Alltronics Holdings Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the board of directors of Alltronics Holdings Limited is set out on pages 4 to 15 of this circular.

A letter from the independent board committee containing its recommendation to the independent shareholders of Alltronics Holdings Limited is set out on page 16 of this circular. A letter from GF Capital (Hong Kong) Limited containing its advice to the independent board committee and the independent shareholders of Alltronics Holdings Limited is set out on pages 17 to 29 of this circular.

A notice convening an extraordinary general meeting of Alltronics Holdings Limited to be held at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong on 28 June 2010 at 11:00 a.m. is set out on pages 45 and 46 of this circular. A form of proxy for use at the extraordinary general meeting is also enclosed. Such form of proxy is also published on the website of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk).

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete and return the accompanying proxy form in accordance with the instructions printed thereon to the branch share registrar of Alltronics Holdings Limited in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding of such meeting or any adjournment thereof (as the case may be). Completion and return of the proxy form shall not preclude you from attending and voting in person at such meeting or any adjournment thereof should you so desire.

8 June 2010

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
LETTER FROM	THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . .	16
LETTER FROM	THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . . . .	17
APPENDIX I –	VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
APPENDIX II –	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . .		45

Accompanying document(s): proxy form for the EGM

– i –

DEFINITIONS

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

“2008 Circular” the discloseable and connected transaction circular of the Company dated 3 July 2008 in respect of the Biodiesel Acquisition Agreement
“2009 Net Profit” the net profit (after taxation) of Dynamic for the financial year ended 31 December 2009 based on the Dynamic Audited Accounts (2009)
“Acquisition” the acquisition by the Group of the Sale Shares and the Sale Loan from Mr. Lam pursuant to the Biodiesel Acquisition Agreement dated 12 June 2008
“Alltronics Resources” Alltronics Resources Limited, a private limited liability company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company
“associate” has the same meaning ascribed to such term in the Listing Rules
“Biodiesel Acquisition the sale and purchase agreement dated 12 June 2008 Agreement” between the Vendor and the Company relating to the Acquisition
“Board” the Board of Directors
“Company” Alltronics Holdings Limited, a company incorporated in the Cayman Islands and its issued Shares are listed on the Stock Exchange
“Completion” completion of the Acquisition, which took place on 27 November 2008
“connected person” has the same meaning ascribed to such term in the Listing Rules
“Consideration” the total consideration for the purchase of the Sale Shares and Sale Loan
“Consideration Shares” the new Shares issued and to be issued by the Company at the Issue Price to settle part of the Consideration
“Deferred Consideration” the remaining balance of the Consideration in the sum of HK$25.4 million (subject to adjustment) to be settled by the Company as to HK$10 million in cash and remaining balance by issue of 5,500,000 Consideration Shares at the Issue Price
“Directors” the directors of the Company
“Dynamic”

Dynamic Progress International Limited, a private limited liability company incorporated in Hong Kong and a 51% owned subsidiary of the Company

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DEFINITIONS

“Dynamic Audited Accounts the audited financial statements of Dynamic for the (2009)” financial year ended 31 December 2009
“EGM” an extraordinary general meeting of the Company to be convened at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong on 28 June 2010 at 11:00 a.m. in respect of the Put Option, the notice of which is set out at the end of this circular
“Founders” the 3 individual founders of Dynamic, who collectively hold the entire issued share capital of Good Plan
“Good Plan” Good Plan International Limited, a private limited liability company incorporated in Hong Kong and held by the Founders
“Group” the Company and its subsidiaries
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China
“Independent Board Committee”
“Independent Financial Adviser” or “GF Capital”
an independent committee of the Board, comprising the independent non-executive Directors, established to advise the Independent Shareholders in relation to the Put Option GF Capital (Hong Kong) Limited, a licensed corporation to carry on Type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders regarding the Put Option
“Independent Shareholders”
Shareholders who are not required to abstain from voting on the resolutions in respect of the Put Option to be proposed at the EGM under the Listing Rules
“Initial Consideration”
the initial amount of HK$25,400,000 of the Consideration, which was settled by the Group on Completion
“Issue Price” HK$2.8 per Share
“Latest Practicable Date”
4 June 2010, being the latest practicable date prior to the printing of this circular for the purposes of ascertaining certain information contained herein
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“PRC”
The People’s Republic of China (for the purpose of this circular, excluding Hong Kong, Macao Special Administrative Region of the PRC and Taiwan)

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DEFINITIONS

“Profit Guarantee” the guarantee given by Mr Lam in favour of the Group pursuant to the Biodiesel Acquisition Agreement that the 2009 Net Profit of Dynamic shall not be less than HK$15 million
“Put Option” the put option granted by Mr Lam in favour of the Group under the Put Option Agreement, under which the Group has right to sell back of the Sale Shares and the Sale Loan (to the extent that it has not been fully repaid by Dynamic by then) to Mr Lam if the 2009 Net Profit of Dynamic is less than HK$5 million
“Put Option Agreement” the option agreement dated 27 November 2008 between Mr Lam as the grantor and Alltronics Resources as the grantee in respect of the grant and exercise of the Put Option
“Put Option Period” the time period commencing from 31 May 2010, being the date when the Dynamic Audited Accounts (2009) are issued, until expiry of 30 days thereafter, being 30 June 2010, both days inclusive
“Sale Shares” 5,100 shares of HK$1 each in Dynamic, representing 51% of the issued share capital of Dynamic, and current held by Alltronics Resources
“Sale Loan” the entire shareholder’s loan outstanding from Dynamic to Alltronics Resources
“SFO” the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong)
“Shares” ordinary shares of HK$0.01 each in the capital of the Company
“Shareholders” holders of Shares
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Valuation Report” the business valuation report prepared by the Valuer on 100% equity interest in Dynamic, which is set out in appendix I to this circular
“Valuer” Roma Appraisals Limited, an independent professional valuer appointed by the Company to conduct business valuation of 100% equity interest in Dynamic
“Vendor” or “Mr Lam” Mr Lam Yin Kee, the Chairman, an executive Director and controlling shareholder of the Company

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LETTER FROM THE BOARD

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

Board of Directors:

Mr Lam Yin Kee (Chairman)
Ms Yeung Po Wah # Mr So Kin Hung

Registered office: Cricket Square Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

^ Mr Fan, William Chung Yue
@ Ms Yeung Chi Ying
@ Mr Yau Ming Kim, Robert
@ Mr Leung Kam Wah
# Executive Director
^ Non-executive Director
@ Independent non-executive Director

