   ---------    ------   ---------
                                 2,811,201   2,570,333    32,080   1,752,264
                                 =========   =========    ======   =========
</TABLE>

9.   OTHER OPERATING INCOME

<TABLE>
<CAPTION>
                                                 2005      2004      2003
                                               -------   -------   -------
                                               HK$'000   HK$'000   HK$'000
<S>                                            <C>       <C>       <C>
An analysis of the Company's other operating
   income is as follows:
Exchange gain                                       81       135       335
Income on sales of computer systems for
   online travel reservation and
   communication software                       12,218        --        --
Interest income                                  4,722     3,381     1,150
Net income on sale of computer program
   source code                                      --        --     3,000
Recovery of overseas sales tax                      --        --     8,242
Sundry income                                    3,394    17,268     9,809
                                                ------    ------    ------
                                                20,415    20,784    22,536
                                                ======    ======    ======
</TABLE>


                                      F-31

<PAGE>

10.  FINANCE COSTS

<TABLE>
<CAPTION>
                                                 2005      2004      2003
                                               -------   -------   -------
                                               HK$'000   HK$'000   HK$'000
<S>                                            <C>       <C>       <C>
Interest on obligations under finance leases        18       133     2,459
Interest on borrowings wholly repayable
   within five years                            41,386    39,997    17,504
Interest on convertible notes                    1,982    16,331    14,953
Interest on promissory note                     15,990     9,821        --
                                                ------    ------    ------
Total finance costs                             59,376    66,282    34,916
                                                ======    ======    ======
</TABLE>

11.  PROFIT (LOSS) BEFORE TAXATION

<TABLE>
<CAPTION>
                                                        2005      2004      2003
                                                      -------   -------   -------
                                                      HK$'000   HK$'000   HK$'000
<S>                                                   <C>       <C>       <C>
Profit (loss) before taxation has been arrived
   at after charging:
Allowance for irrecoverable trade debts                   476     1,262        --
Auditors' remuneration                                  4,644     2,878     1,792
Cost of inventories recognized as expenses             21,768    20,490     2,005
Depreciation and amortization on:
   Owned assets                                        60,533    56,408    19,689
   Assets held under finance leases                       210       649     4,886
Information technology development expenses                --        --     1,136
Loss on disposal of other investments                      --        11       465
Loss on disposal of property, plant and
   equipment                                              480       220    28,587
Minimum lease payments paid in respect of
   rented premises                                     13,832    12,913    12,459
Share of tax of associates (included in share
   of results of associates)                               61        --        --
Staff costs *                                         135,399   128,023    80,194
and after crediting:
Rental income from investment property and premises
   within the hotel properties less outgoings
   of HK$495,000
   (2004: HK$79,000 and 2003: nil)                     15,218    12,993       109
Rental income from motor vehicles                         388        74        --
Share of taxation credit of associates
   (included in share of results of associates)            --        --       357
                                                      =======   =======    ======
</TABLE>

*    The amount includes retirement benefit scheme contributions (net of
     forfeiture) of HK$6,908,000 (2004: HK$5,910,000 and 2003: HK$1,879,000).


                                      F-32
<PAGE>

12.  DIRECTORS' REMUNERATION AND HIGHEST PAID EMPLOYEES

     Details of emoluments paid by the Company to each of the directors are as
     follows:

     For the year ended 31 December 2005

<TABLE>
<CAPTION>
                                                       Retirement
                                          Salaries      benefit
                                         and other       scheme         Total
                                 Fees     benefits   contributions   emoluments
                               -------   ---------   -------------   ----------
                               HK$'000    HK$'000       HK$'000        HK$'000
<S>                            <C>       <C>         <C>             <C>
Executive directors:
Mr. Yu Kam Kee, Lawrence
   B.B.S., M.B.E., J.P            --          --           --              --
Mr. Cheung Hon Kit                --       1,265            5           1,270
Dr. Yap, Allan                    --          --           --              --
Mr. Chan Pak Cheung, Natalis      --          --           --              --
Mr. Lui Siu Tsuen, Richard        --          --           --              --
Ms. Luk Yee Lin, Ellen            --         664           12             676
Non-executive director:
Mr. Chan Yeuk Wai                 --       1,800           12           1,812
Independent non-executive
   directors:
Mr. Kwok Ka Lap, Alva             --          39           --              39
Mr. Sin Chi Fai                   47          --           --              47
Mr. Wong King Lam, Joseph         50          --           --              50
                                 ---       -----          ---           -----
                                  97       3,768           29           3,894
                                 ===       =====          ===           =====
</TABLE>


                                      F-33

<PAGE>

12.  DIRECTORS' REMUNERATION AND HIGHEST PAID EMPLOYEES - continued

     For the year ended 31 December 2004

<TABLE>
<CAPTION>
                                                       Retirement
                                          Salaries      benefit
                                         and other       scheme         Total
                                 Fees     benefits   contributions   emoluments
                               -------   ---------   -------------   ----------
                               HK$'000    HK$'000       HK$'000        HK$'000
<S>                            <C>       <C>         <C>             <C>
Executive directors:
Mr. Yu Kam Kee, Lawrence
   B.B.S., M.B.E., J.P.            --          --           --              --
Mr. Cheung Hon Kit                --       2,890           12           2,902
Dr. Yap, Allan                    --          --           --              --
Mr. Chan Pak Cheung, Natalis      --          --           --              --
Mr. Lui Siu Tsuen, Richard        --          --           --              --
Ms. Luk Yee Lin, Ellen            --         664           12             676
Dr. Chan Kwok Keung, Charles *    --          --           --              --
Non-executive directors:
Mr. Chan Yeuk Wai                 --       2,923           45           2,968
Mr. Fok Kin-ning, Canning *       --          --           --              --
Ms. Shih, Edith *                 --          --           --              --
Independent non-executive
   directors:
Mr. Kwok Ka Lap, Alva             30          --           --              30
Mr. Sin Chi Fai #                 --          --           --              --
Mr. Wong King Lam, Joseph #       --          --           --              --
Mr. Lai Hing Chiu, Dominic *      --          --           --              --
                                 ---       -----          ---           -----
                                  30       6,477           69           6,576
                                 ===       =====          ===           =====
</TABLE>


                                      F-34

<PAGE>

12.  DIRECTORS' REMUNERATION AND HIGHEST PAID EMPLOYEES - continued

     For the year ended 31 December 2003

<TABLE>
<CAPTION>
                                                       Retirement
                                          Salaries      benefit
                                         and other       scheme         Total
                                 Fees     benefits   contributions   emoluments
                               -------   ---------   -------------   ----------
                               HK$'000    HK$'000       HK$'000        HK$'000
<S>                            <C>       <C>         <C>             <C>
Executive directors:
Mr. Yu Kam Kee, Lawrence
   B.B.S., M.B.E., J.P.            --          --           --              --
Mr. Cheung Hon Kit                --          --           --              --
Dr. Yap, Allan                    --          --           --              --
Mr. Chan Pak Cheung, Natalis      --          --           --              --
Mr. Lui Siu Tsuen, Richard        --          --           --              --
Ms. Luk Yee Lin, Ellen            --         710           12             722
Dr. Chan Kwok Keung, Charles *    --          --           --              --
Mr. Lee Chun Ting, Alex **        --         790           85             875
Non-executive directors:
Mr. Chan Yeuk Wai                 --       1,980          210           2,190
Mr. Fok Kin-ning, Canning *       --          --           --              --
Ms. Shih, Edith *                 --          --           --              --
Independent non-executive
   directors:
Mr. Kwok Ka Lap, Alva             --          --           --              --
Mr. Lai Hing Chiu, Dominic *     200          --           --             200
Mr. Lam Kwong Siu **              --          --           --              --
                                 ---       -----          ---           -----
                                 200       3,480          307           3,987
                                 ===       =====          ===           =====
</TABLE>

*    The directors resigned in 2004.

**   The directors resigned in 2003.

#    The directors were appointed in 2004.

Note: The directors' salaries and other benefits include the operating lease
     rentals amounting to HK$500,000 (2004: HK$1,200,000 and 2003: nil) 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 11 above.


                                      F-35
<PAGE>

12.  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>
                                            2005      2004      2003
                                          -------   -------   -------
                                          HK$'000   HK$'000   HK$'000
<S>                                       <C>       <C>       <C>
Salaries and other benefits                7,127     10,003    5,927
Retirement benefit scheme contributions      141        179      485
                                           -----     ------    -----
                                           7,268     10,182    6,412
                                           =====     ======    =====
</TABLE>

<TABLE>
<CAPTION>
                                            2005      2004      2003
                                          -------   -------   -------
<S>                                       <C>       <C>       <C>
Emoluments of the five highest paid
   individuals were within the
   following bands:
Nil - HK$1,000,000                           --        --         3
HK$1,000,001 - HK$1,500,000                   3         2         -
HK$1,500,001 - HK$2,000,000                   2         1         1
HK$2,000,001 - HK$2,500,000                  --        --         1
HK$2,500,001 - HK$3,000,000                  --         2         -
                                            ===       ===       ===
Number of directors                           2         2         2
Number of employees                           3         3         3
                                            ---       ---       ---
                                              5         5         5
                                            ===       ===       ===
</TABLE>

13.  TAXATION CREDIT

<TABLE>
<CAPTION>
                                            2005      2004      2003
                                          -------   -------   -------
                                          HK$'000   HK$'000   HK$'000
<S>                                       <C>       <C>       <C>
(Under)overprovision for taxation in
   other jurisdictions in prior years        (63)      23         --
Deferred tax (note 39)                     2,171       --      1,718
                                           -----      ---      -----
Taxation credit                            2,108       23      1,718
                                           =====      ===      =====
</TABLE>

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

     Taxation for other jurisdictions represents (under)overprovision for
     taxation in prior years. No provision for overseas taxation has been made
     as the Company has no taxable profit during the three years ended 31
     December 2005, 2004 and 2003 in other jurisdictions.

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


                                      F-36

<PAGE>

13.  TAXATION CREDIT - continued

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

<TABLE>
<CAPTION>
                                                   2005      2004      2003
                                                 -------   -------   --------
                                                 HK$'000   HK$'000    HK$'000
<S>                                              <C>       <C>       <C>
Profit (loss) before taxation                     30,126   (2,852)   (382,398)
                                                 =======   =======   ========
Tax at the domestic income tax rate of
   17.5% (2004: 17.5% and 2003: 17.5%)            (5,272)     499      66,920
Tax effect of share of results of associates       1,401      (34)    (20,025)
Tax effect of expenses that are not deductible
   in determining taxable profit                 (13,706)  (8,358)    (16,107)
Tax effect of income that is not taxable in
   determining taxable profit                     12,688   13,999       3,877
Tax effect of tax losses not recognized           (7,965)  (6,645)    (33,901)
Tax effect of tax losses utilized but not
   previously recognized                          13,548    3,604       2,023
Effect of different tax rates of subsidiaries
   operating in other jurisdictions                1,477   (3,065)       (314)
(Under)overprovision in prior years                  (63)      23          --
Increase in opening deferred tax liability
   resulting from an increase in Hong Kong
   Profits Tax rate                                   --       --        (755)
                                                 -------   ------    --------
Taxation credit for the year                       2,108       23       1,718
                                                 =======   ======    ========
</TABLE>

14.  DIVIDENDS

<TABLE>
<CAPTION>
                                           2005      2004      2003
                                         -------   -------   -------
                                         HK$'000   HK$'000   HK$'000
<S>                                      <C>       <C>       <C>
Interim dividend paid of HK2 cents
   (2004: nil and 2003: nil) per share     8,752      --        --
                                           =====     ===       ===
</TABLE>

     The directors have declared a final dividend of HK1.5 cents per share for
     the year ended 31 December 2005 (2004: nil and 2003: nil) to those
     shareholders whose names appear on the register of members of the Company
     on 24 May 2006.


                                      F-37

<PAGE>

15.  EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                             2005      2004      2003
                                           -------   -------   --------
                                           HK$'000   HK$'000    HK$'000
<S>                                        <C>       <C>       <C>
Earnings (loss) for the purpose of basic
   earnings (loss) per share                31,109    8,556    (380,680)
                                            ======    =====    ========
</TABLE>

<TABLE>
<CAPTION>
                                                          Number of shares
                                              ---------------------------------------
                                                  2005          2004          2003
                                              -----------   -----------   -----------
<S>                                           <C>           <C>           <C>
Weighted average number of ordinary shares
   for the purpose of basic earnings (loss)
   per share                                  418,541,133   201,251,437   183,167,328
                                              ===========   ===========   ===========
</TABLE>

     Notes:

     (a)  No disclosure of diluted earnings (loss) per share has been presented
          as the conversion of the Company's convertible notes would increase
          the earnings per share for the two years ended 31 December 2005 and
          2004 and decrease the loss per share for the year ended 31 December
          2003.

     (b)  A reconciliation of the restatement of basic earnings (loss) per share
          to adjust for the effects of changes in accounting policies is as
          follows:

<TABLE>
<CAPTION>
                                     2005    2004    2003
                                     ----   -----   -----
                                      HK$    HK$     HK$
<S>                                  <C>    <C>     <C>
Reported figures before adjustment   0.06    0.18   (2.03)
Effects of changes in accounting
   policies                          0.01   (0.14)  (0.05)
                                     ----   -----   -----
Restated                             0.07    0.04   (2.08)
                                     ====   =====   =====
</TABLE>


                                      F-38
<PAGE>

16.  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
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
Currency realignment               --       20,363         --         910          518          82     1,378        --      23,251
Acquisition of subsidiaries        --           --         --          --          393          --     1,000        --       1,393
Additions                          --           --         --       4,674        5,470       5,921     2,593    11,382      30,040
Disposals                          --           --         --      (3,040)         (30)     (1,925)   (1,134)     (153)     (6,282)
                              -------    ---------     ------      ------       ------      ------    ------    ------   ---------
At 31 December 2005            38,025    1,625,115     46,728      57,544       37,831       7,057    27,143    17,696   1,857,139
                              -------    ---------     ------      ------       ------      ------    ------    ------   ---------
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       30,119         --      17,771        5,464         526     2,697       181      57,057
(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       30,119      9,228      13,509        4,631         682    14,664     5,656     100,055
Currency realignment               --        1,502         --         711           86          60     1,027        --       3,386
Provided for the year             364       30,119         --      15,718        7,565       1,200     5,343       434      60,743
Reversal of impairment loss
   for the year (note (c))     (4,874)          --       (900)         --           --          --        --        --      (5,774)
Eliminated on disposals            --           --         --      (2,734)         (19)       (230)   (1,053)      (95)     (4,131)
                              -------    ---------     ------      ------       ------      ------    ------    ------   ---------
At 31 December 2005            17,056       61,740      8,328      27,204       12,263       1,712    19,981     5,995     154,279
                              -------    ---------     ------      ------       ------      ------    ------    ------   ---------
CARRYING VALUES
At 31 December 2005            20,969    1,563,375     38,400      30,340       25,568       5,345     7,162    11,701   1,702,860
                              =======    =========     ======      ======       ======      ======    ======    ======   =========
At 31 December 2004            16,459    1,574,633     37,500      41,491       26,849       2,297     8,642       811   1,708,682
                              =======    =========     ======      ======       ======      ======    ======    ======   =========
</TABLE>

The above items of property, plant and equipment are depreciated on a straight
line basis of the following rates per annum:

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

Hotel properties                 Over the remaining unexpired terms
                                    of the leases

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>


                                      F-39
<PAGE>

16.  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
                                  ------------------   ---------------------   ------------------
                                     2005      2004       2005        2004       2005       2004
                                   -------   -------   ---------   ---------   --------   -------
                                   HK$'000   HK$'000    HK$'000     HK$'000     HK$'000   HK$'000
<S>                               <C>        <C>       <C>         <C>         <C>        <C>
Long leases in Hong Kong            16,879    13,299     614,856     620,510         --        --
Medium term leases in Hong Kong      4,090     3,160          --          --         --        --
Medium term leases in
   the PRC (note b)                     --        --     948,519     954,123     38,400    37,500
                                    ------    ------   ---------   ---------     ------    ------
                                    20,969    16,459   1,563,375   1,574,633     38,400    37,500
                                    ======    ======   =========   =========     ======    ======
</TABLE>

Notes:

(a)  Included in the hotel properties at the balance sheet date is a hotel
     property with a carrying value of HK$142,195,000 (2004:
     HK$143,104,000) 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 leases in the
     PRC of HK$948,519,000 (2004: HK$954,123,000) is a hotel property with
     a carrying value of approximately HK$210,860,000 (2004:
     HK$212,050,000) of which a subsidiary of 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)  The directors reviewed the carrying amounts of its property, plant and
     equipment as at 31 December 2005 and identified that the value of
     properties under construction and certain properties has increased
     (2004: the value of properties under construction was impaired and the
     value of certain properties was 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 open market value as at 31
     December 2004 and 2005.

     The independent professional valuation as at 31 December 2005 has been
     carried out by an independent qualified professional valuer not
     connected with the Company, which has appropriate qualifications and
     recent experiences in the valuation of similar properties in the
     relevant locations. The valuation was carried out in accordance with
     the HKIS Valuation Standards on Properties (1st Edition 2005)
     published by the Hong Kong Institute of Surveyors, was arrived at by
     reference to market evidence of transaction prices for similar
     properties.


                                      F-40

<PAGE>

16.  PROPERTY, PLANT AND EQUIPMENT - continued

     The net book value of motor vehicles, and office equipment and machinery of
     the Company held under finance leases as at 31 December 2005 was HK$137,000
     (2004: HK$1,774,000).

     The net book value of motor vehicles of the Company leased to outsiders to
     earn rental income as at 31 December 2005 was HK$703,000 (2004:
     HK$890,000).

17.  INVESTMENT PROPERTY/ASSET CLASSIFIED AS HELD FOR SALE

<TABLE>
<CAPTION>
                                       2005      2004
                                     -------   -------
                                     HK$'000   HK$'000
<S>                                  <C>       <C>
Fair value of investment property:
   At beginning of the year            3,400    1,400
   Increase in fair value                619    2,000
   Reclassified as held for sale      (4,019)      --
                                      ------    -----
   At end of the year                     --    3,400
                                      ======    =====
Asset classified as held for sale      4,019       --
                                      ======    =====
</TABLE>

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

     On 13 July 2005, the Company entered into a sale agreement to dispose of
     the investment property. The disposal was completed on 20 January 2006, on
     which date the beneficial ownership was passed to the acquirer.

     The fair value of the Company's investment property before reclassification
     as asset classified as held for sale was determined based on its selling
     price at 20 January 2006. In the opinion of directors, there is no material
     difference between the fair value of investment property at 31 December
     2005 and its fair value at 20 January 2006.

     The Company's property interest held under operating leases to earn rentals
     was measured using the fair value model and was classified and accounted
     for as investment property.