Principal place of business in Hong Kong: Room 1108, 11th Floor Eastwood Centre 5 A Kung Ngam Village Road Shau Kei Wan Hong Kong 8 June 2010

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

On 31 May 2010, the Board made an announcement about the non-fulfillment of the Profit Guarantee and the Put Option granted to the Group in 2008. The Put Option, if exercised by the Group within the Put Option Period, will result in sale back of the Sale Shares and the Sale Loan to Mr Lam. The Board also announced that the Board (other than the independent non-executive Directors, whose opinion is set out in the “Letter from the Independent Board Committee” in this circular) considers that the Put Option should not be exercised and it is fair and reasonable and is also in the interests of the Company and the Shareholders as a whole. The Board accordingly intends to put forward to the Independent

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LETTER FROM THE BOARD

Shareholders at the EGM a proposal not to exercise the Put Option. If the proposal is not approved by the Independent Shareholders at the EGM, the Board will make use of the opportunity afforded by the EGM to put forward an alternative proposal to approve the exercise of the Put Option at the same meeting. By doing so, the Board seeks their affirmative approval, as required by the Listing Rules, of exercise the Put Option before expiry of the 30-day Put Option Period. Further details are set out in the section headed “F. THE EGM” in this circular.

Each of the case of the exercise or non-exercise of the Put Option will constitute a connected transaction for the Company under Listing Rules. In particular under Listing Rule 14A.70(3), non-exercise of the Put Option will be treated as if it was exercised and hence it will also be a connected transaction for the Company.

Some of the applicable percentage ratios in respect of the exercise or non-exercise of the Put Option calculated under Listing Rules 14A.70(2) and (3) exceed the de minimis thresholds under Listing Rule 14A.32. The exercise or non-exercise of the Put Option shall be made subject to the approval of the Independent Shareholders at the EGM under Chapter 14A of the Listing Rules.

If the Put Option is exercised, the consideration ratio will be more than 5% but less than 25% and all the other applicable percentage ratios are below 5%. The exercise of the Put Option will constitute a discloseable transaction for the Company under Chapter 14 of the Listing Rules.

The purpose of this circular is to provide the Shareholders with further details about the Put Option. This circular also contains (i) the letter from the Independent Board Committee to advise the Independent Shareholders as to whether the non-exercise of the Put Option on the terms set out in the Put Option Agreement is fair and reasonable and whether it is in the interests of the Company and its Shareholders as a whole and to advise the Independent Shareholders on how to vote, taking into account the recommendations of the Independent Financial Adviser; and (ii) the letter from GF Capital (the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders) to make recommendations to the Independent Board Committee and the Independent Shareholders as to whether the non-exercise of the Put Option on the terms set out in the Put Option Agreement is fair and reasonable and whether it is in the interests of the Company and its Shareholders as a whole and to advise the Independent Shareholders on how to vote; and (iii) other information as required by the Listing Rules.

This circular also contains the notice of the EGM on pages 45 and 46 and is accompanied with a form of proxy for the EGM.

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LETTER FROM THE BOARD

B. BACKGROUND

On 12 June 2008, the Company entered into the Biodiesel Acquisition Agreement with Mr Lam. Under that agreement, the Group agreed to purchase 51% shareholding interest and shareholder’s loan owed by Dynamic to Mr Lam for a total consideration of HK$50.8 million (subject to adjustment). The Acquisition was later approved by the Independent Shareholders at the extraordinary general meeting of the Company held on 21 July 2008.

The Acquisition was duly completed on 27 November 2008, on which date the Company paid HK$10 million and issued 5,500,000 new Shares to Mr Lam at an issue price of HK$2.8 per Share to settle HK$25.4 million of the Initial Consideration. The Deferred Consideration, in the sum of HK$25.4 million, would be settled after issue of the Dynamic Audited Accounts (2009), subject to adjustment for any deduction to be made under the Profit Guarantee given by Mr Lam.

C. THE PUT OPTION

Upon Completion of the Acquisition, Mr Lam granted to the Group the Put Option by entering into the Put Option Agreement. The material terms of the Put Option Agreement are summarized below:

(a) Date

27 November 2008

(b) Parties

(1) Mr Lam as the grantor; and
(2) Alltronics Resources as the grantee.

Mr Lam is the Chairman, an executive Director and controlling shareholder of the Company. Alltronics Resources is a private limited liability company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company.

(c) Subject matter

If the Put Option is exercised, Alltronics Resources shall sell, and Mr Lam shall purchase, the Sale Shares and the Sale Loan free from all encumbrances.

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LETTER FROM THE BOARD

The current shareholders of Dynamic are set out below:

	Number of
	ordinary shares	Shareholding
Name of shareholders	held	percentage
Alltronics Resources	5,100	51%
Good Plan	4,900	49%
Total	10,000	100%

As at the Latest Practicable Date, the total amount of the Sale Loan owed by Dynamic to the Group was HK$10,000,000, which has remained the same since the completion of the Biodiesel Acquisition Agreement on 27 November 2008. The Sale Loan is interest free, unsecured and without fixed repayment date.

(d) Consideration

The total exercise price of the Put Option is HK$25.4 million. It shall be settled by Mr Lam in cash at the same time of delivery and transfer of the Sale Shares and Sale Loan, which will occur on the third business day after the Put Option is exercised. No premium was paid or received by the Group for the grant of the Put Option.

The exercise price of the Put Option was determined by the parties to be equivalent to the amount of the Initial Consideration paid by the Group in 2008 so as to revert to the parties’ positions before the Biodiesel Acquisition Agreement if and when the Put Option is exercised.

(e) Put Option Period

The Put Option is exerciseable by Alltronics Resources if the 2009 Net Profit of Dynamic is less than HK$5 million (including where net loss is recorded). The Put Option shall be exerciseable by Alltronics Resources from the date when the Dynamic Audited Accounts (2009) are issued until 30 days thereafter, provided that it will lapse automatically if the 2009 Net Profit of Dynamic is not less than HK$5 million. The exercise of the Put Option is at the discretion of Alltronics Resources.

Under the Biodiesel Acquisition Agreement, the Dynamic Audited Accounts (2009) shall be issued on or before 30 June 2010. The Group shall deliver to Mr Lam the Dynamic Audited Accounts (2009) together with a statement showing calculation of deduction required to be made to the Deferred Consideration if the Profit Guarantee is not fulfilled. The adjusted amount of the Deferred Consideration will be taken as final on expiration of 30 days after the said date of delivery in the absence of dispute between the parties or on such earlier date as Mr Lam confirms to the Group in writing his acceptance to the adjustment.

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LETTER FROM THE BOARD

D. THE PROFIT GUARANTEE UNDER THE BIODIESEL ACQUISITION AGREEMENT

As set out in the 2008 Circular, Mr Lam has given in favour of the Group a Profit Guarantee in respect of the 2009 Net Profit of Dynamic under the Biodiesel Acquisition Agreement. If the 2009 Net Profit of Dynamic is HK$15 million or above, the Group will settle, in full, the Deferred Consideration, of which HK$10 million will be paid in cash and the balance of HK$15.4 million will be satisfied by issue and allotment of 5,500,000 Consideration Shares, also at the same issue price of HK$2.8 per Share.

Conversely, if the 2009 Net Profit of Dynamic is less than HK$15 million (but equal to or more than HK$5 million), an amount being equal to 5.33 multiplied by 51% of the shortfall will be deducted from the Deferred Consideration on a dollar-for-dollar basis. The deduction would be applied to the HK$10 million cash portion first until it becomes zero, and then to the remaining balance of HK$15.4 million to be settled by the issue of the last tranche of the 5,500,000 Consideration Shares. If the remaining balance of the Deferred Consideration after such deduction becomes negative, the Deferred Consideration will be deemed to be zero, and Mr Lam shall compensate the Group for an amount being equal to such negative amount in cash. If the 2009 Net Profit of Dynamic is less than HK$5 million, the Company would exercise, as it is entitled under the Put Option Agreement, the Put Option to sell back the Sale Shares and the Sale Loan to Mr Lam. Furthermore, if Dynamic records net loss for the financial year ended 31 December 2009, the Deferred Consideration will be deemed to be zero, and in that case the Company will no longer be obliged to pay any of cash portion or issue any Consideration Shares comprised in the Deferred Consideration.

If Alltronics Resources does exercise the Put Option, the Group shall not settle the Deferred Consideration, and Mr Lam shall not be obliged to pay any compensation to the Group under the Profit Guarantee because the Sale Shares and the Sale Loan will be reverted to Mr Lam.

The Dynamic Audited Accounts (2009) were issued on 31 May 2010. The following financial information was extracted from the audited accounts of Dynamic for the financial year ended 31 December 2008 and the Dynamic Audited Accounts (2009):

	2009	2008
	HK$’000	HK$’000
Turnover	5,922	2,538
Loss before tax	(8,385)	(6,278)
Loss after tax	(8,385)	(6,278)
Net liabilities	(24,139)	(15,755)
Net current liabilities	(11,151)	(5,613)

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LETTER FROM THE BOARD

Based on the above information, there was a shortfall of approximately HK$23.38 million calculated based on the difference between the minimum 2009 Net Profit of Dynamic of HK$15 million under the Profit Guarantee and the actual net loss recorded by Dynamic for the financial year ended 31 December 2009. The Deferred Consideration is deemed to be zero as mentioned above and shall not be settled by the Group.

The failure to achieve the minimum net profit of HK$15 million of Dynamic for the financial year ended 31 December 2009 was announced by the Company in its announcement dated 31 May 2010. The Company will also include details in its next published annual report and accounts; and the independent non-executive Directors of the Company will provide an opinion in the Company’s next published annual report and accounts as to whether Mr Lam has fulfilled its obligations under the Profit Guarantee.

E. REASONS FOR, AND BENEFITS OF, THE NON-EXERCISE OF THE PUT OPTION

As set out in the 2008 Circular, the Put Option is part and parcel of the overall terms of the Biodiesel Acquisition Agreement negotiated on arm’s length basis between the parties.

Since the Completion of the Acquisition on 27 November 2008, the results of operations, assets and liabilities of Dynamic have been included in the consolidated financial statements of the Group. The financial tsunami occurred in the second half of 2008 has adversely affected biodiesel business since then and the performance of Dynamic after acquisition was behind management’s expectation, both in terms of revenue and profit. In particular, the tremendous drop in the crude oil prices from over US$140 per barrel to less than US$40 per barrel within a short period of time has adversely affected the demand for biodiesel and the development of the biodiesel business in Hong Kong significantly. Retail price for petroleum-based diesel in Hong Kong had dropped and users are less motivated to use biodiesel as alternative green energy to substitute traditional petroleum-based diesel.

Another factor which hinders the development of biodiesel business in Hong Kong is the slow in legislation on regulation of use of biodiesel in Hong Kong. The Air Pollution Control (Motor Vehicle Fuel) (Amendment) Regulation 2009, seeking to provide a statutory framework to ensure motor vehicle biodiesel meets the necessary standards, was just published in gazette in November 2009 and will become effective from 1 July 2010. These factors had affected the demand for the Group’s biodiesel products and as a result sales revenue were much less than forecast and losses were incurred during 2008 and 2009.

The Group is principally engaged in the manufacturing and trading of electronic products, plastic moulds, plastic and other components for electronic products. However, as most of the Group’s products are on OEM basis for overseas customers, the Group’s electronic products business is largely dependent on the global economy, especially the economic conditions in United States and Europe. During 2008 and 2009, the revenue from electronic products business had decreased, from HK$575 million in 2007 to HK$497 million in 2008, and further reduced to HK$444 million in 2009. The Directors believe that in order to ensure the Group to have a more stable source of income, it is important for the

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LETTER FROM THE BOARD

Group to diversify its income stream and to broaden the Group’s source of income. The Acquisition of the biodiesel business in November 2008 is in line with the Group’s strategy to explore business opportunities with a high growth potential.

The sales revenue from Dynamic’s biodiesel business has improved significantly since the second half of 2009 when the global economy showed signs to recover from the financial tsunami and the crude oil prices become relatively more stable. Indeed, the monthly sales revenue from biodiesel products for each of January, July and December in the year 2009 were approximately HK$261,000, HK$715,000 and HK$1,203,000 respectively. Furthermore, as the current production capacity of Dynamic is sufficient for its business requirements in the near future based on current business plans, no major capital expenditure or investment is expected for Dynamic at least for the next three years. The Directors believe that it is beneficial to the Group and to the Shareholders to retain the investment in biodiesel business in view of its improving performance and high growth potential.

Although Dynamic incurred a loss in 2009, the unsatisfactory performance was mainly attributable to the unexpected and unprecedented financial tsunami and significant fluctuation in crude oil prices during late 2008 and first half of 2009. With the global economic environment gradually improving consistently since July 2009, Dynamic’s performance also improved gradually since then. With more than one year experience in the biodiesel operations and after obtaining more market information from existing and potential suppliers and customers, the Directors are more confident that the performance of Dynamic will improve continuously in future which will eventually improve the overall profitability of the Group.