                                      F-41

<PAGE>

18.  INTEREST IN ASSOCIATES

<TABLE>
<CAPTION>
                                                2005      2004
                                              -------   -------
                                              HK$'000   HK$'000
<S>                                           <C>       <C>
Cost of investments in associates, unlisted   219,137    3,903
Share of post-acquisition reserves              1,285   (1,914)
                                              -------   ------
                                              220,422    1,989
                                              =======   ======
</TABLE>

     Particulars of the Company's associates as at 31 December 2005 are as
     follows:

<TABLE>
<CAPTION>
                                                                                       Proportion of
                                                                    Issued and       issued/registered
                                                  Place of            paid up           capital held
                                               incorporation/     share capital/       by the Company
                                Form of         establishment   registered capital   -----------------
Name of associate         business structure    and operation          '000              2005  2004      Principal activities
-----------------         ------------------   --------------   ------------------      -----  ----      --------------------
<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

Feng Ze Investments       Limited liability    Macau                   MOP115           28.5%    --      Investment holding
   Limited ("Feng Ze")       company

Kingsway Hotel Limited    Limited liability    Macau                   MOP500           31.7%    --      Hotel ownership and
   ("Kingsway Hotel")        company                                                                        operation

Travoo International      Limited liability    British Virgin        US$6,120             50%    --      Investment holding
   Limited                   company              Islands

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

Xin Wei Property          Limited liability    Macau                   MOP100           31.7%    --      Investment holding
   Investment Company        company
   Limited
</TABLE>

     The summarized financial information in respect of the Company's associates
     is set out below:

<TABLE>
<CAPTION>
                                                2005      2004      2003
                                              -------   -------   --------
                                              HK$'000   HK$'000    HK$'000
<S>                                           <C>       <C>       <C>
Total assets                                  562,873    17,318
Total liabilities                             161,554    11,053
                                              -------    ------
Net assets                                    401,319     6,265
                                              =======    ======
Share of net assets                           220,422     1,989
                                              =======    ======
Turnover                                      111,531    61,246    394,854
                                              =======    ======   ========
Profit (loss) for the year                     13,381      (418)  (232,308)
                                              =======    ======   ========
Share of results of associates for the year     8,006      (195)  (114,431)
                                              =======    ======   ========
</TABLE>


                                      F-42

<PAGE>

19.  AVAILABLE-FOR-SALE INVESTMENTS

     Available-for-sale investments as at 31 December 2005 comprise:

<TABLE>
<CAPTION>
                                        HK$'000
<S>                                     <C>
Equity securities
   Unlisted shares, at cost             126,425
   Less: Impairment losses recognized   (33,800)
                                        -------
                                         92,625
                                        =======
</TABLE>

     Particulars of the Company's major available-for-sale investments as at 31
     December 2005 are as follows:

<TABLE>
<CAPTION>
                                                                  Proportion of
                                                Issued          issued/registered       Interest
                                              and paid up          capital held       attributable
                             Place of       share capital/     by the subsidiaries   to the Company
                          establishment   registered capital   -------------------   --------------
Name of entity            and operation          '000              2005    2004       2005   2004     Principal activities
--------------            -------------   ------------------     -------   ----       ----   ----     --------------------
<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
   Limited ("Guangxi                                                                                    leisure services
   Guijia")
</TABLE>

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 Guilin Osmanthus Hotel and
     accordingly, it is classified as an available-for-sale investment. The
     directors reviewed its carrying amount 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. At 31 December 2004, the
     investment was classified as investment securities (note 20) and an
     impairment loss of HK$26,974,000 was recognized in the financial
     statements.

(b)  Though a subsidiary of the Company holds a 26% interest in Guangxi
     Guijia, the directors considered that the Company cannot exercise
     significant influence on the financial and operating policies of
     Guangxi Guijia and accordingly, it is classified as an
     available-for-sale investment. At 31 December 2005, the directors
     reviewed its carrying amount with reference to its net assets and
     considered that it is unlikely to recover the full amount of the
     interest in Guangxi Guijia and accordingly an impairment loss of
     HK$6,826,000 was recognized in the financial statements to write down
     the carrying amount of the investment to its recoverable amount. At 31
     December 2004, the investment was classified as investment securities
     (note 20) and an impairment loss of HK$5,659,000 was recognized in the
     financial statements.


                                      F-43

<PAGE>

20.  INVESTMENTS IN SECURITIES

     Upon the application of HKAS 39 on 1 January 2005, investment securities
     were reclassified to appropriate categories under HKAS 39 (see note 2 for
     details). Investment securities as at 31 December 2004 are set out below.

<TABLE>
<CAPTION>
                                     Investment      Other
                                     securities   investments     Total
                                     ----------   -----------   -------
                                       HK$'000      HK$'000     HK$'000
<S>                                  <C>          <C>           <C>
Equity securities
Unlisted shares, at cost               126,422           --      126,422
Listed shares in Hong Kong                  --        2,778        2,778
                                      --------      -------     --------
                                       126,422        2,778      129,200
Less: Impairment losses recognized     (32,633)          --      (32,633)
                                      --------      -------     --------
                                        93,789        2,778       96,567
                                      ========      =======     ========
Market value of listed shares               --        2,778        2,778
                                      ========      =======     ========
Carrying amount analysed for
   reporting purposes as:
Non-current                             93,789           --       93,789
Current                                     --        2,778        2,778
                                      --------      -------     --------
                                        93,789        2,778       96,567
                                      ========      =======     ========
</TABLE>

21.  GOODWILL

<TABLE>
<CAPTION>
                                             2005      2004
                                           -------   -------
                                           HK$'000   HK$'000
<S>                                        <C>       <C>
COST
At beginning of the year                    50,215        --
Arising from acquisition during the year
   (note 43 (a) and (c))                       647    50,215
                                            ------    ------
At end of the year                          50,862    50,215
                                            ------    ------
CARRYING VALUES
At end of the year                          50,862    50,215
                                            ======    ======
</TABLE>

     Particulars regarding impairment testing on goodwill are disclosed in note
     23.

     Until 31 December 2004, goodwill had been amortized over 20 years.

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


                                      F-44

<PAGE>

22.  NEGATIVE GOODWILL

<TABLE>
                                                                  HK$'000
<S>                                                               <C>
GROSS AMOUNT
Arising from acquisition during the year ended 31 December 2004
   (note 43(b))                                                    74,514
RELEASED TO INCOME
Released during the year ended 31 December 2004                    (1,863)
                                                                  -------
At 31 December 2004                                                72,651
Derecognized upon the application of HKFRS 3                      (72,651)
                                                                  -------
At 1 January 2005                                                      --
                                                                  =======
</TABLE>

     As explained in note 2, all negative goodwill arising on acquisitions prior
     to 1 January 2005 was derecognized as a result of the application of HKFRS
     3.

23.  IMPAIRMENT TESTING ON GOODWILL

     As explained in note 8, the Company uses business segments as its primary
     segment for reporting segment information. For the purposes of impairment
     testing, goodwill as set out in note 21 has been allocated to the cash
     generating unit ("CGU") of the travel and related services segment.

     The recoverable amount of this CGU has been determined on the basis of
     value in use calculation. The key assumptions for the value in use
     calculation are those regarding the discount rates, growth rates and
     expected changes to revenue and direct costs during the year. Management
     estimates discount rates using pre-tax rates that reflect current market
     assessments of the time value of money and the risks specific to the CGU.
     The growth rates are based on industry growth forecasts. Changes in revenue
     and direct costs are based on past practices and expectations of future
     changes in the market.

     During the year, the Company performed impairment review for goodwill based
     on cash flow forecasts derived from the most recent financial budgets for
     the next five years approved by management using a discount rate of 15.5%,
     while the remaining forecast is based on the financial budget of the
     previous year under a 3% annual growth rate assumption. The value in use
     calculated by using the discount rate is higher than the carrying amount of
     CGU, accordingly, no impairment loss was considered necessary.


                                      F-45

<PAGE>

24.  INVESTMENT DEPOSITS

<TABLE>
<CAPTION>
                                                                2005      2004
                                                              -------   -------
                                                              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   150,000
Deposits for the acquisition of a hotel booking business
   (note b)                                                    51,419    50,945
Deposits for the acquisition of subsidiaries (note c)              --    20,750
                                                              -------   -------
                                                              201,419   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 hotels,
     shopping malls, recreational and other tourists related amenities
     respectively. The aggregate consideration for the purchase amounted 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 a 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.

(c)  The amount represented the deposits paid for the acquisition of a
     65.04% interest in Triumph Up Investments Limited ("Triumph Up"). The
     transaction was completed on 17 February 2005 and Triumph Up became a
     subsidiary of the Company during the year.

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.


                                      F-46

<PAGE>

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. Included in the amounts due from related companies as at 31
     December 2005 were advances of HK$60,090,000 (2004: nil) which are
     repayable on demand, and the remaining balances were principally trading
     balances.

     The aged analysis of the trading balances at the reporting dates is as
     follows:

<TABLE>
<CAPTION>
                 2005      2004
               -------   -------
               HK$'000   HK$'000
<S>            <C>       <C>
0 - 30 days     3,019       661
31 - 60 days      183        47
61 - 90 days      144       462
Over 90 days    1,741     5,352
                -----     -----
                5,087     6,522
                =====     =====
</TABLE>

     The fair value of the amounts due from related companies as at 31 December
     2005 approximates the corresponding carrying amount.

27.  AMOUNTS DUE FROM (TO) ASSOCIATES

     The amounts due from (to) associates are unsecured, interest free and
     repayable on demand.

     The fair value of the amounts due from (to) associates as at 31 December
     2005 approximates the corresponding carrying amount.

28.  TRADE AND OTHER RECEIVABLES

<TABLE>
<CAPTION>
                                   2005      2004
                                 -------   -------
                                 HK$'000   HK$'000
<S>                              <C>       <C>
Trade receivables                 20,596    13,538
Advance cost to tour operators   114,600   136,996
Advances to certain companies    113,053    59,852
Deposits and prepayments          49,173    33,993
Interest receivable                7,379     3,716
Other receivables                 19,704    28,405
                                 -------   -------
                                 324,505   276,500
                                 =======   =======
</TABLE>


                                      F-47

<PAGE>

28.  TRADE AND OTHER RECEIVABLES - continued

     The aged analysis of the trade receivables at the reporting dates is as
     follows:

<TABLE>
<CAPTION>
                 2005      2004
               -------   -------
               HK$'000   HK$'000
<S>            <C>       <C>
0 - 30 days     12,241     7,446
31 - 60 days     3,051     2,869
61 - 90 days     1,453     1,414
Over 90 days     3,851     1,809
                ------    ------
                20,596    13,538
                ======    ======
</TABLE>

     The Company allows an average credit period of 60 days to local customers
     and 90 days to overseas customers.

     The fair value of the Company's trade and other receivables as at 31
     December 2005 approximates the corresponding carrying amount.

     Included in other receivables was a balance of HK$17,456,000 which is
     secured by a 16.26% equity interest in Triumph Up.

29.  LOAN RECEIVABLES

<TABLE>
<CAPTION>
                                                              2005      2004
                                                            -------   -------
                                                            HK$'000   HK$'000
<S>                                                         <C>       <C>
Loan to certain companies and individuals (notes a and b)   167,926   108,000
Loan to a land operator (note c)                             13,000    23,000
                                                            -------   -------
                                                            180,926   131,000
                                                            =======   =======
Fixed-rate loan receivables                                  15,427    25,893
Variable-rate loan receivables                              165,499   105,107
                                                            -------   -------
                                                            180,926   131,000
                                                            =======   =======
</TABLE>

     The fair value of the Company's loan receivables as at 31 December 2005,
     determined based on the present value of the estimated future cash flows
     discounted using the prevailing market rate as at the balance sheet date,
     approximates the corresponding carrying amount.


                                      F-48

<PAGE>

29.  LOAN RECEIVABLES - continued

Notes:

(a)  (i)  Included in the balances were loans of HK$40,000,000 (2004:
          HK$40,000,000) which are secured by equity interests in an
          enterprise established in the PRC.

     (ii) Included in the balances was a loan of HK$21,120,000 (2004: nil)
          which is secured by a 50% equity interest in Feng Ze which holds
          a 11.5% attributable interest in the Kingsway Hotel.

     (iii) Included in the balances were loans of HK$21,236,000 (2004: nil)
          which are secured by the right in a property project in Macau of
          a consideration of HK$40,000,000.

     (iv) Included in the balances was a loan of HK$10,327,000 (2004: nil)
          which is secured by certain equity securities listed in Hong
          Kong.

     (v)  Included in the balances as at 31 December 2004 was approximately
          HK$5,074,000 due from a related company. A director of the
          Company has beneficial interests in and is also director of the
          related company.

(b)  Save for the loans mentioned in note 29(a)(i) to (iv), the amount are
     unsecured, carrying interest at market rates and repayable on demand.

(c)  The loan to a 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 is extended to 31 December 2006.

30.  INVESTMENTS HELD FOR TRADING

     Investments held for trading as at 31 December 2005 include:

<TABLE>
<CAPTION>
                                           HK$'000
                                           -------
<S>                                        <C>
Listed securities
   Equity securities listed in Hong Kong    5,576
   Equity securities listed elsewhere       3,510
                                            -----
                                            9,086
                                            =====
</TABLE>

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


                                      F-49

<PAGE>

31.  TRADING CASH BALANCES

     The amounts represent foreign currencies held for money exchange purposes.

32.  TRADE AND OTHER PAYABLES

<TABLE>
<CAPTION>
                                                   2005      2004
                                                 -------   -------
                                                 HK$'000   HK$'000
<S>                                              <C>       <C>
Trade payables                                   130,741   113,844
Amounts payable for acquisition of investments    19,231        --
Accrued liabilities                               53,388    63,632
Other payables                                    19,687    27,453
Receipt in advance                                54,321    29,512
                                                 -------   -------
                                                 277,368   234,441
                                                 =======   =======
</TABLE>

     The aged analysis of the trade payables at the reporting dates is as
     follows:

<TABLE>
<CAPTION>
                 2005      2004
               -------   -------
               HK$'000   HK$'000
<S>            <C>       <C>
0 - 30 days     71,157    60,876
31 - 60 days    26,706    22,542
61 - 90 days    19,022    16,316
Over 90 days    13,856    14,110
               -------   -------
               130,741   113,844
               =======   =======
</TABLE>

     The fair value of the Company's trade and other payables as at 31 December
     2005 approximates the corresponding carrying amount.

33.  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>
                                               2005      2004
                                             -------   -------
                                             HK$'000   HK$'000
<S>                                          <C>       <C>
Amounts repayable within 1 year              361,500   260,778
Amounts repayable after 1 year
   but within 2 years                             --   112,098
                                             -------   -------
                                             361,500   372,876
                                             =======   =======
Variable-rate loans from related companies   361,500   372,876
                                             =======   =======
</TABLE>

     The fair value of the Company's loans from related companies as at 31
     December 2005 approximates the corresponding carrying amount.


                                      F-50

<PAGE>

34.  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.

35.  OBLIGATIONS UNDER FINANCE LEASES

<TABLE>
<CAPTION>
                                                              Present value
                                             Minimum            of minimum
                                          lease payments      lease payments
                                        -----------------   -----------------
                                          2005      2004      2005      2004
                                          ----      ----      ----      ----
                                        HK$'000   HK$'000   HK$'000   HK$'000
<S>                                       <C>       <C>       <C>      <C>
Amounts payable under finance leases:

Within one year                            86       395        62       378
Between one to two years                   19       106        31        93
                                          ---       ---       ---      ----
                                          105       501        93       471
Less: Future finance charges              (12)      (30)       --        --
                                          ---       ---       ---      ----
Present value of lease obligations         93       471        93       471
                                          ===       ===
Less: Amount due within one
         year shown under current
         liabilities                                          (62)     (378)
                                                              ---      ----
Amount due after one year                                      31        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 6.8% (2004: 6%) 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.

     The fair value of the Company's finance lease obligations as at the balance
     sheet date, determined based on the present value of the estimated future
     cash flows discounted using the prevailing market rate as at the balance
     sheet date, approximates the corresponding carrying amount.


                                      F-51

<PAGE>

36.  BORROWINGS

<TABLE>
<CAPTION>
                                                 2005      2004
                                               -------   -------
                                               HK$'000   HK$'000
<S>                                            <C>       <C>
Bank loans                                     300,209   329,091
Bank overdrafts                                     --    28,181
Other loans                                      9,424       189
                                               -------   -------
                                               309,633   357,461
Less: Amount due within one year shown under
         current liabilities                   (38,325)  (57,066)
                                               -------   -------
Amount due after one year                      271,308   300,395
                                               =======   =======
Secured                                        306,633   327,287
Unsecured                                        3,000    30,174
                                               -------   -------
                                               309,633   357,461
                                               =======   =======
Borrowings are repayable as follows:
Within one year or on demand                    38,325    57,066
Between one to two years                        28,828    30,020
Between two to five years                      242,480   270,375
                                               -------   -------
                                               309,633   357,461
                                               =======   =======
</TABLE>

     The Company's borrowings are variable-rate borrowings which are denominated
     in Hong Kong dollars. Included in the borrowings is a bank loan of
     HK$299,760,000 (2004: HK$328,400,000) which bears an annual interest rate
     of 0.8% over the Hong Kong Inter-bank Offered Rate and is repayable in full
     on 17 April 2009.

     The fair value of the Company's borrowings as at 31 December 2005
     approximates the corresponding carrying amount.


                                      F-52

<PAGE>

37.  CONVERTIBLE NOTES

<TABLE>
<CAPTION>
                                 2005      2004
                               -------   --------
                               HK$'000    HK$'000
<S>                            <C>       <C>
Convertible notes               41,350    184,137
Less: Conversion into shares   (41,350)  (142,787)
                               -------   --------
                                    --     41,350
                               =======   ========
</TABLE>

     During the year ended 31 December 2004, the Company issued new convertible
     notes of nominal value amounting to HK$260,000,000 to finance the
     redemption of the convertible notes issued in 2002 and due in 2004. The new
     convertible notes carried interest at 2% per annum and should be repayable
     on 14 June 2007. The holders of the new convertible notes were 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.

     Following the issue of shares in the Company pursuant to the placing and
     subscription agreement dated 4 February 2005, 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 40,
     the conversion price was adjusted to HK$1.97 per new consolidated share.

     Upon the application of HKAS 32 (see note 2 for details), the convertible
     notes were split between the liability and equity elements, on a
     retrospective basis. The equity element is presented in equity heading
     "convertible notes reserve". The effective interest rate of the liability
     component is 14.7%.

     During the year, all the convertible notes were converted into 27,918,781
     new consolidated shares in the Company of HK$1 each at a conversion price
     of HK$1.97 (2004: HK$2.00) per share after adjusting for the share
     consolidation as mentioned under note 40.