After more than one year of operation since the Acquisition by the Group, Dynamic has already secured a stable supply of sufficient feedstock for its biodiesel production. Furthermore, the quality of biodiesel produced by Dynamic is well accepted by the market and is in full compliance with the regulations on biodiesel which are to be effective from 1 July 2010.

Dynamic has been in negotiations with various potential users of biodiesel in Hong Kong and most of these negotiations are in the final stage with quotations sent to potential customers pending their confirmation.

The Group is fully aware of its corporate social responsibility and through the investment in biodiesel business, the Group can contribute to environmental protection as using biodiesel as alternative fuels can help to reduce carbon emission and to reduce air pollution in Hong Kong. The use of used cooking oils for the production of green biodiesel energy also ensures recycling of toxic resources into environmental friendly resources.

The Board has also taken into account the following risk factors for not exercising the Put Option:

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LETTER FROM THE BOARD

(i) The lack of operating history of Dynamic and retaining a loss making business segment in the Group

Dynamic only began commercial production of biodiesel from late 2008. Its revenue and profit generation potential are unproven. It recorded net losses for both of the financial years ended 31 December 2008 and 2009. There is no assurance that Dynamic will in the future become a profitable business segment in case it is to remain as a subsidiary in the Group.

(ii) Fluctuation in the crude oil prices

The fluctuation in global crude oil prices will affect the demand for biodiesel as well as its unit selling prices. When crude oil commodity prices go up which lead to an increase in the retail price for traditional petroleum-based diesel, the demand for biodiesel will increase usually as users are more tempted to look for alternative fuels as substitute. Therefore, any significant fluctuation in crude oil commodity prices in future may affect the business performance of Dynamic.

(iii) Uncertainty of demand for biodiesel and yet-to-be proven growing sales trend of biodiesel in Hong Kong and yet-to-be proven large scale market acceptance and application of biodiesel as alternative green energy in Hong Kong

Dynamic is the first licensed manufacturer and supplier of biodiesel in Hong Kong. However, there is no assurance as to whether biodiesel can gain large scale market acceptance for use as an alternative green energy in Hong Kong. If market acceptance is low, this will adversely affecting the volume of sales and selling prices of biodiesel. The degree of market acceptance and application is largely dependent on government support and users’ confidence on the quality and performance of biodiesel. As a result of the novelty of biodiesel products in Hong Kong, Dynamic may have to use additional efforts to tackle market resistance to such products or may take a longer time than expected to develop the biodiesel market in Hong Kong.

(iv) Uncertainties of the effectiveness of government regulations on the use of biodiesel

Although the regulations on the use of biodiesel in Hong Kong will become effective from 1 July 2010, there is no assurance that the demand for biodiesel will increase after the regulations become effective as there is no statutory requirements to use biodiesel as substitute to traditional petroleum-based diesel.

(v) Renewals of prerequisite permits and licenses

Dynamic has acquired permits and licenses issued by various governmental departments for its operations. These licenses and permits are valid for limited periods of time. Dynamic is required to maintain and renew them in the future in compliance with the applicable law and regulations then in force. Although the Board is confident that Dynamic will encounter no difficulties in the renewal of the relevant permits and

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LETTER FROM THE BOARD

licenses after their expiry, there is no assurance that such permits and licenses will be obtained in the future should there be significant change in the relevant law and regulations.

(vi) Need for an experienced management team to operate Dynamic

The continued operation of Dynamic is, to a certain extent, attributable to the expertise and experience of its management and the Founders and their connections in the market. Their retention for future research and development of biodiesel market will be critical to the success of Dynamic.

(vii) The threats of competition from similar or substitutable products available in the market, or due to technological changes or advancement

Dynamic may face competitions from other suppliers of biodiesel or suppliers of other alternative fuels in Hong Kong. The entry barrier to the biodiesel market is not high and any increase in the level of competition could dilute Dynamic’s market share and may adversely affect the business performance of Dynamic.

If the Put Option is exercised, Dynamic will cease to be a subsidiary of the Company and the Group will cease to have any shareholding interest in Dynamic. In such event, it is estimated that (subject to audit) a gain on disposal of about HK$18.9 million will be recorded by the Group. The gain is calculated based on the exercise price to be received less the aggregate carrying value (being approximately (HK$2.3 million)) of the Sale Shares and the Sale Loan as at 31 December 2009 and the carrying value (being approximately HK$8.8 million) of the intangible assets as at 31 December 2009 relating to biodiesel business to be written off upon disposal. These figures are taken from the audited financial statements of the Group for the financial year ended 31 December 2009. The net sale proceeds are intended to be applied as working capital of the Group.

The Company has also commissioned the Valuation Report on 100% equity interest in Dynamic as set out in appendix I to this circular to evaluate the Put Option. The Valuation Report is prepared by Roma Appraisals Limited, an independent professional valuer appointed by the Company, using the market-based approach. Details of the methodology, bases and assumptions adopted for the valuation are also set out in the Valuation Report. Based on the investigation and analysis stated in the Valuation Report and on the valuation method employed, the Valuer opines that the market value of 100% equity interest in Dynamic as at 31 March 2010 is reasonably estimated to be HK$58 million. On such basis, the Sale Shares are valued at HK$29.58 million. When it is aggregated with the face value of the Sale Loan of HK$10 million, the total combined value of the Sale Shares and the Sale Loan would be HK$39.58 million, which exceeds the exercise price of the Put Option by approximately 55.8%.

The biodiesel business can broaden the income base of the Group and will provide a constant source of income to the Group. The Directors have confidence on the development of biodiesel business in Hong Kong as evidenced from the consistent increase in sales revenue and the high growth potential in view of the effectiveness of the government regulations on biodiesel from 1 July 2010 and the current market predominant and leading

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LETTER FROM THE BOARD

position of Dynamic in the biodiesel market in Hong Kong. The disposal of Dynamic will mean that the Group will lose an opportunity to expand and to grow. Furthermore, based on the Valuation Report, the market value of the Group’s interest in Dynamic well exceeds the exercise price of the Put Option.

Accordingly, the Board (other than the independent non-executive Directors whose opinion is set out in the “Letter from the Independent Board Committee” in this circular) considers that the Put Option should not be exercised and it is fair and reasonable and is also in the interests of the Company and the Shareholders as a whole.

F. THE EGM

Some of the applicable percentage ratios in respect of each case of the exercise or the non-exercise of the Put Option calculated under Listing Rules 14A.70(2) and (3) exceed the de minimis thresholds under Listing Rule 14A.32. The exercise or non-exercise of the Put Option shall be made subject to the approval of the Independent Shareholders at the EGM under Chapter 14A of the Listing Rules.

Set out on pages 45 and 46 is a notice convening the EGM to be held at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong at 11:00 a.m. on 28 June 2010 at which the Independent Shareholders attending the EGM in persons or by proxies or corporate representatives will be asked to consider and, if thought fit, to approve the relevant ordinary resolution(s) in respect of the Put Option. The notice of EGM sets out:

(a) ordinary resolution numbered 1, which is to approve the non-exercise of the Put Option; and
(b) (if ordinary resolution numbered 1 is not approved) ordinary resolution numbered 2, which is to approve the exercise of the Put Option.

The Independent Shareholders will be asked to consider and vote on ordinary resolution numbered 1 first at the EGM. If this ordinary resolution is not passed, the Board will make use of the opportunity afforded by the EGM to put forward, as an alternative, ordinary resolution numbered 2 to the Independent Shareholders to vote at the same meeting. By doing so, the Board seeks their affirmative approval, as required by the Listing Rules, of exercise the Put Option before expiry of the 30-day Put Option Period.

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LETTER FROM THE BOARD

Shareholders should be aware that (a) the exercise of the Put Option is subject to Independent Shareholders’ approval and (b) the Group’s rights to exercise the Put Option under the Put Option Agreement will lapse on 30 June 2010, which is 30 days after 31 May 2010 when the Dynamic Audited Accounts (2009) were issued. If both of (a) ordinary resolution numbered 1 to approve the non-exercise of the Put Option and (b) ordinary resolution numbered 2 to approve the exercise of the Put Option are not approved at the EGM, the Put Option will not be exercised and Dynamic will remain as a subsidiary of the Company. Further, on expiry of the Put Option Period on 30 June 2010, all the rights and interests of the Group in relation to the Put Option under the Put Option Agreement shall also cease and determine and no party to the Put Option Agreement shall have any rights or liabilities to each other.

In the event that ordinary resolution numbered 1 to approve the non-exercise of the Put Option is approved by the Independent Shareholders at the EGM, the Group will not exercise the Put Option and therefore ordinary resolution numbered 2 is no longer necessary to be proposed and put to vote by the Independent Shareholders at the EGM. Conversely, if the Independent Shareholders disapprove ordinary resolution numbered 1 for the non-exercise of the Put Option and approve ordinary resolution numbered 2 for the exercise of the Put Option (as required by the Listing Rules) at the EGM, the Group will exercise the Put Option after the EGM before expiry of the 30-day Put Option Period.

Mr Lam has confirmed to the Company that in case the Put Option is exercised, he will take up and pay for the Sale Shares and the Sale Loan in compliance with the terms of the Put Option Agreement. Other than the automatic adjustment of the Deferred Consideration mentioned above and his obligations in relation to the Put Option Agreement, Mr Lam has no other detriment or obligations arising from the failure to achieve the minimum 2009 Net Profit under the Profit Guarantee. It is the opinion of the Independent Board Committee that Mr Lam has complied with his obligations in respect of the Profit Guarantee to the extent that they have already fallen due as at the Latest Practicable Date and, if and when the Put Option is exercised, it expects that Mr Lam will fulfil his obligations under the Put Option Agreement.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

Mr Lam and his spouse, Ms Yeung Po Wah, are Directors and had abstained from voting on all resolutions of the Board in respect of the Put Option.

Pursuant to Rule 13.39(4) of the Listing Rules, voting on all of the proposed resolutions at the EGM will be taken by poll. Mr Lam and his associate(s), holding about 71.0% of the entire issued share capital of the Company as at the Latest Practicable Date, will abstain from voting on the proposed resolutions in respect of the Put Option at the

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LETTER FROM THE BOARD

EGM pursuant to the Listing Rules. The Founders and their respective associates, if they have any interests in the Shares, are also required under the Listing Rules to abstain from voting on these proposed resolutions at the EGM. As at the Latest Practicable Date, the Founders had confirmed to the Company that none of them or any of their respective associates had any interests in the Shares.

The voting results of the EGM will be announced by the Company in accordance with the Listing Rules.

G. GENERAL

Your attention is drawn to the letter from the Independent Board Committee set out on page 16 of this circular, and the letter from GF Capital on pages 17 to 29 of this circular which contains their advice to the Independent Board Committee and the Independent Shareholders as well as the principal factors and reasons taken into consideration in arriving at their advice.

Your attention is also drawn to the additional information set out in the appendices to this circular. The notice of the EGM is set out at the end of this circular.

Yours faithfully, By order of the Board of Alltronics Holdings Limited Lam Yin Kee Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the full text of a letter from the Independent Board Committee to the Independent Shareholders for the purpose of inclusion in this circular.

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

8 June 2010

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS

We have been appointed to form this Independent Board Committee to consider and advise you on the Put Option, details of which are set out in the circular issued by the Company to the Shareholders dated 8 June 2010 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We wish to draw your attention to the letter from the Board and the letter of advice from GF Capital set out on pages 4 to 15 and pages 17 to 29 of the Circular respectively. Having taken into account the principal factors and reasons considered by GF Capital, its conclusion and advice, we consider that the non-exercise of the Put Option is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend you:

(a) to vote in favour of ordinary resolution numbered 1 to be proposed at the EGM which is to approve the non-exercise of the Put Option; and
(b) (if ordinary resolution numbered 1 is not passed) to vote against ordinary resolution numbered 2 (if so proposed at the EGM) which is to approve the exercise of the Put Option.

Yours faithfully,

Independent Board Committee

Ms Yeung Chi Ying Mr Yau Ming Kim, Robert Mr Leung Kam Wah Independent non-executive Independent non-executive Independent non-executive Director Director Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from GF Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in connection with the Put Option.