38.  PROMISSORY NOTE

     The promissory note was issued during the year ended 31 December 2002 by a
     subsidiary of Apex Quality Group Limited ("Apex") 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.

     The fair value of the Company's promissory note as at 31 December 2005
     approximates the corresponding carrying amount.


                                      F-53

<PAGE>

39.  DEFERRED TAXATION

     The followings are the major deferred tax liabilities and assets recognized
     and movement thereon during the current and prior years:

<TABLE>
<CAPTION>
                                                              Hotel
                                                           properties
                                                           ----------
                                                             HK$'000
<S>                                                        <C>
At 1 January 2004                                                --
Acquisition of subsidiaries during the year (note 43(b))    243,354
                                                            -------
At 31 December 2004 and 1 January 2005                      243,354
Currency realignment                                          3,497
Credit to the income statement (note 13)                     (2,171)
                                                            -------
At 31 December 2005                                         244,680
                                                            =======
</TABLE>

     As at 31 December 2005, the Company has unused tax losses of approximately
     HK$912,324,000 (2004: HK$947,791,000) 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$39,000,000 (2004: HK$65,000,000) 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.

40.  SHARE CAPITAL

<TABLE>
<CAPTION>

                                                   Number of shares     Amount
                                                   ----------------   ---------
                                                                       HK$'000
<S>                                                <C>                <C>
Authorized
   Shares of HK$0.01 each at 1 January 2004,
      31 December 2004 and 1 January 2005           50,000,000,000      500,000
   Consolidation of shares                         (49,500,000,000)          --
   Increase in authorized share capital              1,000,000,000    1,000,000
                                                   ---------------    ---------
   Shares of HK$1 each at 31 December 2005           1,500,000,000    1,500,000
                                                   ===============    =========
Issued and fully paid
   Shares of HK$0.01 each at 1 January 2004         18,316,732,770      183,167
   Conversion into shares from convertible notes    10,250,000,000      102,500
   Issue of shares                                   3,660,000,000       36,600
                                                   ---------------    ---------
   Shares of HK$0.01 each at 31 December 2004       32,226,732,770      322,267
   Issue of shares                                   8,740,000,000       87,400
                                                   ---------------    ---------
                                                    40,966,732,770      409,667
   Consolidation of shares                         (40,557,065,443)          --
   Conversion into shares from convertible notes        27,918,781       27,919
                                                   ---------------    ---------
   Shares of HK$1 each at 31 December 2005             437,586,108      437,586
                                                   ===============    =========
</TABLE>


                                      F-54

<PAGE>

40.  SHARE CAPITAL - continued

     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 were used principally towards
     payments of HK$107.5 million of the consideration for the acquisition of
     interest in Kingsway Hotel and the balance was utilized as general working
     capital of the Company.

     On 14 December 2004, 3,660 million 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.

     On 31 January 2005, 2,340 million shares were issued and allotted at the
     price of HK$0.028 per share in accordance with the second placing and
     subscription agreement and the proceeds, net of expense, amounted to
     approximately HK$63.1 million. The new shares issued rank pari passu in all
     respects with the then existing shares.

     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 expense. 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.

     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 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.

     On 17 May 2005, the directors proposed to the shareholders of the Company
     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 the 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-55

<PAGE>

41.  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
     10% of the issued share capital of the Company on the date of approval and
     adoption of the Scheme (the "General Limit"). The Company proposed to
     refresh the General Limit so that the number of shares which may be issued
     upon exercise of all options to be granted under the Scheme and any other
     share option schemes of the Company would be increased to 10% of the shares
     in issue as at the date of approval of the General Limit as "refreshed".
     The refreshment of the General Limit was approved by the shareholders of
     the Company in the annual general meeting held on 27 May 2005.

     Option granted must be taken up 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.

42.  RESERVES

     (a)  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 would be cancelled
          and the credit arising from the Cancellation would be transferred to
          the contributed surplus account of the Company and such credit would
          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 held on 5 July 2005.

     (b)  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
          group reorganization in September 1997.

     (c)  The accumulated profits, translation reserve and statutory reserves of
          the Company include profits of HK$1,062,000 (2004: losses of
          HK$2,137,000), surplus of HK$73,000 (2004: HK$73,000) and HK$150,000
          (2004: HK$150,000) respectively attributable to the associates of the
          Company.


                                      F-56

<PAGE>

43.  ACQUISITION OF SUBSIDIARIES

     (a)  The Company acquired a 65.04% interest in Triumph Up on 17 February
          2005 and 100% interest in Cyber Business Network (Hong Kong) Limited
          on 28 February 2005.

          The net assets acquired in the transactions, and the discount and
          goodwill arising on acquisition, are as follows:

<TABLE>
<CAPTION>
                                            Acquiree's
                                             carrying
                                           amount before   Fair value
                                            combination    adjustments   Fair value
                                           -------------   -----------   ----------
                                              HK$'000        HK$'000       HK$'000
<S>                                        <C>             <C>           <C>
Property, plant and equipment                   1,393             --         1,393
Interest in associates                         15,887        175,309       191,196
Trade and other receivables                       114             --           114
Amount due from the Company                       960             --           960
Amounts due from related companies                  4             --             4
Amounts due from associates                   126,231             --       126,231
Bank balances and cash                             24             --            24
Trade and other payables                          (16)            --           (16)
Amount due to the Company                      (2,214)            --        (2,214)
Amounts due to associates                        (170)            --          (170)
Amounts due to related companies                 (578)            --          (578)
                                              -------        -------       -------
Net assets acquired                           141,635        175,309       316,944
                                              =======        =======
Minority interests                                                        (110,945)
Discount on acquisition                                                    (34,574)
Goodwill arising on acquisition                                                647
                                                                           -------
Cash consideration                                                         172,072
                                                                           =======
Satisfied by:
   Cash paid                                                               151,322
   Investment deposits                                                      20,750
                                                                           -------
                                                                           172,072
                                                                           =======
Net cash outflow arising on acquisition:
   Cash consideration                                                      151,322
   Bank balances and cash acquired                                             (24)
                                                                           -------
                                                                           151,298
                                                                           =======
</TABLE>

          The discount on acquisition is attributable to the increase in fair
          value of a hotel property which was held by an associate of the
          subsidiaries acquired.

          The subsidiaries acquired during the year contributed HK$125,000 to
          the Company's turnover and HK$43,673,000, including discount on
          acquisition of HK$34,574,000, to the Company's profit before taxation.

          If the acquisition had been completed on 1 January 2005, the Company's
          turnover for the year would have been HK$1,815,784,000 and profit for
          the year would have been HK$33,004,000. The proforma information is
          for illustrative purposes only and is not necessarily an indicative
          revenue and results of operations of the Company that actually would
          have been achieved had the acquisition been completed on 1 January
          2005, nor is it intended to be a projection of future results.


                                      F-57

<PAGE>

43.  ACQUISITION OF SUBSIDIARIES - continued

     (b)  During the year ended 31 December 2004, the Company acquired through a
          cash offer further interest in its former associate, Apex Quality
          Group Limited ("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$24,192,000 to the Company's loss before taxation for 2004.


                                      F-58

<PAGE>

43.  ACQUISITION OF SUBSIDIARIES - continued

     (c)  In December 2004, the Company acquired 100% of the issued share
          capital of International Travel Systems Inc. ("ITS Inc."). The effect
          of the acquisition is summarized as follows:

<TABLE>
<CAPTION>
                                             2004
                                           -------
                                           HK$'000
<S>                                        <C>
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>

          ITS Inc. contributed an insignificant amount to the Company's turnover
          and loss before taxation for 2004.

     (d)  On 24 September 2003, the Company acquired 100% of the issued share
          capital of Sinomatrix Limited by assets swap mentioned under note
          45(e). Sinomatrix Limited, in turn, holds a 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.


                                      F-59

<PAGE>

44.  DISPOSAL OF DISCONTINUED OPERATION

     On 25 October 2003, the Company entered into a sale and purchase agreement
     to dispose of its 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 for the year ended 31 December 2003, were as follows:

<TABLE>
                          HK$'000
<S>                       <C>
Turnover                  124,329
Direct operating costs    (99,712)
Other operating income      1,403
Administrative expenses   (45,687)
Finance costs              (2,337)
                          -------
Loss before taxation      (22,004)
Taxation credit             1,718
                          -------
Net loss for the year     (20,286)
                          =======
</TABLE>

     During the year ended 31 December 2003, Trans-Island Group contributed
     HK$26,547,000 to the Company's net operating cash flows, HK$11,644,000 in
     respect of investing activities, and HK$11,205,000 in respect of financing
     activities.


                                      F-60

<PAGE>

44.  DISPOSAL OF DISCONTINUED OPERATION - continued

     The net assets of Trans-Island Group at 31 October 2003, the date of
     disposal, were as follows:

<TABLE>
                                               HK$'000
<S>                                           <C>
Net assets disposed of:
Property, plant and equipment                  92,977
Inventories                                        56
Amounts due from group companies                8,775
Trade and other receivables                    24,779
Bank balances and cash                          3,356
Trade and other payables                      (39,476)
Tax payable                                       (61)
Bank borrowings                               (15,152)
Obligations under finance leases              (18,529)
Deferred taxation                              (6,332)
                                              -------
                                               50,393
Unamortized goodwill                           12,571
                                              -------
                                               62,964
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.


                                      F-61

<PAGE>

45.  MAJOR NON-CASH TRANSACTIONS

     (a)  During the year ended 31 December 2005, the Company disposed of a
          computer system for online travel reservation to Sino Express Travel
          Limited ("Sino"), a Hong Kong and Macau travel products supplier and
          wholesale distributor, at a consideration of US$500,000, which was
          settled by 2,500,000 common shares (valued at US$0.2 per share) of
          Sino Express Travel Limited ("Sino USA"), the 100% holding company of
          Sino.

          Sino USA is a company incorporated in the United States of America
          with its shares traded on the Pink Sheets in the United States of
          America.

     (b)  During the year ended 31 December 2004, 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.

     (c)  During the year ended 31 December 2004, the consideration receivable
          on disposal of interest in a co-operative joint venture of
          HK$40,000,000 was transferred to loan receivable.

     (d)  During the year ended 31 December 2004, the Company entered into
          finance lease arrangements in respect of assets with a total capital
          value of HK$186,000 at the inception of the finance leases.

     (e)  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.

     (f)  During the year ended 31 December 2003, the Company disposed of its
          interests in Rosedale Hotel Group Limited for a consideration of
          HK$88,000,000 of which HK$68,000,000 was due for payment after 31
          December 2003.

46.  ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                           2005      2004      2003
                         -------   -------   -------
                         HK$'000   HK$'000   HK$'000
<S>                      <C>       <C>       <C>
Bank balances and cash    43,103   134,317   111,709
Bank overdrafts               --   (28,181)       --
                          ------   -------   -------
                          43,103   106,136   111,709
                          ======   =======   =======
</TABLE>


                                      F-62

<PAGE>

47.  PLEDGE OF ASSETS

     Save as otherwise disclosed, at 31 December 2005, the Company's credit
     facilities were secured by the Company's assets as follows:

<TABLE>
<CAPTION>
                       2005      2004
                     -------   -------
                     HK$'000   HK$'000
<S>                  <C>       <C>
Hotel property       614,856   620,510
Property interests    18,290    14,060
Bank balances          6,925     6,800
                     -------   -------
                     640,071   641,370
                     =======   =======
</TABLE>

48.  CONTINGENT LIABILITIES

     The Company did not have any significant contingent liabilities as at 31
     December 2005 and 2004.

49.  OPERATING LEASE COMMITMENTS

     As lessee

     At 31 December 2005, the Company had commitments for future minimum lease
     payments under non-cancellable operating leases which fall due as follows:

<TABLE>
<CAPTION>
                                           2005      2004
                                         -------   -------
                                         HK$'000   HK$'000
<S>                                      <C>       <C>
Land and buildings
Within one year                           14,660     9,690
In the second to fifth years inclusive     4,866     3,029
                                          ------    ------
                                          19,526    12,719
                                          ======    ======
Equipment
Within one year                              358       358
In the second to fifth years inclusive       896     1,254
                                          ------    ------
                                           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.


                                      F-63

<PAGE>

49.  OPERATING LEASE COMMITMENTS - continued

     As lessor

     Property rental income earned during the year was HK$15,713,000 (2004:
     HK$13,072,000 and 2003: HK$109,000).

     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>
                                           2005      2004
                                         -------   -------
                                         HK$'000   HK$'000
<S>                                      <C>       <C>
Within one year                           13,289    11,369
In the second to fifth years inclusive    41,570    33,577
After five years                          12,622        --
                                          ------    ------
                                          67,481    44,946
                                          ======    ======
</TABLE>

50.  CAPITAL COMMITMENTS

<TABLE>
<CAPTION>
                                                         2005      2004
                                                       -------   -------
                                                       HK$'000   HK$'000
<S>                                                    <C>       <C>
Contracted for but not provided in the consolidated
   financial statements in respect of acquisition of
   property, plant and equipment                        30,000    30,760
Contracted for but not provided in the consolidated
   financial statements in respect of investments        5,462   137,697
                                                        ------   -------
                                                        35,462   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.


                                      F-64

<PAGE>

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$125,032 (2004: HK$277,134 and
     2003: HK$1,003,589) 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$548,759 (2004: HK$65,025).

52.  POST BALANCE SHEET EVENTS

     Subsequent to the balance sheet date, the following events have taken
     place:

     (a)  On 1 March 2006, the Company entered into a placing agreement with
          Success Securities Limited ("Success Securities") pursuant to which
          the Success Securities conditionally agreed to place up to 175 million
          shares in the Company at a price of HK$0.69 per share to independent
          investors (the "Placing"). The Placing is conditional on, among other
          things, the passing of the resolution at the special general meeting
          by the shareholders to approve the issue of the 175 million shares
          under the Placing (the "Placing Shares").

          The net proceeds of approximately HK$119.7 million from the Placing
          are intended to be used as general working capital for the Company.

          In order to facilitate the issue of the Placing Shares, the Board
          proposes to conduct the capital reorganization which involves (i) the
          reduction of the issued share capital of the Company by HK$0.90 per
          existing share by cancelling an equivalent amount of paid-up capital
          per existing share so that the nominal value of each existing share in
          issue will be reduced from HK$1 to HK$0.10; and (ii) the subdivision
          of every unissued existing share into 10 adjusted shares.

          The Placing was completed on 25 April 2006.


                                      F-65

<PAGE>

52.  POST BALANCE SHEET EVENTS - continued

     (b)  On 23 March 2006, the Company entered into a total of eight
          subscription agreements in relation to the subscription by eleven
          subscribers of the 2% convertible exchangeable notes with an
          aggregated principal amount of HK$1,000 million (the "Notes"). CEL,
          Hutchison International Limited and the nine other subscribers have
          conditionally agreed to subscribe for the Notes with principal amount
          of HK$300 million, HK$200 million and HK$500 million by cash
          respectively.

          The initial conversion price of the Notes is HK$0.79 per share, after
          the share subdivision as mentioned in note (a) above, subject to
          adjustments. Unless previously converted or lapsed or redeemed by the
          Company, the Company will redeem the Notes on the fifth anniversary
          from the date of issue of the Notes (the "Maturity Date") at the
          redemption amount which is 110% of the principal amount of the Notes
          outstanding.

          Each of the noteholders shall have the right to convert, on any
          business day commencing from the 7th day after the date of issue of
          the Notes up to and including the date which is 7 days prior to the
          Maturity Date, the whole or any part (in an amount or integral
          multiple of HK$1,000,000) of the principal amount of the Notes into
          the shares of the Company (the "Conversion Shares") at the then
          prevailing conversion price.

          Subject to certain restrictions which are intended to facilitate
          compliance of relevant rules and regulations, each noteholder shall
          have the right to exchange from time to time all or part (in the
          amount of HK$10,000,000 or integral multiples thereof) of 50% of the
          initial principal amount of its Notes for shares in the share capital
          of any company which is an affiliated company or subsidiary of the
          Company that is to be listed on a stock exchange through an initial
          public offering at the price (the "Spin-off Shares"), subject to
          adjustments, at which the Spin-off Shares are actually issued to the
          public at the time of the listing on that stock exchange. As at the
          date of report, the Company does not have any concrete plan as regards
          any spin-off proposal.

          The net proceeds of approximately HK$998.8 million raised from the
          Notes are expected to be used by the Company for the purpose of
          expanding its hotel business and travel related business. The
          directors of the Company have been identifying suitable investment
          targets in the hotel and travel related business for the Company.
          However, as at the date of report, no negotiations for investments in
          any targets have been materialised or proceeded to a matured stage. To
          the extent that the net proceeds are not immediately applied for the
          above purposes, the directors of the Company intended that the net
          proceeds may be used to reduce the gearing of the Company.

          The subscription agreements, the issue of the Notes and the issue of
          the Conversion Shares was approved by the shareholders of the Company
          in the special general meeting held on 8 May 2006.


                                      F-66

<PAGE>

52.  POST BALANCE SHEET EVENTS - continued

     (c)  On 13 June 2006, the Company entered into an agreement with China Star
          Entertainment Limited, a company incorporated in Bermuda with its
          shares listed on the Stock Exchange, in relation to the disposal of
          approximately a 56.91% interest in Triumph Up at a consideration of
          approximately HK$252,789,000. Triumph Up indirectly holds
          approximately a 55.75% interest in Kingsway Hotel. Accordingly, the
          Company's approximately 31.73% effective interest in Kingsway Hotel
          will be entirely disposed of.

          The net proceeds from the disposal are estimated to be approximately
          HK$250,800,000. The Company intends to apply the net proceeds for the
          purpose of repayment of its borrowings and general working capital of
          the Company.

     (d)  On 22 June 2006, the Company granted 58,880,000 option at an exercise
          price of HK$0.728 with exercisable period from 22 June 2006 to 21 June
          2008.

     (e)  On 30 June 2006, ITS Inc. entered into an agreement with Sino in
          relation to the disposal of the entire 100% equity interest in
          Guangzhou Travel Information Systems Network Limited ("GZTI"),
          together with the loan due from GZTI to ITS Inc. amounting to
          HK$51,503,000 approximately, for a total consideration of
          US$7,500,000. Pursuant to the agreement, the consideration will be
          satisfied by Sino USA issuing to ITS Inc. (or as it may director) a
          total of 32,608,696 shares at the issue price of US$0.23 each (the
          "Consideration Shares"). The Consideration Shares represent
          approximately 38.99% of the issued share capital of Sino USA as
          enlarged by the Consideration Shares. After the completion of the
          disposal, Sino USA will become an associate of the Company.