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Suites 2301-5 & 2313, COSCO Tower 183 Queen’s Road Central Hong Kong

8 June 2010

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders as to whether the non-exercise of the Put Option is in the interests of the Company and the Shareholders as a whole and is fair and reasonable so far as the Company and the Independent Shareholders are concerned, particulars of which are set out in the “Letter from the Board” (the “ Board Letter ”) contained in the circular of the Company dated 8 June 2010 (the “ Circular ”), of which this letter forms part. Capitalized terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

INDEPENDENT BOARD COMMITTEE

An Independent Board Committee comprising Mr. Leung Kam Wah, Ms. Yeung Chi Ying and Mr. Yau Ming Kim, Robert (all being independent non-executive Directors of the Company), has been formed to advise the Independent Shareholders in relation to the non-exercise of the Put Option. Mr. Lam and his associates will be required to abstain from voting at the EGM on the proposed resolutions in respect of the Put Option.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information and statements supplied as well as opinions and representations expressed by the Company, its representatives and the Directors for which they are solely and wholly responsible and we have assumed that all such information and statements supplied as well as opinions and representations expressed contained or referred to in the Circular were true, accurate and complete at the time they were provided and continue to be true, accurate and complete up to the date of the Circular. We have assumed that all statements of belief, opinion and intention made by the Company, its representative and the Directors as set out in the Circular were reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company that no material facts have been omitted from the information provided and referred to in the Circular. The Directors confirmed that they have provided us with all currently available information and documents which are available under present circumstances to enable us to reach an informed view and we have relied on the accuracy of such information and the information contained in the Circular to provide a reasonable basis of our opinion.

In rendering our opinion, we have researched, analyzed and relied on the following information in relation to the Group and the Put Option:

(i) the Biodiesel Acquisition Agreement;
(ii) the Put Option Agreement;
(iii) the annual report of the Company for the year ended 31 December 2008 (“ 2008 Annual Report ”);
(iv) the annual report of the Company for the year ended 31 December 2009 (“ 2009 Annual Report ”);
(v) Dynamic Audited Accounts (2009);
(vi) the 2008 Circular;
(vii) the announcement of the Company dated 31 May 2010; and
(viii) the Circular (of which the Valuation Report forms part).

We consider that we have reviewed sufficient information which enables us to reach an informed view and to provide us with a reasonable basis for our opinion. We have no reason to suspect that any material facts or information which is known to the Company, its representatives and the Directors have been omitted or withheld from the information supplied or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information, facts, and representation provided, or the reasonableness of the opinions and representation expressed by the Company, its representatives and the Directors. We have not, however, carried out any independent verification on the information

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

provided to us by the Company, its representatives and the Directors, nor have we conducted an independent in-depth investigation into the business affairs, assets and liabilities, and the prospects of the Company and Dynamic.

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

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to the Independent Board Committee and the Independent Shareholders on the non-exercise of the Put Option, we have considered the following principal factors and reasons:

1 The Acquisition

On 12 June 2008, the Company as a purchaser and Mr Lam as a vendor entered into the Biodiesel Acquisition Agreement, pursuant to which the Company conditionally agreed to acquire, through its wholly-owned subsidiary, the Sale Shares (representing 51% equity interests in Dynamic) and Sale Loan for a total consideration of HK$50.8 million (subject to adjustment). The Acquisition was later approved at the extraordinary general meeting on 21 July 2008 by the independent Shareholders.

The Acquisition was duly completed on 27 November 2008, on which the Company paid the Initial Consideration of HK$25.4 million, representing 50% of the Consideration, as to HK$10 million in cash and as to the remaining HK$15.4 million by the issuance and allotment of a total of 5,500,000 Consideration Shares to Mr Lam at HK$2.8 per Share by the Company.

Pursuant to the Biodiesel Acquisition Agreement, subject to exercise of the Put Option by the Group, the Deferred Consideration of HK$25.4 million (subject to adjustment for any deductions made under the Profit Guarantee), representing the remaining 50% of the Consideration, shall be settled by the Group, not later than about 30 days after the issuance of the Dynamic Audited Accounts (2009).

As referred to in the 2008 Circular, Mr Lam has given to the Group the Profit Guarantee in respect of the 2009 Net Profit of Dynamic under the Biodiesel Acquisition Agreement. For details of the Profit Guarantee, please refer to the Board Letter.

2 The Put Option

Upon Completion of the Acquisition, Mr Lam and Alltronics Resource, a wholly-owned subsidiary of the Company entered into the Put Option Agreement, pursuant to which Mr Lam agreed to grant the Put Option in favour of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Pursuant to the terms of the Put Option Agreement, Alltronics Resource shall be entitled to exercise the Put Option at any time during the Put Option Period in the event that the 2009 Net Profit is less than HK$5 million by giving notice to Mr Lam to require Mr Lam to purchase the Sale Shares and the Sale Loan free from all encumbrances. If the 2009 Net Profit of Dynamic is not less than HK$5 million, the Put Option shall automatically lapse. The principal terms of the Put Option Agreement are disclosed in the Board Letter.

3 Information of the Group

3.1 Principal business of the Group

The Group is principally engaged in the manufacturing and trading of electronic products, plastic moulds, plastic and other components for electronic products and the manufacturing and trading of biodiesel products.

3.2 Financial performance of the Group

The financial results of the Group for each of the two years ended 31 December 2009, as extracted from the 2009 Annual Report and 2008 Annual Report, are summarized as below:

Turnover – Sales of electronic products – Sales of biodiesel products Cost of sales Gross profit Operating profit/(loss) Profit/(Loss) for the year Attributable to – equity holders of the Company – minority interest	For the year ended 31 December 2009 2008 HK$’000 HK$’000 (Audited) (Audited) 443,609 497,157 5,779 207 449,388 497,364 (369,713) (439,594) 79,675 57,770 20,564 (5,390) 10,826 (10,557) 13,877 (9,602) (3,051) (955)	For the year ended 31 December 2009 2008 HK$’000 HK$’000 (Audited) (Audited) 443,609 497,157 5,779 207 449,388 497,364 (369,713) (439,594) 79,675 57,770 20,564 (5,390) 10,826 (10,557) 13,877 (9,602) (3,051) (955)
	449,388 (369,713)	497,364 (439,594
	79,675 20,564 10,826 13,877 (3,051)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	As at 31	December
	2009	2008
	HK$’000	HK$’000
	(Audited)	(Audited)
Total assets	343,167	349,210
Total liabilities	165,152	175,731
Equity attributable to equity holders of the Company	181,953	174,364
Cash and cash equivalents	91,172	64,796

As shown in the above table, the Group recorded a net profit attributable to Shareholders of approximately HK$13.88 million for the year ended 31 December 2009, represented an increase of approximately HK$23.48 million as compared with a net loss of approximately HK$9.60 million for the year ended 31 December 2008. Such increase was mainly attributable to (i) the improved gross profit margin; and (ii) the drop in administrative expenses.

As stated in the 2009 Annual Report, 2009 is a difficult and challenging year for the Group as the global financial crisis continued to impact its business. We understand from the Company that the sale of electronic products is the current core business and major source of income of the Group. However, as referred to in the Board Letter, as most of the Group’s products are on OEM basis for overseas customers, the Group’s electronic products business is highly dependent on the global economy, especially the economic conditions in the United States and Europe. We noted that the revenue from the sales of electronic products of the Group has been deteriorating, especially those from local customers and customers in Europe. On the other hand, the income generated from the sales of biodiesel products has increased as compared to the year 2008, as the business was only acquired by the Group on 27 November 2008, its turnover and contributions to the Group for the year 2008 were not significant. As a result, for the year ended 31 December 2009, the Group’s total revenue decreased by 9.6% to HK$449.39 million, compared to HK$497.36 million for the year ended 31 December 2008.

The sale of biodiesel products is one of the moves that the Group has made in order to mitigate the risk of heavy reliance on the business of electronic products. As referred to in the Board Letter, in order to ensure a more stable income, it is essential for the Group to diversify its businesses and to broaden the Group’s source of income.

4 Information of Dynamic

4.1 Principal business of Dynamic

Upon the completion of Acquisition on 27 November 2008, Dynamic became a 51% owned subsidiary of the Group. Dynamic is principally engaged in manufacturing and trading of biodiesel fuel as well as the provision of scientific research and development of environmental recycling and protection in Hong Kong.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.2 Financial performance of Dynamic

Set out below is the key audited financial date of Dynamic as extracted from Dynamic Audited Accounts (2009):

Turnover Direct cost Gross profit Loss for the year Net liabilities	For the year ended 31 December 2009 2008 HK$’000 HK$’000 (Audited) (Audited) 5,922 2,538 (4,397) (1,262) 1,525 1,276 (8,385) (6,278) As at 31 December 2009 2008 HK’000 HK’000 (Audited) (Audited) (24,139) (15,755)

2009 was the first full financial year in which Dynamic commenced its commercial production of biodiesel. After more than one year’s operation under the management of the Company, the turnover of Dynamic has been improved. As shown in the above table, Dynamic recorded a turnover of approximately HK$5.92 million for the year ended 31 December 2009, representing a remarkable increase of 133.3% as compared with that for the year ended 31 December 2008 of approximately HK$2.54 million.

Gross profit margin of Dynamic decreased from 50.3% in 2008 to 25.8% in 2009. As advised by the management of the Company, such decrease was mainly due to the drop in selling price of biodiesel resulting from the significant drop in crude oil prices.

We noted from Dynamic Audited Accounts (2009) that, as at 31 December 2009, Dynamic’s current liabilities exceeded its current assets by approximately HK$11.15 million and there was a shareholder’s deficit of approximately HK$24.14 million. The shareholders of Dynamic have agreed to provide adequate funds to Dynamic so as to enable it to meet its liabilities as and when they fall due and to enable Dynamic to continue operating in the foreseeable future.

As referred to in the Board Letter, the dissatisfactory performance of Dynamic for the year ended 31 December 2009 is mainly due to the slow progress in legislation on regulation in respect of use of biodiesel in Hong Kong. Having considered the Air Pollution Control (Motor Vehicle Fuel) (Amendment) Regulation 2009, which seeks to provide a statutory framework to ensure motor vehicles biodiesel meets the necessary

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

standards, will become effective from 1 July 2010, the Directors are confident that the demand for biodiesel will increase in a fast pace in the future. Although the regulations to be effective on 1 July 2010 do not impose any statutory requirements to use biodiesel, such regulations and government support (as detailed in the section headed “Government support” of this letter) can provide a strong support and legal back up to users (especially governmental and public organizations) to use or at least to consider the use of biodiesel as green fuel. In fact, the Hong Kong Airport Authority has used biodiesel in 73 motor vehicles gradually since October 2009 and is planning to use biodiesels in all of its 1,800 motor vehicles in the airport. Based on the aforesaid, we expect that the demand for biodiesel in Hong Kong will increase in the future.

4.3 Business development of Dynamic

Dynamic will continue to focus on the business of biodiesel in Hong Kong, as the Directors expect that the potential long term growth of biodiesel business, encouraging government policies and the rising popularity of alternative green energy would create significant demand for biodiesel products of Dynamic.

To the best knowledge of the management of Dynamic, as at the Latest Practicable Date, Dynamic is the sole company in Hong Kong which has obtained all relevant licenses and has met all prerequisite requirements for the production of biodiesel. The Directors believe that the pioneer role of Dynamic enables it to gain a competitive advantage over new entrants in the biodiesel market in Hong Kong. Leveraging on the experience, expertise and knowledge of a team of professionals of Dynamic in the biodiesel sector, the Directors expect that Dynamic will capitalise the expected significant demand for biodiesel in Hong Kong and enhance the return on investment of Dynamic by continuing business growth.

Upon enquiring on how to secure the relevant sales orders for biodiesel, we understand from the Company that Dynamic promotes the use of biodiesel mainly through direct negotiations with major potential users of biodiesel in Hong Kong, including government/government subsidized departments, listed or private companies.

We have reviewed sample supporting documents of the relevant enquiries and indications of interest to order biodiesel from Dynamic, which would be met by the current production capacity of approximately 55,000 liters of pure biodiesel on a daily basis. The biodiesel produced by Dynamic are mainly used for motor vehicles and engine application. In addition, Dynamic is currently in the process of negotiation with relevant business partners in Macau to explore the opportunities of setting up sales channel in Macau for its biodiesel products to expand its sales revenue.

5 Reasons for, and benefits of the non-exercise of the Put Option

As stated in the Board Letter, the Board is positive towards retaining the investment in the biodiesel business given the improving performance and high growth potential of Dynamic and considers that the non-exercise of the Put Option is fair and reasonable and is also in the interest of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As referred to in the Board Letter, the biodiesel business is in line with the Group’s strategy to explore business opportunities with a high growth potential. Pursuant to the 2009 Annual Report, electronic products were historically accounted for a substantial amount of the Group’s revenue. The Company strived to grasp every opportunity and continue to look for investment opportunity so as to diversify its business and to provide a better return to all of its Shareholders. In this regard, the Directors consider that through the non-exercise of the Put Option, the Company could further develop its business into biodiesel business and broaden the Group’s income source which is generally in line with the Group’s strategy.