                                      F-67

<PAGE>

53.  RELATED PARTY TRANSACTIONS

     (a)  During the year, the Company had transactions with related parties as
          follows:

<TABLE>
<CAPTION>
(I)   Nature of transactions              Notes   Name of company                    2005      2004      2003
      ----------------------              -----   ---------------                  -------   -------   -------
                                                                                   HK$'000   HK$'000   HK$'000
<S>   <C>                                 <C>     <C>                              <C>       <C>       <C>
      Property rental expenses paid        (i)    Cycle Company Limited and
      and payable by the Company                  Gunnell Properties Limited        3,734     2,266     1,630
                                                  Mass Success International
                                                  Limited                             258     2,268     1,790
                                                  Paul Y. Building Management
                                                  Limited                             259        --        --
                                                                                   ------    ------     -----
                                                                                    4,251     4,534     3,420
                                                                                   ======    ======     =====

      Air ticketing and travel service     (ii)   Hanny Holdings Limited and its
      income received and receivable              subsidiaries                      1,582     1,240       666
      by the Company                              Paul Y. - ITC Management
                                                  Limited                           1,415        --        --
                                                  PYI Corporation Limited
                                                  (formerly known as "Paul Y. -
                                                  ITC Construction Holdings
                                                  Limited") and its subsidiaries    1,147     1,965       486
                                                  See Corporation Limited
                                                  (formerly known as "Ruili
                                                  Holdings Limited")                  492        --        --
                                                  China Strategic Holdings
                                                  Limited and its subsidiaries        236       174       213
                                                  ITC Corporation Limited and
                                                  its subsidiaries                     56       153       266
                                                  Paul Y. Management Limited           21        --        --
                                                  Cheung Wah Ho Dyestuffs
                                                  Company Limited                      --       233        17
                                                  PSC Corporation Limited              --        68       213
                                                  Cyber Business Network
                                                  (Hong Kong) Limited                  --         3        --
                                                  Pacific Century Premium
                                                  Developments Limited and
                                                  its subsidiaries                     --        --       318
                                                  SMI Corporation Limited
                                                  and its subsidiaries                 --        --       118
                                                  Mobile Media Management
                                                  Limited                              --        --        27
                                                  X-One Management Limited             --        --        11
                                                                                   ------    ------     -----
                                                                                    4,949     3,836     2,335
                                                                                   ======    ======     =====
      Interest paid on convertible
      notes                                (iii)   Million Good Limited               359     2,177     1,696
                                                                                   ======     =====     =====

      Loan interest paid and payable       (iv)   Nation Cheer Investment
      by the Company                              Limited                           5,138     2,051       385
                                                  Million Good Limited              4,323     5,256     1,710
                                                  Hanny Holdings Limited
                                                  and its subsidiaries              2,799     9,742     1,790
                                                  Paul Y. - ITC Management
                                                  Limited                           1,269        --        --
                                                  Cheung Tai Hong (BVI)
                                                  Limited                             769        --        --
                                                  China Strategic Holdings
                                                  Limited and its subsidiaries      6,103     1,465     2,229
                                                                                   ------    ------    ------
                                                                                   20,401    18,514     6,114
                                                                                   ======    ======    ======

      Interest on loan receivables         (v)    See Corporation Limited
                                                  (formerly known as "Ruili
                                                  Holdings Limited")                   --        76        --
                                                                                    =====    ======     =====

      Net income on sale of computer       (vi)   Cyber Business Network
      program source code                         (Hong Kong) Limited                  --        --     3,000
                                                                                    =====    ======     =====
</TABLE>


                                      F-68

<PAGE>

53.  RELATED PARTY TRANSACTIONS - continued

     (a)  During the year, the Company had transactions with related parties as
          follows: - continued

<TABLE>
<CAPTION>
                                                                                      2005      2004      2003
(I)   Nature of transactions              Notes    Name of company                  -------   -------   -------
      ----------------------              -----    ---------------                  HK$'000   HK$'000   HK$'000
<S>   <C>                                 <C>      <C>                              <C>       <C>       <C>
      Website maintenance services         (vii)   Cyber Business Network
      paid by the Company                          (Hong Kong) Limited                  --     1,200        --
                                                                                     =====     =====     =====

      Secondment fee paid                 (viii)   Mass Success International
                                                   Limited                           2,492        --        --
                                                                                     =====     =====     =====

      Secondment fee received             (viii)   Manwide Holdings Limited          1,154        --        --
                                                                                     =====     =====     =====
</TABLE>

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 paid 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.

(viii) The staff secondment charges were determined with reference to the costs
     incurred.

Certain directors of the Company are also directors of and/or have beneficial
interests in those companies.

<TABLE>
<CAPTION>
                                                                                      2005      2004      2003
(II)   Nature of transactions              Notes   Name of company                  -------   -------   -------
       ----------------------              -----   ---------------                  HK$'000   HK$'000   HK$'000
<S>    <C>                                 <C>     <C>                              <C>       <C>       <C>
       Agency fees paid by the Company      (i)    Ananda Travel Service, Inc.         --        --        60
                                                                                      ===       ===       ===

       Air ticketing and travel services    (ii)   Ananda Travel Service, Inc.
       income received by the Company                                                  --        --         7
                                                                                      ===       ===       ===
</TABLE>

Notes:

(i)  During the year ended 31 December 2003, the above company acted as the
     Company's land operations 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, the above company purchased air
     tickets and other travel related services from the Company at rates
     comparable to market rates.

     The Company paid an annual fee of nil (2004: nil and 2003: HK$10) to Ananda
     Holdings Limited for a non-exclusive licence to the Company to use the
     "Ananda" trademark.

     Mr. Chan Yeuk Wai has minority interests in Ananda Travel Service, Inc.

(b)  During the year, the Company received loans from related companies. Details
     of their relationships and the terms of the loans are set out in note 33.


                                      F-69

<PAGE>

53.  RELATED PARTY TRANSACTIONS - continued

     (c)  The Company maintained current accounts with related companies and
          associates. Their balances as at 31 December 2005 are set out in notes
          26, 27 and 34.

          Certain directors of the Company are also directors of and/or have
          beneficial interests in those companies.

     (d)  During the year ended 31 December 2004, the Company made a loan to a
          related company. Details of its relationship and the terms of the loan
          are set out in note 29a(v).

     (e)  During the year ended 31 December 2004, the Company issued convertible
          notes of nominal value amounting to HK$155,000,000 to CEL. Details of
          the convertible notes are set out in note 37. As at 31 December 2005,
          the related company holds the convertible notes of nominal value
          amounting to nil (2004: 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 ended 31 December 2004, the Company received
          commission and hotel management fee of HK$3,628,000 (2003: nil) from
          Heilongjiang Ananda Entertainment Company Limited ("Heilongjiang
          Ananda"), a former associate of the Company, 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 Group 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)  Compensation of key management personnel

          The remuneration of directors and other members of key management
          during the year was as follows:

<TABLE>
<CAPTION>
                             2005      2004      2003
                           -------   -------   -------
                           HK$'000   HK$'000   HK$'000
<S>                        <C>       <C>       <C>
Short-term benefits         3,865     6,507     3,680
Post-employment benefits       29        69       307
                            -----     -----     -----
                            3,894     6,576     3,987
                            =====     =====     =====
</TABLE>

     The remuneration of directors and key executives is determined by the
     remuneration committee having regard to the performance of individuals and
     market trends.


                                      F-70

<PAGE>

54.  PRINCIPAL SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                          Proportion of
                                                                         nominal value of
                                                                      issued share capital/
                                                                        registered capital
                                                     Issued and          held by Company
                                   Place of            paid up        ---------------------
                                incorporation/      share capital/    Directly   Indirectly           Principal activities
Name of company                  registration    registered capital       %           %              and place of operation
---------------                 --------------   ------------------   --------   ----------   ------------------------------------
<S>                             <C>              <C>                  <C>        <C>          <C>
Allied Glory Investment         Hong Kong                      HK$2       --        55.7      Investment holding in the PRC
Limited ("Allied Glory")
Apex                            British Virgin         US$5,548,172       --        67.9      Investment holding
                                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
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
Cyber Business Network          Hong Kong             HK$14,000,000       --         100      Provision of internet technology
(Hong Kong) Limited                                                                           services in Hong Kong
DS Eastin Limited               Hong Kong                     HK$20       --        67.9      Investment holding in the PRC
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
                                Islands
HMH China Investments           Bermuda               CAD$1,152,913       --        55.7      Investment holding
Limited
Hong Kong Wing On Travel        Hong Kong                Ordinary -       --         100      Outbound travel and related services
Service Limited                                      HK$180,000,100                           in Hong Kong
                                                         Deferred -
                                                      HK$20,000,000*
International Travel            British Virgin                 US$1       --         100      Investment holding
Systems Inc.                    Islands
Kingsgrove International        Hong Kong                      HK$2       --         100      Property holding 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 the
Co., Ltd.                                                                                     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 Hong Kong
Limited
Mexmara Holdings Limited        British Virgin                 US$1       --         100      Property investment in Hong Kong
                                Islands
Millennium Target Holdings      British Virgin                 US$1       --         100      Investment holding
Limited                         Islands
</TABLE>


                                      F-71

<PAGE>

54.  PRINCIPAL SUBSIDIARIES - continued

<TABLE>
<CAPTION>
                                                                          Proportion of
                                                                         nominal value of
                                                                      issued share capital/
                                                                        registered capital
                                                     Issued and          held by Company
                                   Place of            paid up        ---------------------
                                incorporation/      share capital/    Directly   Indirectly           Principal activities
Name of company                  registration    registered capital       %           %              and place of operation
---------------                 --------------   ------------------   --------   ----------   ------------------------------------
<S>                             <C>              <C>                  <C>        <C>          <C>
Rosedale Group Management       Hong Kong                      HK$2       --        67.9      Provision of management services in
Limited                                                                                       Hong Kong
Rosedale Hotel Beijing Co.,     PRC #                 US$17,200,000       --        64.5      Hotel ownership and operation in the
Ltd.                                                                                          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       --        55.2      Hotel ownership and operation in the
Co., Ltd. ("Rosedale                                                                          PRC
Guangzhou")
Rosedale Hotel Management       Hong Kong                      HK$2       --        67.9      Hotel management service in
Limited                                                                                       Hong Kong
Rosedale Hotel Management       British Virgin                 US$1       --        67.9      Hotel management service
International Limited           Islands
Rosedale Park Limited           Hong Knog                      HK$2       --        67.9      Hotel operation in Hong Kong
Shropshire Property Limited     British Virgin           Ordinary -       --        67.9      Investment holding in the PRC
                                Islands                       US$10
                                                       Preference -
                                                           US$1,000
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 Hong Kong
Limited                         Islands
Triumph Up Investments          British Virgin               US$615       --        56.9      Investment holding in Macau
Limited                         Islands
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                  MOP1,300,000       --         100      Travel and related services in Macau
Limited
Wing On Hotel Management        British Virgin                 US$4       --         100      Hotel management services in the PRC
Limited                         Islands
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          Hong Kong                      HK$2       --         100      Money lending in Hong Kong
Limited
Wing On Travel International    British Virgin                 US$1      100          --      Investment holding
Limited                         Islands
Wing On Travel (BVI) Limited    British Virgin            US$10,000       --         100      Investment holding
                                Islands
Wing On Travel (U.K.) Limited   United Kingdom                   L2       --         100      Travel and related services in U.K.
WOT Holidays (Canada) Limited   Canada                     C$15,000       --         100      Travel and related services in
(formerly known as Ananda                                                                     Canada
Travel (Canada) Limited)
</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 is entitled to recoup its total investment (including capital and
     interest) from the after-tax earnings of Rosedale Guangzhou before any
     amounts 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.


                                      F-72

<PAGE>

54.  PRINCIPAL SUBSIDIARIES - continued

     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.

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP")

     The consolidated financial statements are prepared in accordance with
     HKFRSs, which differ in certain significant respects from US GAAP. The cash
     flow statement used in the primary financial statements complies with HKAS
     7 "Cash Flow Statements".

     The significant differences between HKFRSs 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 investment properties and
     reversal of impairment losses.

     Under HKFRSs, 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 amortized on a straight line basis over its useful economic life
     until 1 January 2005. The amortization of goodwill is discontinued from 1
     January 2005 onwards and such goodwill is tested for impairment at least
     annually. Goodwill arising on acquisition after 1 January 2005 is measured
     at cost less accumulated impairment losses (if any) after initial
     recognition. 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 HKFRSs, 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 sheets. 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. Upon the adoption of the new
     HKFRSs on 1 January 2005, the negative goodwill is derecognized on 1
     January 2005 with a corresponding adjustment to the accumulated (losses)
     profits. 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. Since the negative goodwill is allocated to the fair values of the
     acquired assets, the loss on partial disposal of subsidiaries is adjusted
     accordingly.

     The allocation of negative goodwill to the fair values of the acquired
     assets also results in the additional share of result of associates, as the
     negative goodwill is allocated to the hotel properties of the associate,
     depreciation of hotel properties is adjusted accordingly.


                                      F-73

<PAGE>

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP") - continued

     Under HKFRSs, prior to the adoption of new HKFRSs 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"). After the adoption of the new HKFRSs
     on 1 January 2005, convertible notes that contain both financial liability
     and equity components are classified separately into respective liability
     and equity components on initial recognition. In subsequent periods, the
     liability component of the convertible notes is carried at amortised cost
     using the effective interest method. The equity component will remain in
     convertible notes reserve until the embedded option is exercised. 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 HKFRSs, 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.

     Under HKFRSs, prior to the adoption of the new HKFRSs on 1 January 2005,
     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. Such difference in accounting for hotel
     properties under HKFRSs 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 in 2004 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.

     After the adoption of the new HKFRSs on 1 January 2005, hotel properties
     are also stated at cost less accumulated depreciation and impairment loss
     under HKFRSs. However, as the depreciable cost of hotel properties under US
     GAAP is adjusted by the negative goodwill and deferred taxation, additional
     depreciation of hotel properties (net of minority interests) is charged
     under US GAAP.

     Under HKFRSs, 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.


                                      F-74

<PAGE>

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP") - continued

     Under HKFRSs, prior to the adoption of new HKFRSs 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 Opinion 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 HKFRSs and US GAAP has had no
     impact on the Company's results of operations or financial position.

     The adjustments necessary to present net profit (loss) and shareholders'
     equity in accordance with US GAAP, for the three years ended 31 December
     2005, 2004 and 2003, respectively, are shown in the tables set out below.

<TABLE>
<CAPTION>
                                                         2005       2004         2003
                                                       -------   ----------   ----------
                                                       HK$'000     HK$'000      HK$'000
                                                                 (Restated)   (Restated)
<S>                                                    <C>       <C>          <C>
Net profit (loss) as reported under HKFRSs              31,109      8,556      (380,680)
US GAAP adjustments:
   Additional depreciation of hotel properties
      (net of minority interests)                       (7,732)    (9,789)           --
   Impact of reversing the impairment loss in
      respect of leasehold land and buildings           (4,874)    (4,511)           --
   Impact of reversing the impairment loss in
      respect of properties under construction            (900)        --            --
   Increase in fair value of investment property          (619)    (2,000)         (170)
   Impact of negative goodwill from acquisition
      of subsidiaries                                  (34,574)        --            --
   Impact of negative goodwill amortization                 --     (1,863)           --
   Adjusted loss on partial disposal of subsidiaries     2,811         --            --
   Additional share of results of associates
      (net of minority interests)                          398         --            --
   Interest expense attributable to amortization
      of the beneficial conversion feature
      embedded in the convertible notes                     --     (5,368)      (54,957)
   Reversal of amortization of goodwill                     --         --           496
   Difference in amortization attributable to the
      excess of fair value of net assets acquired
      over the purchase consideration paid for
      a business acquired                                   --         --           568
   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                                 (14,381)   (14,975)     (428,309)
                                                       =======    =======      ========
Comprising:
   Continuing operations                               (14,381)   (14,975)     (408,519)
   Discontinued operations                                  --         --       (19,790)
                                                       -------    -------      --------
                                                       (14,381)   (14,975)     (428,309)
                                                       =======    =======      ========
</TABLE>


                                      F-75

<PAGE>

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP") - continued

<TABLE>
<CAPTION>
                                            HK$     HK$     HK$
                                           -----   -----   -----
<S>                                        <C>     <C>     <C>
Loss per share under US GAAP - basic and
   diluted
   Continuing operations                   (0.03)  (0.07)  (2.23)
   Discontinued operations                    --      --   (0.11)
                                           -----   -----   -----
                                           (0.03)  (0.07)  (2.34)
                                           =====   =====   =====
</TABLE>

     In addition, interest income and exchange gain for the year ended 31
     December 2005 of HK$4,722,000 and HK$81,000 respectively (2004:
     HK$3,381,000 and HK$135,000; and 2003: HK$1,150,000 and HK$335,000)
     classified as a component of other operating income for HKFRSs purposes is
     considered to be non-operating income for US GAAP purposes.

<TABLE>
<CAPTION>
                                                                       2005       2004
                                                                     -------   ----------
                                                                     HK$'000     HK$'000
                                                                               (Restated)
<S>                                                                  <C>        <C>
Equity attributable to shareholders of the parent as reported
   under HKFRSs                                                      978,976    630,142
US GAAP adjustments:
   Reversal of net US GAAP adjustments attributable
      to equity method affiliate which became a
      subsidiary in 2004                                               7,712      7,712
   Impact of derecognition of negative goodwill                      (72,651)        --
   Impact of negative goodwill from on acquisition of subsidiaries   (34,574)        --
   Adjusted loss on partial disposal of subsidiaries                   2,811         --
   Additional share of results of associates (net of minority
      interests)                                                         398         --
   Additional depreciation of hotel properties (net of
      minority interests)                                            (17,521)    (9,789)
   Increase in fair value of investment property                      (2,789)    (2,170)
   Impact of reversing the impairment loss in respect of
      leasehold land and buildings                                    (9,385)    (4,511)
   Impact of reversing the impairment loss in respect of
      properties under construction                                     (900)        --
   Impact of negative goodwill amortization                           (1,863)    (1,863)
   Reversal of convertible notes reserve                                  --    (13,650)
                                                                     -------    -------
Equity attributable to shareholders of the parent
   under US GAAP                                                     850,214    605,871
                                                                     =======    =======
</TABLE>


                                      F-76

<PAGE>

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP") - continued

     Other comprehensive loss

<TABLE>
<CAPTION>
                                            2005      2004      2003
                                          -------   -------   --------
                                          HK$'000   HK$'000    HK$'000
<S>                                       <C>       <C>       <C>
US GAAP loss                              (14,381)  (14,975)  (428,309)
Foreign currency translation adjustment    11,015      (757)      (213)
                                          -------   -------   --------
Comprehensive loss                         (3,366)  (15,732)  (428,522)
                                          =======   =======   ========
</TABLE>

<TABLE>
<CAPTION>
                                     2005        2004
                                  ---------   ---------
                                   HK$'000     HK$'000
<S>                               <C>         <C>
Total assets
Total assets under US GAAP        2,904,220   2,563,277
                                  =========   =========
Total liabilities
Total liabilities under US GAAP   1,617,579   1,657,528
                                  =========   =========
</TABLE>

     Valuation allowances

     Roll forward schedule of allowances for doubtful assets (all related to
     continuing operations)

     For the year ended 31 December 2005

<TABLE>
<CAPTION>
                                                 Charged to
                                                  costs and
                                      1.1.2005    expenses    Write-off   31.12.2005
                                      --------   ----------   ---------   ----------
                                       HK$'000     HK$'000     HK$'000      HK$'000
<S>                                   <C>        <C>          <C>         <C>
Allowance for doubtful debts            33,952       476          --         34,428
Allowance for advances to service
   suppliers                           209,385        --          --        209,385
Allowance for short term investment
   deposit                              23,000        --          --         23,000
                                       =======       ===         ===        =======
</TABLE>


                                      F-77

<PAGE>

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP") - continued

     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>

     Recent Accounting Pronouncements Not Yet Adopted

     In November 2004, the Financial Accounting Standards Board ("FASB") issued
     SFAS No. 151 "Inventory Costs - an amendment of ARB No. 43, Chapter 4"
     ("SFAS No.151"). 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 1 July 2005. The
     adoption of this standard did not have a material effect on the Company's
     financial position 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 153"), which amends APB
     Opinion No. 29 "Accounting for Nonmonetary Transactions", to eliminate the
     exception for nonmonetary exchanges of similar productive assets and
     replaces it with a general exception for exchanges of nonmonetary assets
     that do not have commercial substance. SFAS 153 is effective for
     nonmonetary assets exchanges occurring in fiscal periods beginning after 15
     June 2005. The Company does not anticipate that the adoption of this
     statement will have a material effect on the Company's financial position
     or results of operations.


                                      F-78

<PAGE>

55.  SUMMARY OF DIFFERENCES BETWEEN HKFRSs AND ACCOUNTING PRINCIPLES GENERALLY
     ACCEPTED IN THE UNITED STATES ("US GAAP") - continued

     In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
     Conditional Assets Retirement Obligations, an interpretation of SFAS No.
     143" ("FIN 47"). FIN 47 clarifies that an entity is required to recognize a
     liability for legal obligation to perform an asset retirement activity if
     the fair value can be reasonably estimated even though the timing and/or
     method of settlement are conditional on a future event. FIN 47 is required
     to be adopted for annual reporting periods ending after 15 December 2005.
     The Company does not anticipate that the adoption of this interpretation
     will have a material impact on the Company's financial position, results of
     operations or cash flows.

     In May 2005, the FASB issued SFAS No. 154 "Accounting Changes and Error
     Corrections" ("SFAS 154") which replaces APB Opinions No. 20 "Accounting
     Changes" and SFAS No. 3 "Reporting Accounting Changes in Interim Financial
     Statements - An Amendment of APB Opinion No. 28". SFAS 154 provides
     guidance on the accounting for and reporting of accounting changes and
     error corrections. It establishes retrospective application, or the latest
     practicable date, as the required method for reporting a change in
     accounting principle and the reporting of a correction of an error. SFAS
     154 is effective for accounting changes and corrections of errors made in
     fiscal years beginning after 15 December 2005. The Company does not
     anticipate that the adoption of this statement will have a material effect
     on the Company's financial position or results of operations.

     In September 2005, the Emerging Issues Task Force published Issue 04-13
     "Accounting for Purchases and Sales of Inventory with the Same
     Counterparty" ("Issue 04-13"). Issue 04-13 addresses the accounting and
     disclosure requirements of accounting for purchases and sales of inventory
     with the same counterparty. In certain situations, as discussed further in
     Issue 04-13, generally accepted accounting principles may require these
     types of transactions be carried at historical cost of inventory as opposed
     to the inventory's fair value, and potentially to defer revenue recognition
     primarily in situations wherein the transactions may not represent a
     completed revenue earnings cycle. Issue 04-13 is applicable for
     arrangements entered into by entities for interim or annual periods
     beginning after 15 March 2006, the Company does not anticipate that the
     adoption of this Issue will have a material effect on the Company's
     financial position or results of operations.


                                      F-79

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

HANGZHOU ZHONGCE RUBBER CO., LTD.

<TABLE>
<S>                                                                         <C>
Report of Independent Registered Public Accounting Firm .................   F-80
Consolidated Financial Statements:
Consolidated Statements of Income and Comprehensive Income
   for the years ended December 31, 2003, 2004 and 2005 .................   F-81
Consolidated Balance Sheets as of December 31, 2004 and 2005 ............   F-82
Consolidated Statements of Equity for the years
   ended December 31, 2003, 2004 and 2005 ...............................   F-84
Consolidated Statements of Cash Flows for the years ended
   December 31, 2003, 2004 and 2005 .....................................   F-85
Notes to Consolidated Financial Statements ..............................   F-87
</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, 2004 and 2005 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, 2005,
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, 2004 and 2005, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2005 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
Rmb965,031,000 as of December 31, 2005 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
JUNE 1, 2006


                                       F-80

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                  -----------------------------------------------
                                                     2003         2004         2005        2005
                                                  ----------   ----------   ----------   --------
                                                      RMB          RMB          RMB         US$
<S>                                               <C>          <C>          <C>          <C>
REVENUES (NOTE 13):
   - third parties ............................    3,717,855    4,960,335    6,406,337    793,826
   - related parties ..........................       78,353       60,900      100,015     12,393
                                                  ----------   ----------   ----------   --------
Total .........................................    3,796,208    5,021,235    6,506,352    806,219
COST OF REVENUES ..............................   (3,416,622)  (4,450,538)  (5,771,884)  (715,210)
                                                  ----------   ----------   ----------   --------
Gross profit ..................................      379,586      570,697      734,468     91,009
Selling, general and administrative expenses ..     (242,100)    (342,123)    (437,536)   (54,216)
                                                  ----------   ----------   ----------   --------
OPERATING INCOME ..............................      137,486      228,574      296,932     36,793
NON-OPERATING INCOME (EXPENSES):
Interest income ...............................        1,071        1,845        3,692        458
Interest expenses .............................      (44,582)     (82,471)     (94,680)   (11,732)
Other income ..................................        4,333        6,612        1,690        209
Equity in earnings of an affiliate ............       23,302           --           --         --
                                                  ----------   ----------   ----------   --------
INCOME FROM OPERATIONS BEFORE INCOME TAXES
   AND MINORITY INTERESTS .....................      121,610      154,560      207,634     25,728
Provision for income taxes (note 6) ...........      (12,764)     (35,676)     (46,892)    (5,811)
Minority interests ............................       (2,509)      (8,814)     (19,413)    (2,406)
                                                  ----------   ----------   ----------   --------
NET INCOME AND COMPREHENSIVE INCOME ...........      106,337      110,070      141,329     17,511
                                                  ==========   ==========   ==========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-81

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                           CONSOLIDATED BALANCE SHEETS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31,
                                                        -------------------------------
                                                           2004        2005       2005
                                                        ---------   ---------   -------
                                                           RMB         RMB        US$
<S>                                                     <C>         <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents ........................     232,493     344,974    42,747
   Restricted cash ..................................      38,924      68,841     8,530
   Accounts receivable, net of allowance for
      doubtful receivables of Rmb58,160 in 2004
      and Rmb57,045 in 2005 .........................     654,091     739,728    91,662
   Other receivables ................................      14,497       7,697       954
   Inventories (note 3) .............................     924,977   1,379,381   170,922
   Prepaid expenses and other current assets ........      65,832      44,034     5,456
   Due from related companies, net of allowance
      for doubtful receivables of Rmb1,942 in 2004
      and Rmb1,942 in 2005 (note 10) ................       8,525       9,178     1,137
   Due from Chinese joint venture partners ..........          --       1,318       163
   Short-term deferred tax assets (note 6) ..........      29,003      42,988     5,327
   Other tax recoverable ............................      21,395      14,306     1,773
                                                        ---------   ---------   -------
   Total current assets .............................   1,989,737   2,652,445   328,671
Due from Chinese joint venture partners (note 11) ...         873          --        --
Prepayments for equipment ...........................     120,119      88,684    10,989
Property, plant and equipment, net (note 4) .........   1,949,312   2,449,664   303,544
Long-term deferred tax assets (note 6) ..............       9,521       7,408       918
Other assets ........................................         441         441        55
                                                        ---------   ---------   -------
   Total assets .....................................   4,070,003   5,198,642   644,177
                                                        =========   =========   =======
</TABLE>


                                      F-82

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                     CONSOLIDATED BALANCE SHEETS - CONTINUED

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                        ---------------------------------
                                                           2004        2005        2005
                                                        ---------   ---------   ---------
                                                           RMB         RMB         US$
<S>                                                     <C>         <C>         <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Short-term bank loans (note 5) ...................   1,577,352   1,753,789     217,317
   Long-term bank loans - current portion (note 5) ..      64,000      97,000      12,019
   Accounts payable .................................     693,886   1,072,080     132,844
   Other payables ...................................     260,316     394,751      48,915
   Accrued liabilities ..............................     152,419     163,004      20,198
   Income taxes payable (note 6) ....................      30,708      29,220       3,621
   Loans from related companies (note 10) ...........       5,841      87,201      10,805
   Due to Chinese joint venture partners (note 11) ..          --         594          74
   Other tax liability ..............................      13,057      19,837       2,458
                                                        ---------   ---------   ---------
   Total current liabilities ........................   2,797,579   3,617,476     448,251
Long-term bank loans, net of current portion
   (note 5) .........................................     289,000     437,000      54,150
Due to a shareholder ................................          67          67           8
                                                        ---------   ---------   ---------
   Total liabilities ................................   3,086,646   4,054,543     502,409
                                                        ---------   ---------   ---------
Minority interests ..................................     189,586     208,999      25,898
                                                        ---------   ---------   ---------
Obligations and commitments (note 8)
Shareholders' equity:
   Registered capital ...............................     613,603     613,603      76,033
   Additional paid-in capital .......................      20,266      20,266       2,511
   Retained earnings ................................     159,902     301,231      37,326
                                                        ---------   ---------   ---------
   Total shareholders' equity .......................     793,771     935,100     115,870
                                                        ---------   ---------   ---------
   Total liabilities and shareholders' equity .......   4,070,003   5,198,642     644,177
                                                        =========   =========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                      F-83

<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, 2003......     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
Net income......................          --          --      141,329   141,329
                                     -------      ------     --------   -------
Balance at December 31, 2005....     613,603      20,266      301,231   935,100
                                     =======      ======     ========   =======
Balance at December 31, 2005
   (in US$).....................      76,033       2,511       37,326   115,870
                                     =======      ======     ========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-84

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------
                                                       2003       2004       2005       2005
                                                     --------   --------   --------   -------
                                                        RMB        RMB        RMB       US$
<S>                                                  <C>        <C>        <C>        <C>
Cash flows from operating activities:
   Net income.....................................    106,337    110,070    141,329    17,511
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Minority interests..........................      2,509      8,814     19,413     2,406
      Equity in earnings of an affiliate..........    (23,302)        --         --        --
      Deferred income taxes.......................     (6,048)   (18,199)   (11,872)   (1,471)
      Loss (gain) on disposal of property, plant
         and equipment............................       (945)       (67)     3,327       412
      Depreciation and amortization...............     71,748    180,272    248,854    30,836
Changes in operating assets and liabilities
   (net of effects of consolidation of variable
   interest entity):
      Accounts and other receivables, net.........    (56,362)  (180,190)   (78,837)   (9,769)
      Inventories.................................   (141,044)  (182,410)  (454,404)  (56,305)
      Prepaid expenses and other current assets...     10,543     (5,486)    21,798     2,701
      Due (from) to related companies.............      4,682    (59,833)      (653)      (81)
      Other tax recoverable.......................     (2,625)   (18,770)     7,089       878
      Other assets................................        239        644         --        --
      Accounts payable and other payables.........     75,617    304,757    512,629    63,521
      Accrued liabilities.........................     44,947     45,192     10,585     1,312
      Income taxes payable........................     (7,821)    24,701     (1,488)     (184)
      Other taxes liabilities.....................    (13,187)        --      6,780       840
                                                     --------   --------   --------   -------
   Net cash provided by operating activities......     65,288    209,495    424,550    52,607
                                                     --------   --------   --------   -------
</TABLE>


                                      F-85

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                        ----------------------------------------
                                                          2003       2004       2005       2005
                                                        --------   --------   --------   -------
                                                           RMB        RMB        RMB       US$
<S>                                                     <C>        <C>        <C>        <C>
Cash flows from investing activities:
   Purchase of property, plant and equipment ........   (368,775)  (625,792)  (722,394)  (89,514)
   Decrease (increase) in restricted bank deposits ..    (18,501)    12,360    (29,917)   (3,707)
   Investments in and advances to affiliates, net ...    (14,890)        --         --        --
   (Increase) decrease in amount due from Chinese
      joint venture partners ........................        (50)       327       (445)      (55)
   Proceeds from disposal of property, plant and
      equipment .....................................      7,726     15,637      1,296       161
   Proceeds from disposal of trading securities .....         50         --         --        --
   Decrease in due from a shareholder ...............         --         --         --        --
   Consolidation of variable interest entity,
      net cash acquired .............................         --     35,058         --        --
                                                        --------   --------   --------   -------
Net cash used in investing activities ...............   (394,440)  (562,410)  (751,460)  (93,115)
                                                        --------   --------   --------   -------
Cash flows from financing activities:
   Net increase in short-term bank loans ............    247,658    474,306    176,437    21,861
   Proceeds of long-term bank loans .................    120,000    147,000    245,000    30,359
   Payment of dividends to shareholders .............    (38,838)   (20,116)        --        --
   Repayment of long-term bank loans ................    (31,600)  (120,000)   (64,000)   (7,930)
   Repayment of loans from a related company ........       (535)      (523)    81,360    10,082
   (Decrease) increase in amount due to Chinese
      joint venture partners ........................     (2,369)     5,841        594        74
   Increase in amount due to a shareholder ..........         --         --         --        --
                                                        --------   --------   --------   -------
Net cash provided by financing activities ...........    294,316    486,508    439,391    54,446
                                                        --------   --------   --------   -------
Net (decrease) increase in cash and cash
   equivalents ......................................    (34,836)   133,593    112,481    13,938
Cash and cash equivalents, beginning of year ........    133,736     98,900    232,493    28,809
                                                        --------   --------   --------   -------
Cash and cash equivalents, end of year ..............     98,900    232,493    344,974    42,747
                                                        ========   ========   ========   =======
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
      Interest paid - net of amounts capitalized ....     47,138     82,525     94,129    11,664
      Net income tax paid ...........................     26,634     30,563     60,252     7,466
                                                        ========   ========   ========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-86

<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. As of December 31, 2004 and 2005, the Company had a 49.2% equity
     ownership in Hangzhou Sunrise.

     In January 2004, 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 2004, 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, 2005, unless the Company has a special purpose
     entity, in which case the provisions must be applied for fiscal years ended
     December 31, 2004. The Company had early adopted FIN 46 (revised) effective
     January 1, 2005 and has consolidated Hangzhou Sunrise as its variable
     interest entity for the year ended December 31, 2005.

     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-87
<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 Rmb965,031 as of
     December 31, 2005. 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, 2005, 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, 2003 and 2004, 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 Rmb64,108, Rmb89,826 and Rmb89,269 for the years ended
          December 31, 2003, 2004 and 2005, respectively.


                                      F-88

<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 Rmb91,563, Rmb141,031 and Rmb165,377 for the years ended December
          31, 2003, 2004 and 2005, 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, 2004 and 2005 were United States dollar deposits of
          US$7,214 (Rmb59,711) and US$8,346 (Rmb67,353), 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 Rmb4,000, Rmb7,904 and
          Rmb16,217 for the years ended December 31, 2003, 2004 and 2005,
          respectively.


                                      F-89

<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 (loss) of
          Rmb4,333, Rmb2,782 and Rmb(5,557) in 2003, 2004 and 2005,
          respectively.


                                      F-90

<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 =
          Rmb8.0702, the unified exchange rate on December 31, 2005. 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, 2004
          and 2005, were non-distributable dedicated capital of Rmb12,933 and
          Rmb13,233, respectively.


                                      F-91

<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-92

<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)  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-93

<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

     (Q)  ADVERTISING EXPENSES

          The Group expenses advertising costs as incurred. Advertising expenses
          were Rmb5,808, Rmb2,856 and Rmb1,927 for the years ended December 31,
          2003, 2004 and 2005, respectively.

     (R)  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.

     (S)  GUARANTEES

          The Group discloses and recognizes a liability for the fair value of
          the obligation it assumes under the guarantees. As of December 31,
          2004 and 2005, the carrying amount of the liability for the Group's
          obligations under the guarantees is Rmb3,102 and Rmb4,465,
          respectively.

     (T)  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 12) amounted to Rmb38,924 and Rmb68,841 as
          of December 31, 2004, and 2005, respectively, and are presented as
          restricted cash in the consolidated balance sheets.


                                      F-94

<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

     (U)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT

          In December 2004, the FASB issued SFAS No. 153, "Exchanges of
          Nonmonetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153"),
          which amends Accounting Principles Board Opinion No. 29, "Accounting
          for Nonmonetary Transactions" to eliminate the exception for
          nonmonetary exchanges of similar productive assets and replaces it
          with a general exception for exchanges of nonmonetary assets that do
          not have commercial substance. SFAS 153 is effective for nonmonetary
          assets exchanges occurring in fiscal periods beginning after June 15,
          2005. The adoption of this statement did not have a material effect on
          the Group's financial position or results of operations.

          In March 2005, the FASB issued FASB Interpretation No. ("FIN") 47,
          "Accounting for Conditional Asset Retirement Obligations, an
          interpretation of SFAS No. 143". FIN 47 clarifies that an entity is
          required to recognize a liability for a legal obligation to perform an
          asset retirement activity if the fair value can be reasonably
          estimated even though the timing and/or method of settlement are
          conditional on a future event. FIN 47 is required to be adopted for
          annual reporting periods ending after December 15, 2005. The Group is
          evaluating the effect of the adoption of FIN 47. It is not expected to
          have a material impact on the Group's financial position, results of
          operations or cash flows.

          In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
          Error Corrections" ("SFAS 154") which replaces Accounting Principles
          Board Opinions No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
          Accounting Changes in Interim Financial Statements - An Amendment of
          APB Opinion No. 28." SFAS 154 provides guidance on the accounting for
          and reporting of accounting changes and error corrections. It
          establishes retrospective application, or the latest practicable date,
          as the required method for reporting a change in accounting principle
          and the reporting of a correction of an error. SFAS 154 is effective
          for accounting changes and corrections of errors made in fiscal years
          beginning after December 15, 2005. The Group does not anticipate that
          the adoption of this statement will have a material effect on the
          Group's financial position or results of operations.

          In September 2005, the FASB's Emerging Issues Task Force ("EITF")
          reached a final consensus on Issue 04-13, "Accounting for Purchases
          and Sales of Inventory with the Same Counterparty". EITF 04-13
          requires that two or more legally separate exchange transactions with
          the same counterparty be combined and considered a single arrangement
          for purposes of applying APB Opinion No. 29, "Accounting for
          Nonmonetary Transactions", when the transactions are entered into in
          contemplation of one another. EITF 04-13 is effective for new
          arrangements entered into, or modifications or renewals of existing
          arrangements, in interim or annual periods beginning after March 15,
          2006. The Group does not expect this provision to have a material
          impact on the Group's financial position, results of operations or
          cash flows.


                                      F-95

<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

     (U)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT - CONTINUED

          In November 2005, the Financial Accounting Standards Board ("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 adoption of this standard did
          not have a material effect on the Group's financial position or
          results of operations.

3.   INVENTORIES

     Inventories by major categories are summarized as follows:

<TABLE>
<CAPTION>
                       2004       2005
                      -------   ---------
                        Rmb        Rmb
<S>                   <C>       <C>
Raw materials......   360,769    492,807
Work-in-progress...    52,823     80,322
Finished goods.....   511,385    806,252
                      -------   ---------
                      924,977   1,379,381
                      =======   =========
</TABLE>


                                      F-96

<PAGE>

                       HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

4.   PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                             2004        2005
                                                           ---------   ---------
                                                              Rmb         Rmb
<S>                                                        <C>         <C>
Property, plant and equipment consists of the following:

At cost:
Buildings and land use rights...........................     514,731     583,925
Machinery and equipment.................................   1,861,917   2,470,736
Motor vehicles..........................................      20,675      23,201
Furniture, fixtures and office equipment................      27,638      69,045
Construction-in-progress................................     248,613     264,243
                                                           ---------   ---------
Total...................................................   2,673,574   3,411,150

Less: Accumulated depreciation and amortization.........    (724,262)   (961,486)
                                                           ---------   ---------
Total net book value....................................   1,949,312   2,449,664
                                                           =========   =========
</TABLE>

     As of December 31, 2005, the Company and FCJ have not yet obtained land use
     right certificates on certain of their land use rights with a carrying
     amount of Rmb60,000 and Rmb2,227, respectively. In addition, FCJ has not
     obtained building ownership certificate on certain of its buildings with a
     carrying amount of Rmb1,277.

     Hangzhou Sunrise has pledged land use right having a carrying amount of
     Rmb59,843 to secure bank loans to the Group.

5.   BANK LOANS

     As of December 31, 2004 and 2005, long-term bank loans of Rmb60,000 and
     Rmb39,000 were secured by buildings and equipment, respectively. In
     addition, long term bank loans of Rmb20,000 was guaranteed by third party
     as of December 31, 2005. Long-term bank loans bear fixed interest rates and
     had average annual interest rates of approximately 5.63% in 2003, 5.59% in
     2004 and 5.85% in 2005.

     The outstanding balances of long-term bank loans as of December 31, 2005
     were repayable as follows:

<TABLE>
<CAPTION>

                          Rmb
                        -------
<S>                     <C>
2006.................    97,000
2007.................   144,000
2008.................   258,000
2009.................    35,000
                        -------
                        534,000
                        =======
</TABLE>


                                      F-97

<PAGE>

                       HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

5.   BANK LOANS - continued

     As of December 31, 2004 and 2005, short-term bank loans are repayable on
     demand or within twelve months from the balance sheet dates.

     As of December 31, 2004 and 2005, Rmb630,000 and Rmb610,000 of the
     short-term bank loans were guaranteed by third parties. Also, short-term
     bank loans of Rmb26,000 were secured by buildings and equipment of the
     Group as of December 31, 2004 and 2005. The short-term bank loans carried
     fixed interest rates and the average annual interest rates were
     approximately 4.21% in 2004 and 5.17% in 2005, respectively.

6.   PROVISION FOR INCOME TAXES

     Provision for income taxes consists of:

<TABLE>
<CAPTION>
               2003      2004      2005
              ------   -------   -------
                Rmb      Rmb       Rmb
<S>           <C>      <C>       <C>
Current....   18,812    53,875    58,764
Deferred...   (6,048)  (18,199)  (11,872)
              ------   -------   -------
              12,764    35,676    46,892
              ======   =======   =======
</TABLE>

     The Group's profit before income taxes and minority interests for fiscal
     2003, 2004 and 2005 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.

     During fiscal 2003, 2004 and 2005, 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%; Xin An Jiang and Yong Gu, two branches of the
     Company, were not entitled to the reduced tax rates and were subject to the
     State united income tax rate of 30% and the local income tax rate of 3%.
     FCJ and Hangzhou Sunrise were not entitled to any tax concession during
     fiscal 2003, 2004 and 2005 and was subject to the State united income tax
     rate of 30% and the local income tax rate of 3%.


                                      F-98

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

6.   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>
                                                       2003   2004   2005
                                                       ----   ----   ----
<S>                                                    <C>    <C>    <C>
Tax provision at PRC enterprise income tax rates ...    33%    33%    33%
Income tax on concessionary rate ...................   (15%)  (12%)  (12%)
Underprovision from prior years ....................    --      5%     1%
Permanent differences relating to
   non-taxable income and non-deductible expenses ..    (5%)   (3%)    4%
Valuation allowance ................................    --     --     (2%)
Others .............................................    (3%)   --     (1%)
                                                       ---    ---    ---
Effective tax rate .................................    10%    23%    23%
                                                       ===    ===    ===
</TABLE>

     Tax that would have been payable without the tax concessions amounts to
     approximately RMB18,000, RMB19,000 and RMB26,000 for the year ended
     December 31, 2003, 2004 and 2005 respectively.

     The tax impact of temporary differences give rise to the following deferred
     tax assets:

<TABLE>
<CAPTION>
                                                      2004     2005
                                                     ------   ------
                                                       Rmb      Rmb
<S>                                                  <C>      <C>
Allowance for doubtful receivables ...............    9,896    9,709
Allowance for inventory obsolescence .............    1,102    1,457
Elimination on unrealized profit on inventory ....       --    2,415
Provision for warranty expenses ..................   21,318   24,967
Accrued liabilities ..............................       --    4,440
Impairment loss provision for long-lived assets ..      297      297
Depreciation .....................................   10,338    7,318
                                                     ------   ------
Total deferred tax assets ........................   42,951   50,603
Valuation allowance for deferred tax assets ......   (4,427)    (207)
                                                     ------   ------
                                                     38,524   50,396
                                                     ======   ======
</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>
                                     2004     2005
                                    ------   ------
                                      Rmb      Rmb
<S>                                 <C>      <C>
Short-term deferred tax assets ..   29,003   42,988
Long-term deferred tax assets ...    9,521    7,408
                                    ------   ------
                                    38,524   50,396
                                    ======   ======
</TABLE>


                                      F-99

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

7.   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 and 2005.

8.   OBLIGATIONS AND COMMITMENTS

     As of December 31, 2004 and 2005, the Group had outstanding capital
     commitments for construction of factory premises and purchase of equipment
     amounting to approximately Rmb123,123 and Rmb247,445, 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 Rmb12,079 and Rmb19,960 for the years ended December
     31, 2004 and 2005, 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, 2005:

<TABLE>
<CAPTION>
                                   Rmb
                                  -----
<S>                               <C>
2006 ..........................   4,385
2007 ..........................     817
2008 ..........................     760
                                  -----
Total minimum lease payments ..   5,962
                                  =====
</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>
                                    2004       2005
                                  --------   --------
                                     Rmb        Rmb
<S>                               <C>        <C>
Balance at beginning of year ..     59,700     43,600
Warranties paid ...............   (132,992)  (141,294)
Warranty provision ............    116,892    146,494
                                  --------   --------
Balance at end of year ........     43,600     48,800
                                  ========   ========
</TABLE>


                                     F-100

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

8.   OBLIGATIONS AND COMMITMENTS - CONTINUED

     In addition, the Group provided guarantees to related companies as of
     December 31, 2005, details of which are detailed in note 10(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, 2005, the Group estimated the maximum potential future
     payments of the guarantees to be Rmb650,000. 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, 2005 to be Rmb4,465 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.

9.   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 on a consolidation basis of Rmb162,964 and Rmb308,083 as
     of December 31, 2004 and 2005, as reported in their statutory financial
     statements.

10.  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 2003. In
          2005, such allowance was written off against the doubtful receivables.

          The loans from related companies represent funds advanced to the Group
          and are unsecured and repayable within 1 year. As of December 31,
          2005, the balance included RMB50,000 which bears interest at
          commercial rates and the remainder is non-interest bearing. As of
          December 31, 2004, the entire balance was non-interest bearing.


                                     F-101

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

10.  RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - CONTINUED

     (B)  SALES TO/PURCHASES FROM RELATED PARTIES

          The Group recorded sales to related companies of approximately
          Rmb78,353, Rmb60,900 and Rmb100,015 that have been reflected in the
          Group's consolidated financial statements for the years ended December
          31, 2003, 2004 and 2005, respectively.

          The Company paid sub-contracting charges to Hangzhou Sunrise of
          approximately Rmb341,112 for tire processing that have been reflected
          in the Group's consolidated financial statements for the years ended
          December 31, 2003. The Company also paid sub-contracting charges to a
          related company of approximately Rmb23,486 and Rmb26,350 for tire
          processing that have been reflected in the Group's consolidated
          financial statements for the year ended December 31, 2004 and 2005,
          respectively.

          The Group recorded purchases from a related company of approximately
          Rmb11,055, Rmb28,188 and Rmb54,101 that have been reflected in the
          Group's consolidated financial statements for the years ended December
          31, 2003, 2004 and 2005, respectively.

          The Company received labor charge from a related company of
          approximately Rmb2,796 and RmbNil for tire processing that have been
          reflected in the Group's consolidated financial statements for the
          year ended December 31, 2004 and 2005, respectively.

          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, 2004 and 2005, the Group had outstanding bank
          guarantees to third party amounting to Rmb430,198 and Rmb650,000,
          respectively.

     (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
          5.

     (E)  USE OF TRADEMARKS

          For the years ended December 31, 2003, 2004 and 2005, 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.


                                     F-102

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

11.  DUE FROM/TO CHINESE JOINT VENTURE PARTNERS

     (i)  The amounts due from Chinese joint venture partners represented:

          (a)  advances made from Group to the Chinese joint venture partner;
               and

          (b)  payment of various operating expenses by Group 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.

12.  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, 2003 and 2004, and at rates ranging from 14% to 22% of
     basic monthly salaries for the years ended December 31, 2005. The expenses
     reported in the consolidated statements of income and comprehensive income
     related to these arrangements were Rmb23,920, Rmb23,934 and Rmb40,075 for
     the years ended December 31, 2003, 2004 and 2005, 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, 2004 and 2005, such restricted bank deposits
     amounted to Rmb12,339 and Rmb12,579, respectively.


                                     F-103

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

13.  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,
                                         ---------------------------------
                                            2003        2004        2005
                                         ---------   ---------   ---------
                                            Rmb         Rmb         Rmb
<S>                                      <C>         <C>         <C>
Net revenue from external customers ..   3,753,855   5,029,835   6,419,537
Net revenue from related parties .....      78,353      60,900     100,015
Operating income .....................     175,486     299,176     316,526
</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,
                                                               ---------------------------------
                                                                  2003        2004        2005
                                                               ---------   ---------   ---------
                                                                  Rmb         Rmb         Rmb
<S>                                                            <C>         <C>         <C>
Net revenue from external customers ........................   3,753,855   5,029,835   6,419,537
US GAAP adjustments:
   Warranty provision ......................................     (36,000)    (69,500)    (13,200)
                                                               ---------   ---------   ---------
Total net revenue from external customers ..................   3,717,855   4,960,335   6,406,337
                                                               =========   =========   =========
Net revenue from related parties ...........................      78,353      60,900     100,015
US GAAP adjustments ........................................          --          --          --
                                                               ---------   ---------   ---------
Total net revenue from related parties .....................      78,353      60,900     100,015
                                                               =========   =========   =========
Operating income ...........................................     175,486     299,176     311,495
US GAAP adjustments:
   Warranty provision ......................................     (36,000)    (69,500)    (13,200)
   Fair value of the obligations assumed under guarantees ..      (2,000)     (1,102)     (1,363)
                                                               ---------   ---------   ---------
Total operating income .....................................     137,486     228,574     296,932
                                                               =========   =========   =========
</TABLE>


                                     F-104

<PAGE>

                        HANGZHOU ZHONGCE RUBBER CO., LTD.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

13.  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,
                           ---------------------------------
                              2003        2004        2005
                           ---------   ---------   ---------
                              Rmb         Rmb         Rmb
<S>                        <C>         <C>         <C>
The PRC ................   3,057,152   3,552,954   4,444,140
Middle East Countries ..     249,212     466,542     477,647
US and Canada ..........     140,283     314,456     720,797
United Kingdom .........      40,693     317,735     118,745
South East Asia ........      94,849     152,412     212,724
Others .................     214,019     217,136     532,299
                           ---------   ---------   ---------
                           3,796,208   5,021,235   6,506,352
                           =========   =========   =========
</TABLE>

                                   * * * * * *


                                     F-105

<PAGE>
                                    Part III

                         ITEM 18. FINANCIAL STATEMENTS

CHINA ENTERPRISES LIMITED

Report of Independent Registered Public Accounting Firm and Consolidated
Financial Statements
For the years ended December 31, 2003, 2004 and 2005

                                     F-106

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                           CHINA ENTERPRISES LIMITED

<TABLE>
<S>                                                                        <C>
Report of Independent Registered Public Accounting Firm ................   F-107
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
  December 31, 2003, 2004 and 2005 .....................................   F-108
Consolidated Balance Sheets as of December 31, 2004 and 2005 ...........   F-110
Consolidated Statements of Shareholders' Equity and Comprehensive
  (Loss) Income for the years ended December 31, 2003, 2004 and 2005 ...   F-111
Consolidated Statements of Cash Flows for the years ended
  December 31, 2003, 2004 and 2005 .....................................   F-112
Notes to Consolidated Financial Statements .............................   F-115
</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 (the "Company") as of December 31, 2004
and 2005 and the related consolidated statements of operations, shareholders'
equity and comprehensive (loss) income and cash flows for each of the three
years ended December 31, 2003, 2004 and 2005, 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, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2004 and 2005, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2005 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(j). Such United States dollar amounts
are presented solely for the convenience of readers in the United States of
America.

DELOITTE TOUCHE TOHMATSU
Hong Kong
June 1, 2006 (June 30, 2006 as to notes 8 and 18)


                                     F-107

<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                  ---------------------------------------------
                                                     2003         2004        2005       2005
                                                  ----------   ---------   ---------   --------
                                                      RMB         RMB         RMB         US$
<S>                                               <C>          <C>        <C>       <C>
REVENUES:
   - third parties ............................    2,613,398          --          --          --
   - related parties ..........................      194,971          --          --          --
                                                  ----------   ---------   ---------   ---------
Total (note 16) ...............................    2,808,369          --          --          --
COST OF REVENUES ..............................   (2,502,413)         --          --          --
                                                  ----------   ---------   ---------   ---------
Gross profit ..................................      305,956          --          --          --
Selling, general and administrative expenses ..     (205,210)    (13,344)    (27,522)     (3,410)
                                                  ----------   ---------   ---------   ---------
OPERATING INCOME (LOSS) .......................      100,746     (13,344)    (27,522)     (3,410)
NON-OPERATING INCOME (EXPENSES):
Interest income ...............................        9,228      21,533      13,036       1,615
Interest expenses .............................      (33,027)       (601)         --          --
Other income ..................................        1,810          48          --          --
Change in fair value of call option (note 7) ..           --      59,929     (42,873)     (5,313)
Provision for interest receivables from
   notes receivable ...........................           --        (502)         --          --
Loss on disposal of a subsidiary (note 3) .....       (1,158)         --          --          --
Gain on disposal of partial interests in
   an affiliate ...............................           --      23,040          --          --
Impairment loss/provision for advance to
   affiliate ..................................       (2,619)       (530)         --          --
                                                  ----------   ---------   ---------   ---------
Profit (loss) from continuing operations before
   income tax .................................       74,980      89,573     (57,359)     (7,108)
Provision for income taxes (note 10) ..........      (10,592)         --      (4,083)       (506)
Equity in (losses) earnings of affiliates .....      (74,829)     92,369      35,118       4,352
Minority interests ............................      (46,340)         --          --          --
                                                  ----------   ---------   ---------   ---------
(LOSS) PROFIT FROM CONTINUING OPERATIONS ......      (56,781)    181,942     (26,324)     (3,262)
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of
   applicable income taxes of RmbNil in
   2003, 2004 and 2005 (note 4) ...............       (7,760)         --          --          --
                                                  ----------   ---------   ---------   ---------
NET (LOSS) INCOME .............................      (64,541)    181,942     (26,324)     (3,262)
                                                  ==========   =========   =========   =========
</TABLE>


                                     F-108

<PAGE>

                      CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                  ----------------------------------------------
                                                     2003        2004         2005        2005
                                                  ----------   ---------   ---------   ---------
                                                      RMB         RMB         RMB          US$
<S>                                               <C>          <C>         <C>         <C>
BASIC (LOSS) EARNINGS PER COMMON SHARE
Continuing operations .........................        (6.30)      20.18       (2.92)      (0.36)
Discontinued operations .......................        (0.86)         --          --          --
                                                  ----------   ---------   ---------   ---------
Basic (loss) earnings per common share ........        (7.16)      20.18       (2.92)      (0.36)
                                                  ==========   =========   =========   =========
Number of common shares
   used in the calculation of basic (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-109

<PAGE>

                           CONSOLIDATED BALANCE SHEETS

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

<TABLE>
<CAPTION>
                                                                           AS OF DECEMBER 31,
                                                                    -------------------------------
                                                                       2004        2005       2005
                                                                    ---------   ---------   -------
                                                                       RMB         RMB        US$
<S>                                                                 <C>         <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents ....................................      41,414      14,668     1,818
   Other receivables (less allowance of interest receivable of
      Rmb502 in 2004 and Rmb502 in 2005) ........................       7,590       3,832       474
   Prepaid expenses and other current assets ....................          20         337        42
   Due from ultimate parent company (note 14) ...................      37,426          --        --
   Advance to an affiliate (note 6) .............................          --     110,972    13,751
   Notes receivable (note 5) ....................................     103,968       4,164       516
                                                                    ---------   ---------   -------
   Total current assets .........................................     190,418     133,973    16,601
Investments in and advances to affiliates (less allowance
   of RMB7,601 in 2004 and Rmb7,601 in 2005) (note 6) ...........     437,539     491,992    60,964
Convertible note receivable from an affiliate, net (note 7) .....      45,008          --        --
Derivative instruments (note 7) .................................      68,355          --        --
Deposit paid for acquisition of properties (note 8) .............      50,000      58,000     7,187
Plant and equipment, net (note 9) ...............................          --         302        37
Other assets ....................................................           6           6         1
                                                                    ---------   ---------   -------
   Total assets .................................................     791,326     684,273    84,790
                                                                    =========   =========   =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Subscription payable (note 6) ................................      62,989          --        --
   Accounts payable .............................................         311         303        38
   Other payables ...............................................       1,320       1,291       160
   Accrued liabilities ..........................................       5,972       6,096       755
   Due to ultimate parent company (note 14) .....................          --       7,149       886
   Other taxes payable ..........................................       2,753       2,753       341
   Income taxes payable (note 10) ...............................          --       4,083       506
                                                                    ---------   ---------   -------
   Total current liabilities ....................................      73,345      21,675     2,686
Due to a fellow subsidiary (note 14) ............................      50,000          --        --
                                                                    ---------   ---------   -------
   Total liabilities ............................................     123,345      21,675     2,686
                                                                    ---------   ---------   -------
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, 2004 and 2005) (note 11) ..................         244         244        30
   Common stock - par value US$0.01 per share (50,000,000 shares
      authorized; 6,017,310 shares outstanding at
      December 31, 2004 and 2005) (note 11) .....................         526         526        65
   Additional paid-in capital ...................................   1,047,559   1,065,319   132,006
   Accumulated other comprehensive income .......................          39       3,220       399
   Accumulated deficit ..........................................    (380,387)   (406,711)  (50,396)
                                                                    ---------   ---------   -------
   Total shareholders' equity ...................................     667,981     662,598    82,104
                                                                    ---------   ---------   -------
   Total liabilities and shareholders' equity ...................     791,326     684,273    84,790
                                                                    =========   =========   =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     F-110

<PAGE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         AND COMPREHENSIVE (LOSS) INCOME

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
                                                                                     ACCUMULATED
                                                                                       OTHER
                                  SHARES OF                                            COMPRE-
                                 SUPERVOTING SHARES OF SUPERVOTING        ADDITIONAL   HENSIVE                        COMPREHENSIVE
                                    COMMON     COMMON     COMMON   COMMON   PAID-IN    (LOSSES)  ACCUMULATED              (LOSS)
                                    STOCK      STOCK      STOCK     STOCK   CAPITAL     INCOME     DEFICIT    TOTAL       INCOME
                                 ----------- --------- ----------- ------ ---------- ----------- ----------- -------  -------------
                                                           RMB       RMB     RMB         RMB         RMB       RMB         RMB
<S>                              <C>         <C>       <C>         <C>    <C>        <C>         <C>         <C>      <C>
Balance at January 1, 2003 .....  3,000,000  6,017,310     244       526   1,033,253     (505)    (498,312)  535,206
Net loss .......................         --         --      --        --          --       --      (64,541)  (64,541)      (64,541)
Foreign currency translation
   adjustment relating to an
   affiliate ...................         --         --      --        --          --    1,636           --     1,636         1,636
Share of dedicated capital of
   an affiliate ................         --         --      --        --          --       --          524       524           524
                                  ---------  ---------     ---       ---   ---------   ------     --------   -------      --------
Balance at December 31, 2003 ...  3,000,000  6,017,310     244       526   1,033,253    1,131     (562,329)  472,825       (62,381)
                                                                                                                          ========
Net income .....................         --         --      --        --          --       --      181,942   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)       (1,092)
                                  ---------  ---------     ---       ---   ---------   ------     --------   -------      --------
Balance at December 31, 2004 ...  3,000,000  6,017,310     244       526   1,047,559       39     (380,387)  667,981       180,850
                                                                                                                          ========
Net loss .......................         --         --      --        --          --       --      (26,324)  (26,324)      (26,324)
Gain on dilution of interest
   in an affiliate .............         --         --      --        --      17,760       --           --    17,760            --
Foreign currency translation
   adjustment relating to an
   affiliate ...................         --         --      --        --          --    3,181           --     3,181         3,181
                                  ---------  ---------     ---       ---   ---------   ------     --------   -------      --------
Balance at December 31, 2005 ...  3,000,000  6,017,310     244       526   1,065,319    3,220     (406,711)  662,598       (23,143)
                                  =========  =========     ===       ===   =========   ======     ========   =======      ========
Balance at December 31, 2005
   (in US$) ....................                            30        65     132,006      399      (50,396)   82,104         2,867
                                                           ===       ===   =========   ======     ========   =======      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     F-111

<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                             -------------------------------------
                                                               2003       2004      2005     2005
                                                             --------   -------   -------   ------
                                                                RMB       RMB       RMB       US$
<S>                                                          <C>        <C>       <C>       <C>
Cash flows from operating activities:
   Net (loss) income .....................................    (64,541)  181,942   (26,324)  (3,262)
   Adjustments to reconcile net (loss) income to
      net cash provided by (used in) operating activities:
      Loss on disposition of discontinued
         components ......................................      7,017        --        --       --
      Loss on disposal of a subsidiary ...................      1,158        --        --       --
      Minority interests .................................     46,340        --        --       --
      Change in fair value of call option ................         --   (59,929)   42,873    5,313
      Equity in losses (earnings) of affiliates ..........     74,829   (92,369)  (35,118)  (4,352)
      Gain on disposal of partial interest in an affiliate         --   (23,040)       --       --
      Deferred income taxes ..............................     (3,139)       --        --       --
      Impairment loss/provision for advances to
         affiliates ......................................      2,619       530        --       --
      Impairment loss provision for long-lived assets ....        150        --        --       --
      Loss on disposal of property, plant and
         equipment .......................................        581        --        --       --
      Depreciation and amortization ......................     50,889        --        42        5
      Amortization of discount on subscription of
         the convertible note receivable .................     (6,301)  (16,354)   (1,912)    (237)
   Changes in operating assets and liabilities
      (net of effects of acquisition and disposition):
      Accounts and other receivables, net ................    (67,339)   (4,893)    2,642      327
      Inventories ........................................     31,942        --        --
      Prepaid expenses and other current assets ..........     (4,661)       --      (317)     (39)
      Due from related companies .........................      1,495        --        --       --
      Other assets .......................................        194        --        --       --
      Accounts payable and other payables ................     35,151        10       (37)      (5)
      Accrued liabilities ................................     14,408     1,213       282       35
      Income taxes payable ...............................     (7,087)       --     4,083      506
      Other taxes payable ................................     (8,904)       --        --
                                                             --------   -------   -------   ------
   Net cash provided by (used in) operating activities ...    104,801   (12,890)  (13,786)  (1,709)
                                                             --------   -------   -------   ------
</TABLE>


                                     F-112

<PAGE>

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                             -------------------------------------
                                                               2003       2004      2005     2005
                                                             --------   -------   -------   ------
                                                                RMB       RMB       RMB       US$
<S>                                                          <C>        <C>       <C>       <C>
Cash flows from investing activities:
   Subscription of convertible note receivable ...........         --   (74,926)       --
   Increase (decrease) in subscription payable ...........         --    62,989   (62,989)  (7,805)
   Increase in notes receivable ..........................   (114,001)  (99,399)  (19,851)  (2,460)
   Payment for the deposit on acquisition of
      property ...........................................         --        --    (8,000)    (991)
   Repayment of notes receivable .........................     91,304    43,447    44,149    5,471
   Increase in restricted bank deposits ..................    (14,431)       --        --       --
   Investments in and advances to affiliates, net ........   (197,358)   72,142   (37,122)  (4,600)
   Purchase of property, plant and equipment .............   (256,872)       --      (344)     (43)
   Proceeds from disposal of interest in an affiliate              --    47,532        --       --
   Proceeds from disposal of property, plant and
      equipment ..........................................      4,601        --        --       --
   (Increase) decrease in amount due from (to)
      ultimate parent company ............................     (4,030)  (33,396)   37,426    4,638
   Increase in due from Chinese joint venture
      partners ...........................................       (200)       --        --       --
   Proceeds from disposal of business
      components, net ....................................   (104,128)       --        --       --
                                                             --------   -------   -------   ------
Net cash (used in) from investing activities .............   (595,115)   18,389   (46,731)  (5,790)
                                                             --------   -------   -------   ------
Cash flows from financing activities:
   Payment of dividends to minority interests ............     (1,527)       --        --       --
   Repayment of loans from a related company .............     (1,058)       --        --       --
   Increase (decrease) in bank and other short-term
      loans ..............................................    238,498   (27,708)       --       --
   Advance from ultimate parent company ..................         --        --    33,771    4,185
   Proceeds from long-term bank loans ....................    100,000        --        --       --
   Repayment from long-term bank loans ...................    (26,600)       --        --       --
                                                             --------   -------   -------   ------
Net cash provided by (used in) financing activities ......    309,313   (27,708)   33,771    4,185
                                                             --------   -------   -------   ------
Net decrease in cash and cash equivalents ................   (181,001)  (22,209)  (26,746)  (3,314)
Cash and cash equivalents, beginning of year .............    244,624    63,623    41,414    5,132
                                                             --------   -------   -------   ------
Cash and cash equivalents, end of year ...................     63,623    41,414    14,668    1,818
                                                             ========   =======   =======   ======
</TABLE>


                                     F-113

<PAGE>

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                             -------------------------------------
                                                               2003       2004      2005     2005
                                                             --------   -------   -------   ------
                                                                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 .........     33,375        --       --        --
      Net income tax paid ................................     20,228        --       --        --
                                                             ========   =======   ======    ======
Supplemental schedule of non-cash investing
   and financing activities:
   Conversion of convertible note receivable,
      and the related transfer from derivative
      instruments, to equity interest in an affiliate
      (see note 6) .......................................         --   119,161   72,244     8,952
   Deposit paid for acquisition of properties
      by a fellow subsidiary on behalf of the Company.....         --    50,000     --        --
   Assignment of notes receivable and related
      interest receivable to fellow subsidiaries
      through current amounts of a fellow
      subsidiary and ultimate parent company .............         --        --    76,662    9,500
                                                             ========   =======   =======   ======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     F-114

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                     PER SHARE AND UNLESS OTHERWISE STATED)

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES

     China Enterprises Limited (the "Company") was incorporated in Bermuda on
     January 28, 1993. Its common stock trades on the OTC (Over-the-Counter)
     Bulletin Board in the United States of America (the "US") since November
     26, 2002 upon its suspension from trading, and subsequent delisting, on the
     New York Stock Exchange (the "NYSE") in 2002 as a result of the Company's
     failure to meet the NYSE's continuing listing standards.

     China Strategic Holdings Limited, a public company listed on The Stock
     Exchange of Hong Kong Limited (the "HKSE"), was the ultimate parent company
     of the Company before its completion of a group reorganisation in May 2006
     pursuant to which the Company becomes a wholly-owned subsidiary of Group
     Dragon Investments Limited ("GDI"), a then equity affiliate of Hanny
     Holdings Limited ("HHL"), a public company listed on HKSE. In June 2006,
     HHL acquired a controlling interest in GDI and becomes the ultimate parent
     company of the Company.

     The accompanying financial statements include the financial statements of
     the Company and its wholly owned subsidiaries which mainly consist of
     Manwide Holdings Limited ("Manwide", incorporated in the British Virgin
     Islands, "BVI"), Million Good Limited ("Million Good", incorporated in the
     BVI) and (CHINESE CHARACTERS) ("Rosedale", incorporated in the People's
     Republic of China, "PRC"). The Company and all of its subsidiaries are
     collectively referred to as the "Group".

     As of December 31, 2005, the Company had the following significant equity
     method affiliates:

     -    Wing On Travel (Holdings) Limited (a company 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, 2004, the Company had a 19.58% 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 increased to 27.74% as of December 31,
     2005. Wing On is engaged in the provision of package tours, travel and
     other related services and hotel operation with its shares listed on HKSE.

     HZ and its consolidated subsidiaries (the "PRC entities") are 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.


                                     F-115

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                     PER SHARE AND UNLESS OTHERWISE STATED)

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES - CONTINUED

     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.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A)  BASIS OF PRESENTATION

          The consolidated financial statements of the Group have been prepared
          in accordance with accounting principles generally accepted in the US
          ("U.S. GAAP").

     (B)  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.

     (C)  REVENUE

          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.

     (D)  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).

     (E)  CASH AND CASH EQUIVALENTS

          The Company considers cash on hand, demand deposits with banks and
          highly liquid investments with an original maturities of three months
          or less when purchased to be cash and cash equivalents. Included in
          cash and cash equivalents as of December 31, 2004 and 2005 were
          Renminbi deposits of Rmb21 (US$3) and Rmb87 (US$11), respectively.


                                     F-116

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                     PER SHARE AND UNLESS OTHERWISE STATED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     (F)  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).

     (G)  PLANT AND EQUIPMENT, NET

          Plant and equipment, net are carried at cost less accumulated
          depreciation and amortization. Depreciation and amortization are
          calculated on a straight-line basis over the estimated useful lives of
          assets of 5 years.

     (H)  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.

     (I)  VAT AND CONSUMPTION TAX ("CT")

          All of the Group's PRC entities are subject to VAT and CT. Such taxes
          recognized on an accrual basis and revenues are recorded net of these
          taxes.

          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.


                                     F-117

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                     PER SHARE AND UNLESS OTHERWISE STATED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     (J)  FOREIGN CURRENCIES

          The functional currency of the Company is Hong Kong dollars. The
          Company has chosen Renminbi as its reporting currency.

          The PRC entities 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 =
          Rmb8.0702, the unified exchange rate on December 31, 2005. 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)  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 fund 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 31,
          2003, 2004 and 2005 was non-distributable reserves attributable to the
          Group of Rmb524, Rmb1,403 and Rmb1,403, respectively.


                                     F-118

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                     PER SHARE AND UNLESS OTHERWISE STATED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     (L)  BASIC (LOSS) EARNINGS PER SHARE

          The Company calculates basic (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. There were no dilutive potential common
          shares during fiscal 2003, 2004 and 2005.

     (M)  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.

     (N)  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, 2005, the notes
          receivable and related interest receivable are due from an individual
          and the Group has reviewed his 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
          maturity of these instruments. The fair value of convertible notes
          receivable as of December 31, 2004 was Rmb113,363, which was
          determined based on the estimated net amount the Company would receive
          as of December 31, 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.


                                     F-119

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     (O)  COMPREHENSIVE (LOSS) INCOME

          The Company reports comprehensive income in accordance with SFAS No.
          130, "Reporting Comprehensive Income". Comprehensive income consists
          of net (loss) income and other gains and losses affecting
          shareholders' equity that, under U.S. GAAP are excluded from net
          (loss) income. Comprehensive (loss) income has been disclosed within
          the consolidated statement of shareholders' equity.

     (P)  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".

     (Q)  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.

     (R)  ADVERTISING EXPENSES

          The Company expenses advertising costs as incurred. Advertising
          expenses were Rmb5,145, RmbNil and RmbNil for the years ended December
          31, 2003, 2004 and 2005, respectively.

     (S)  DILUTION OF INTEREST IN EQUITY AFFILIATE

          The Company records the gains or losses arising from issuance by an
          equity affiliate of its own stock in additional paid-in capital
          account within shareholders' equity in the consolidated financial
          statements.


                                     F-120

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     (T)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In December 2004, the FASB issued SFAS No. 153, "Exchanges of
          Nonmonetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153"),
          which amends Accounting Principles Board Opinion No. 29, "Accounting
          for Nonmonetary Transactions" to eliminate the exception for
          nonmonetary exchanges of similar productive assets and replaces it
          with a general exception for exchanges of nonmonetary assets that do
          not have commercial substance. SFAS 153 is effective for nonmonetary
          assets exchanges occurring in fiscal periods beginning after June 15,
          2005. This statement has not adopted on the Group's financial position
          or results of operations.

          In December 2004, the FASB issued SFAS No. 123 (revised 2004) ("SFAS
          No. 123R"). "Share-Based Payment", which is a revision of SFAS No.
          123. SFAS No. 123R supersedes Accounting Principles Board Opinion No.
          25, "Accounting for Stock Issued to Employees". Generally, the
          approach in SFAS No. 123R is similar to the approach described in SFAS
          No. 123. However, SFAS No. 123R 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. The new standard, as recently amended, will be effective for
          the Group in the annual reporting period beginning after January 1,
          2006. The adoption of this statement will not have a significant
          effect on the Group's financial position or results of operations.

          In March 2005, the FASB issued FASB Interpretation No. ("FIN") 47,
          "Accounting for Conditional Asset Retirement Obligations, an
          interpretation of SFAS No. 143". FIN 47 clarifies that an entity is
          required to recognize a liability for a legal obligation to perform an
          asset retirement activity if the fair value can be reasonably
          estimated even though the timing and/or method of settlement are
          conditional on a future event. FIN 47 is required to be adopted for
          annual reporting periods ending after December 15, 2005. The Group is
          evaluating the effect of the adoption of FIN 47. The adoption of this
          statement will not have a material impact on the Group's financial
          position, results of operations or cash flows.

          In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
          Error Corrections" ("SFAS 154") which replaces Accounting Principles
          Board Opinions No. 20, "Accounting Changes" and SFAS No. 3, "Reporting
          Accounting Changes in Interim Financial Statements - An Amendment of
          APB Opinion No. 28." SFAS 154 provides guidance on the accounting for
          and reporting of accounting changes and error corrections. It
          establishes retrospective application, or the latest practicable date,
          as the required method for reporting a change in accounting principle
          and the reporting of a correction of an error. SFAS 154 is effective
          for accounting changes and corrections of errors made in fiscal years
          beginning after December 15, 2005. The adoption of this statement will
          not have a material effect on the Group's financial position or
          results of operations.


                                     F-121

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

     (T)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - CONTINUED

          In September 2005, the FASB's Emerging Issues Task Force ("EITF")
          reached a final consensus on Issue 04-13, "Accounting for Purchases
          and Sales of Inventory with the Same Counterparty". EITF 04-13
          requires that two or more legally separate exchange transactions with
          the same counterparty be combined and considered a single arrangement
          for purposes of applying APB Opinion No. 29, "Accounting for
          Nonmonetary Transactions", when the transactions are entered into in
          contemplation of one another. EITF 04-13 is effective for new
          arrangements entered into, or modifications or renewals of existing
          arrangements, in interim or annual periods beginning after March 15,
          2006. The Group does not expect this provision have a material impact
          on the Group's financial position, results of operations or cash
          flows.

          In November 2005, 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 adoption of
          this standard did not have a material effect on the Group's financial
          position or results of operations.

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 and 2005 using
     equity method of accounting. In the opinion of the Company's management,
     the Company has no plans to sell its remaining interest in HZ.

     See note 4 for other divestitures that have been classified as discontinued
     operations.


                                     F-122

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

4.   DISCONTINUED OPERATIONS

     During 2003, the Company disposed of certain of its subsidiaries which
     included Double Happiness Tyre Industries Corporation Limited ("DH") 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. In 2001, the Company's management adopted
          a plan to dispose of its entire interest in DH and disposed of the
          bias tire factory in the same year. 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 Rmb743 for the year ended
          December 31, 2003 has been included in loss from discontinued
          operations.

     (b)  YC

          Due to poor operating results and continued weakness in markets
          operated by YC, the Company initiated a process to sell YC in the
          second half of fiscal 2002.

          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 and YC have been segregated from
     continuing operations and reported as a separate line item on the
     consolidated statement of operations.


                                     F-123

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

4.   DISCONTINUED OPERATIONS - CONTINUED

     Operating results of the discontinued operations are summarized below:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                        -----------------------
                                                           2003    2004   2005
                                                          ------   ----   ----
                                                            Rmb     Rmb    Rmb
<S>                                                     <C>        <C>    <C>
Loss from operations of discontinued components
   before income taxes (including loss on
   disposition of Rmb7,017 in 2003 and RmbNil in
   2004 and 2005, respectively), net of applicable
   income tax of RmbNil in 2003, 2004 and 2005.......     (7,760)   --     --
                                                          ------   ---    ---
Loss from discontinued operations....................     (7,760)   --     --
                                                          ======   ===    ===
</TABLE>

5.   NOTES RECEIVABLE

     The notes, carrying interest at commercial rates, are unsecured and
     receivable from unrelated parties.

     On December 31, 2005, the Group assigned note receivable of Rmb75,506 plus
     accrued interest to certain other subsidiaries of its parent company in
     settlement of amounts to the parent and one of its subsidiaries. The
     remaining note was settled in March 2006.

6.   INVESTMENTS IN AND ADVANCES TO AFFILIATES

     WING ON:

     In April 2002, the Group 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 (equivalent to approximately 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 deprecation and amortization. As a
     result, Million Good has a different basis in those assets than Wing On
     has, an such difference is amortized 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.


                                     F-124

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

6.   INVESTMENTS IN AND ADVANCES TO AFFILIATES - continued

     WING ON: - continued

     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 (equivalent to approximately
     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. 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 (equivalent to approximately Rmb164,873), of which HK$84,800
     (equivalent to approximately 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 (equivalent to
     approximately 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.

     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. As of December 31, 2004, proceeds
     received from the second placement were shown in the balance sheet as
     subscription payable.


                                     F-125

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

6.   INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

     WING ON: - CONTINUED

     At the special general meeting held on January 11, 2005, the independent
     shareholders of Wing On approved the second subscription, and accordingly,
     the Company applied the subscription payable on January 31, 2005 to
     subscribe 2,340,000,000 of new shares of HK$0.01 each in Wing On at the
     price of HK$0.028 per share.

     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. As a result of
     the aforesaid capital raising activities of Wing On, there was a dilution
     of the Company's interest in Wing On and the creation of an "implied sale"
     of a portion of the Company's investment. In accordance with its accounting
     policy, the Company recorded a net unrealized gain totaling Rmb17,760 as an
     increase of additional paid-in capital during the fiscal year 2005. The net
     unrealized gain represents the difference between the Company's carrying
     basis and the fair value of the portion of the investment in Wing On deemed
     to have been sold.

     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.

     From April 1 through April 28, 2005, the Company purchased a total of
     6,967,700 ordinary shares of Wing On for cash consideration of
     approximately HK$12,680 (equivalent to approximately Rmb13,451), resulting
     in negative goodwill of approximately HK$786 (equivalent to approximately
     RMB819) which was allocated to property, plant and equipment that are
     subject to depreciation and amortisation. On April 29, 2005, the Company
     also exercised all of the conversion rights of the convertible note of
     HK$55,000 (equivalent to approximately Rmb58,344) 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. This additional investment amounted to HK$69,399 (equivalent
     to approximately Rmb72,244) which comprised HK$44,920 (equivalent to
     approximately Rmb46,762) 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$24,479 (equivalent to approximately Rmb25,482).


                                     F-126

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

6.   INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

     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.

     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>
                                           2003        2004        2005
                                        ---------   ---------   ---------
                                           Rmb         Rmb         Rmb
<S>                                     <C>         <C>         <C>
Revenues.............................   5,307,123   6,853,459   8,396,696
Operating (loss) gain................     (83,656)    232,267     280,406
Net (loss) gain......................    (355,237)     94,148     126,357
Current assets.......................   2,106,765   2,590,185   3,442,255
Non-current assets...................   1,575,892   4,206,376   4,779,558
Current liabilities..................   2,277,462   3,410,373   4,384,235
Non-current liabilities..............     326,991   1,439,385   1,354,208
Shareholders' equity.................   1,027,988   1,438,236   1,820,173
</TABLE>

     Advances to the affiliates are Rmb91,384 and Rmb110,972 as of December 31,
     2004 and 2005, respectively. Other than the aggregated advances to an
     affiliate of Rmb78,743 and Rmb93,421 which bear interest at Hong Kong Prime
     Rate, the amounts as of December 31, 2004 and 2005 are interest free. As of
     December 31, 2004, advances to affiliates were repayable upon demand except
     for an amount of RMB78,743 which was repayable in nine months upon serving
     a demand notice by the Company to the affiliate; however, the Company had
     agreed not to require repayment prior to January 2006. As of December 31,
     2005, RMB93,421 of the advances are due on December 31, 2006 and the
     remainder is repayable upon demand. Accordingly, the whole advances are
     presented as current assets. An allowance relating to these advances
     amounting to Rmb2,619, Rmb530 and RmbNil was charged to expense as a
     component of selling, general and administrative expenses for fiscal 2003,
     2004 and 2005, respectively.


                                     F-127

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

6.   INVESTMENTS IN AND ADVANCES TO AFFILIATES - CONTINUED

     Equity ownership percentages for these affiliates are presented below:

<TABLE>
<CAPTION>
                                              Place of
                                           incorporation/
AFFILIATE                                   registration     2004    2005
---------                                  --------------   -----   -----
<S>                                        <C>              <C>     <C>
Wing On.................................   Bermuda          19.58%  27.74%
X One Holdings Limited..................   Hong Kong        33.33%  33.33%
HZ......................................   PRC                 26%     26%
</TABLE>

7.   CONVERTIBLE NOTE RECEIVABLE FROM AN AFFILIATE, NET/DERIVATIVE INSTRUMENT

     As of December 31, 2004, the New Note consisted of Rmb45,008 principal
     amount, net of unamortized discount on subscription of New Note. The New
     Note bears interest at a rate of 2% per annum payable semi-annually in
     arreas. The Company had 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 would
     be three years from the date the New Note is issued. In April 2005, the
     Company exercised all of the conversion rights of the convertible note at
     the adjusted conversion price of HK$1.97 under the terms of the New Note.

     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 issuance and at 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 2003, 2004 and 2005 (see note 6), was RmbNil, gain
     of Rmb59,929 and loss of Rmb42,873 which have been recognized in the
     consolidated statement of operations for fiscal 2003, 2004 and 2005,
     respectively.


                                     F-128

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

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.

     According to the conditional sale and purchase agreement, prior to the
     completion of 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.


                                     F-129

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

8.   DEPOSIT PAID FOR ACQUISITION OF PROPERTIES - CONTINUED

     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 purchases 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 December 31, 2005.

     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.

     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.

     On June 22, 2006, the People's High Court of Shanghai City ruled the case
     in favor of the Group and demanded Jiu Cheng to continue fulfilling its
     obligations under the agreement dated February 3, 2005 and to cooperate
     with the Group to effect the release of the Injunction Orders and
     settlement of the related liabilities with its creditors so as to proceed
     with the transfer of legal title of Xiang Zhang Garden to the Group. The
     judgment also, among other things, demanded Jiu Cheng to pay RMB5,900 to
     the Group as compensation for the breach of the sale and purchase
     agreements. The directors of the Group have consulted its legal counsel and
     are in the process of enforcing the ruling to effect the acquisition of
     Xiang Zhang Garden in consideration of the following :

     (a)  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;

     (b)  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 May 19,
          2006; and

     (c)  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.


                                     F-130

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

9.   PLANT AND EQUIPMENT, NET

     Plant and equipment, net consist of the following:

<TABLE>
<CAPTION>
                                    2004   2005
                                    ----   ----
                                     Rmb    Rmb
<S>                                 <C>    <C>
Furniture and fixtures ..........     --     12
Motor vehicle ...................     --    332
                                     ---   ----
Total ...........................     --    344
Less: Accumulated depreciation ..     --    (42)
                                     ---   ----
                                      --    302
                                     ===   ====
</TABLE>

Depreciation expense charged to statement of operation for the year ended
December 31, 2005 was Rmb42 and Rmb Nil for year ended December 2003 and
2004.

10.  INCOME TAXES PAYABLE

     The components of (loss) profit from continuing operations before income
     taxes and minority interests are as follows:

<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31,
                             ----------------------------
                               2003       2004      2005
                             --------   -------   -------
                                Rmb       Rmb       Rmb
<S>                          <C>        <C>       <C>
The PRC ..................    117,650    29,696    31,269
All other jurisdictions ..   (117,499)  152,246   (52,448)
                             --------   -------   -------
                                  151   181,942   (21,179)
                             ========   =======   =======
</TABLE>

     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.


                                     F-131

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

10.  INCOME TAXES PAYABLE - CONTINUED

     The Group's PRC entities and subsidiaries are subject to income taxes
     calculated at tax rates (ranging from 17.5% 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.

     The reconciliation of the effective income tax rate based on (loss) profit
     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>
                                                YEAR ENDED DECEMBER 31,
                                              --------------------------
                                                2003       2004     2005
                                              --------    -----    -----
<S>                                           <C>         <C>      <C>
Profit tax rate in Hong Kong ..............       17.5%    17.5%    17.5%
Permanent differences relating to
   non-taxable income and non-deductible
   expenses ...............................    8,271.7%   (17.5%)  (29.6%)
Change in valuation allowance .............         --       --    (10.0%)
International rate difference .............         --       --     16.1%
Others ....................................   (1,274.5%)     --    (12.4%)
                                              --------    -----    -----
Effective tax rate ........................    7,014.7%      --    (18.4%)
                                              ========    =====    =====
</TABLE>

     Provision for income taxes consists of:

<TABLE>
<CAPTION>
              YEAR ENDED DECEMBER 31,
              -----------------------
                2003    2004    2005
              -------   ----   -----
                 Rmb     Rmb    Rmb
<S>           <C>       <C>    <C>
Current ...    13,732     --   4,083
Deferred ..    (3,140)    --      --
              -------   ----   -----
               10,592     --   4,083
              =======   ====   =====
</TABLE>


                                     F-132

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

10.  INCOME TAXES PAYABLE - CONTINUED

     The tax impact of temporary differences gives rise to the following
     deferred tax assets:

<TABLE>
<CAPTION>
                                                2004     2005
                                              -------   ------
                                                Rmb       Rmb
<S>                                           <C>       <C>
Tax losses carried forward .................   16,562       --
Pre-operating expenses .....................       --    2,220
Valuation allowance for deferred tax assets   (16,562)  (2,220)
                                              -------   ------
                                                   --       --
                                              =======   ======
</TABLE>

     As of December 31, 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 2005. 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. The tax losses have been
     fully expired during December 31, 2005.

11.  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
     then 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 2003,
     2004 or 2005.


                                     F-133

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

12.  OBLIGATIONS AND COMMITMENTS

     As of December 31, 2004 and 2005, the Group had outstanding capital
     commitments for acquisition of properties amounting to approximately
     Rmb400,000 and Rmb402,000.

     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 Rmb2,250 for the year
     ended December 31, 2003. As of December 31, 2004 and 2005, the Group's
     subsidiaries did not have any significant commitments under operating
     leases.

     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
                                     2003          2003
                                  ----------   ------------
                                      Rmb           Rmb
<S>                               <C>          <C>
Balance at beginning of year ..     23,720        13,337
Warranties paid ...............    (46,019)           --
Warranty provision ............     66,799            --
Eliminated on disposition of
   business components ........    (44,500)      (13,337)
                                   -------       -------
Balance at end of year ........         --            --
                                   =======       =======
</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, 2004 and 2005, the Company's only subsidiary established in the PRC
     had no distributable profit and the Company's affiliates in the PRC had an
     accumulated profits on a consolidated basis of Rmb85,450, Rmb162,964 and
     Rmb308,083, respectively, as reported in their statutory financial
     statements.

     The Company did not propose or pay any dividends for the years ended
     December 31, 2003, 2004 and 2005 on the outstanding Supervoting Common
     Stock and Common Stock.


                                     F-134

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

14.  RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS

     Other than those disclosed elsewhere in the consolidated financial
     statements, the Company also entered into the following related party
     transactions:

     (A)  DUE FROM/TO RELATED COMPANIES

          As of December 31, 2004 and 2005, the amount due from/to 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 had confirmed not to demand repayment of the
          amount within one year from the balance sheet date, the amount is
          shown as non-current. The amount was fully settled during the year
          ended December 31, 2005.

     (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 Rmb5,708, Rmb6,200 and Rmb4,798 for the years ended
          December 31, 2003, 2004 and 2005, 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 Rmb194,971
          that have been reflected in the Company's consolidated financial
          statements for the year ended December 31, 2003.

          HZ paid subcontracting charges to an affiliate of approximately
          Rmb277,470 for tire processing that have been reflected in the
          Company's consolidated financial statements for the year ended
          December 31, 2003.

          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-135

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

15.  STAFF RETIREMENT PLANS

     All of the Chinese employees of the PRC entities and Rosedale 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
     and Rosedale are only required to make specified contributions to the
     state-sponsored retirement plan calculated at rates ranging from 14% to
     23.5% of average monthly salaries for the year ended December 31, 2003,
     2004 and 2005. The expense reported in the consolidated statements of
     operations related to these arrangements was Rmb17,940, RmbNil and Rmb18
     for the year ended December 31, 2003, 2004 and 2005 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 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>
                                                                            2003
                                                 ----------------------------------------------------------
                                                            CONTINUING OPERATIONS
                                                 -------------------------------------------   DISCONTINUED
(RMB)                                             HZ TIRE     OTHERS   CORPORATE     TOTAL      OPERATIONS
                                                 ---------   -------   ---------   ---------   ------------
<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>


                                     F-136

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

16.  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,
                                2003
                            ------------
                                 RMB
<S>                         <C>
PRC .....................     2,248,825
Middle East Countries ...       101,718
US and Canada ...........       143,054
Others ..................       314,772
                              ---------
                              2,808,369
                              =========
</TABLE>

17.  OTHER SUPPLEMENTAL INFORMATION

     The following items are included in the consolidated statements of
     operations:

<TABLE>
<CAPTION>
                                           CONTINUING OPERATIONS
                                          YEAR ENDED DECEMBER 31,
                                          -----------------------
                                            2003    2004    2005
                                           ------   ----   -----
                                             Rmb     Rmb    Rmb
<S>                                       <C>       <C>    <C>
Foreign exchange (losses) gain, net ...    (1,810)   21    3,834
Sales taxes ...........................    48,954    --       --
Shipping and handling costs ...........    80,296    --       --
</TABLE>

     No such items are included in discontinued operations.


                                     F-137

<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                 (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES,
                   PER SHARE DATA AND UNLESS OTHERWISE STATED)

18.  SUBSEQUENT EVENTS

     In addition to that disclosed in note 8, subsequent to December 31, 2005,
     the following events have taken place:

     a)   On March 23, 2006, Wing On entered into a subscription agreement with
          the Company and other subscribers in relation to the subscription of
          2% convertible exchangable notes (the "Notes") with an aggregate
          principal amount of HK$1,000,000. The Company and other subscribers
          have conditionally agreed to subscribe for the Notes with principal
          amount of HK$300,000 and HK$700,000 by cash, respectively.

          The initial conversion price of the Notes is HK$0.79 per share,
          subject to adjustments. Unless previously converted or lapsed or
          redeemed by Wing On, Wing On will redeem the Notes on the fifth
          anniversary from the date of issue of the Notes (the "Maturity Date")
          at the redemption amount which is 110% of the principal amount of the
          Notes outstanding.

          The Company shall have the right to convert, on any business day
          commencing from the 7th day after the date of issue of the Notes up to
          and including the date which is 7 days prior to the Maturity Date, the
          whole or any part (in an amount or integral multiple of HK$1,000) of
          the principal amount of the Notes into shares of Wing On at the then
          prevailing conversion price.

          The subscription of the Notes by the Company was completed on June 8,
          2006.

     b)   On June 27, 2006, HHL entered into subscription agreements with 5
          parties in relation to the subscription of 1% convertible exchangeable
          notes ("HHL notes") with an aggregate principal amount of US$150,000
          (equivalent to approximately Rmb1,210,530) to be issued by HHL. Under
          the subscription agreements, HHL is required as soon as practicable
          after the signing of the subscription agreements to enter into a
          contract with the Company for the subscription of the 1% convertible
          notes of the Company with an aggregate principal amount of US$100,000
          (equivalent to approximately Rmb807,020) with the proceeds from the
          issue of the HHL notes. The aforesaid contract has not yet entered
          into as of June 30, 2006.

                                   * * * * * *


                                     F-138
<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 13, 2004 between Wing On and the Company for
          the issue of 2% convertible note to the Company or its nominee

4(a)2     Contract dated June 16, 2004 between Shanghai Jiu Sheng Investment
          Company Limited and the Company for the acquisition of the Properties

4(a)3     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)4     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)5     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(a)6     Contract dated March 23, 2006 entered into between the Company and
          Wing On in relation to the subscription by the Company of the HK$300
          million 2% convertible exchangeable notes due 2011 of Wing On which
          entitle the holders thereof to convert the outstanding principal into
          Wing On shares at the initial conversion price of HK$0.79 per share of
          Wing On.

4(c)1     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)

8         Subsidiaries of the Company
</TABLE>

<PAGE>

<TABLE>
<S>       <C>
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: August 28, 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 13, 2004 between Wing On and the Company for
          the issue of 2% convertible note to the Company or its nominee

4(a)2     Contract dated June 16, 2004 between Shanghai Jiu Sheng Investment
          Company Limited and the Company for the acquisition of the Properties

4(a)3     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)4     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)5     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(a)6     Contract dated March 23, 2006 entered into between the Company and
          Wing On in relation to the subscription by the Company of the HK$300
          million 2% convertible exchangeable notes due 2011 of Wing On which
          entitle the holders thereof to convert the outstanding principal into
          Wing On shares at the initial conversion price of HK$0.79 per share of
          Wing On.

4(c)1     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)

8         Subsidiaries of the Company

12(1)     Certification of the CEO of the Company pursuant to Rule 13a-14(a) of
          the Securities
</TABLE>

<PAGE>

<TABLE>
<S>       <C>
          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>