Based on the information shown in the 2009 Annual Report and 2008 Annual Report, we understand that the Group’s electronic products business is on OEM basis and is highly dependent on the economic environment of the United States and Europe in which the economy has been hit by the financial tsunami since 2008. Revenue from the sales of electronic products decreased in 2009. Notwithstanding that the Group has limited history of operating the biodiesel business and non-exercise of the Put Option will consolidate the results of operations, assets and liabilities of Dynamic in the consolidated financial statement of the Group, which recorded consecutive losses in the past two years, in light of the business environment of the sale of electronic products business of the Group, we consider that it is strategically appropriate for the Group to continue to explore business opportunities in the biodiesel sector.

We noted that Dynamic has not yet recorded any profitable results (details of which are set out in the section headed “Information of Dynamic” above). Nevertheless, as further discussed in the section headed “Valuation” below, the non-exercise of the Put Option was determined with reference to, among other things, the valuation of the market value of Dynamic as at 31 March 2010 based on an independent valuation. As Dynamic only began commercial production of biodiesel in late 2008 and has been in the early stage of development, the past track record is not a reliable reference to predict the financial and trading prospects of Dynamic and therefore we do not rely on the previous financial results of Dynamic when assessing the benefits of non-exercise of the Put Option.

As stated in the Board Letter, the Board expects that the current production capacity of Dynamic is sufficient for their production requirement in the near future and, based on current business plans, there is no major capital expenditure or investment expected for Dynamic at least for the next three years. In addition, the Group had cash and cash equivalents of HK$91.17 million as at 31 December 2009. Based on the above, the Directors consider that the Group has sufficient financial resources for the biodiesel and electronic products businesses respectively.

6 Risk factors of the non-exercise of the Put Option

During our due diligence review, we observed key risk factors associated with the non-exercise of the Put Option, details of which are elaborated in the Board Letter.

Based on our review of such risk factors and further discussions with the Board, we note that certain of such risk factors such as (i) retaining a loss making business segment in the Group; (ii) fluctuation in the crude oil prices; (iii) uncertainty of demand for biodiesel in Hong Kong; (iv) uncertainties of the effectiveness of government regulations on the use of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

biodiesel; and (v) the threats of competition from similar or substitutable products available in the market, or due to technological changes and advancement, which are beyond the control of the Company. On the other hand, there are certain risk factors such as renewals of prerequisite permits and licenses and the need for an experienced management team to operate Dynamic, which fall under the operating scope of the Group and are manageable.

In summary, we also consider that there are key factors associated with the commercial operation of Dynamic, including (i) the lack of operating history of Dynamic; (ii) yet-to-be proven large scale market acceptance and application of biodiesel as alternative green energy in Hong Kong; and (iii) yet-to-be proven growing sales trend of biodiesel in Hong Kong.

In view of the nature of the aforesaid risk factors, we consider that they are not uncommon in the biodiesel business and shall not be the particular barriers for the Company to retain the investment in the biodiesel industry. We understand that the Board has given a prudent and thorough assessment of such risk factors against the benefits expected to be brought by the non-exercise of the Put Option. In particular, the Directors, based on the market value of 100% equity interest in Dynamic of approximately HK$58 million as at 31 March 2010 as set out under the Valuation Report, are of the view that the potential return of the non-exercise of the Put Option outweighs the related risks.

As regards the risk associated with the renewal of prerequisite permits and license, the Board is confident that Dynamic will encounter no difficulties in the renewal of the relevant permits and license before their exploration, as such, we concur with the Directors’ view that the risk is manageable in this regard.

In summary, given (i) the biodiesel business is in line with the Group’s strategy to explore business opportunities with a high growth potential; (ii) business development and prospects of Dynamic; (iii) the positive outlook of the biodiesel industry in Hong Kong (the details of which are set out in the section headed “Outlook of the biodiesel industry in Hong Kong” below); (iv) the market value of a 100% equity interest in Dynamic of approximately HK$58 million as advised by the Valuer, and (v) the risk factors associated with the non-exercise of the Put Option are acceptable, we recognise the commercial reasoning of non-exercise of the Put Option and concur with the Company’s expectation above. Accordingly, we are of the view that the non-exercise of the Put Option is in the interests of the Company and the Shareholders as a whole.

7 Outlook of the biodiesel industry in Hong Kong

(i) Brief overview of biodiesel market

Biodiesel can be used for generating fuels for motor vehicles. Due to concerns over the supply of crude oil as well as environment issues on energy, a gradual switch from traditional petroleum-based diesel to sustainable source of energy, such as biodiesel, appears to be inevitable in Hong Kong.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Government support

The Hong Kong government has a positive attitude towards the biodiesel industry which supplies renewable energy and reduces carbon emissions. According to the speech by the Secretary for the Environment of Hong Kong, Mr. Edward Yau, at the Clean Energy Forum on 17 May 2010, in early 2010, the PRC announced her action agenda to reduce the country’s carbon intensity by 40% to 45% from the 2005 level by 2020. Hong Kong will seek to follow on this aim. In addition, with the blessing of the central government of the PRC, in early 2010, Guangdong and Hong Kong signed a framework agreement for bilateral co-operation to build a Green Pearl River Delta areas and the concept of which are to be included in the incoming 12th Five Year Plan of the PRC to be finalized in 2011. The development of biodiesel is expected to receive further support from the Hong Kong government. In fact, as stated by the Secretary for the Environment, promoting renewable energy is a key area of Hong Kong’s clean energy strategy and the use of clean fuels is instrumental in reducing roadside emissions. The Hong Kong government is constantly updating its policy on biodiesel. In addition to a standing duty-free policy, the statutory control over the specification and labeling requirements of motor vehicle biodiesel will come into effect in July 2010. These regulations can provide more incentives, confidence and environmental awareness for potential users to use biodiesels.

In anticipation of the positive industry outlook, it is expected that the demand for biodiesel will increase which should have a positive effect on Dynamic’s operating performance. Therefore, we consider that the non-exercise of the Put Option represents an opportunity for the Group to capture the upside potential of the biodiesel industry in Hong Kong which is expected to be benefited from the active Hong Kong government support.

8 Valuation

We understand from the Company that Roma Appraisals Limited, an independent valuer (the “ Valuer ”) has been instructed by the management of the Company to analyse and provide opinion on the market value of a 100% equity interest in Dynamic. A copy of the independent valuation report (the “ Valuation Report ”) is set out in appendix I to the Circular.

During our discussion with the Valuer, we have not identified any major factors which cause us to doubt the fairness and reasonableness of the principal basis and assumptions adopted for the Valuation Report. However, Shareholders should note that valuation of assets or companies usually involves assumptions and therefore the Valuation Report may or may not reflect the true market value of Dynamic accurately. We have no reason to doubt the fairness and appropriateness of the methodology adopted and assumptions made by the Valuer in arriving at the relevant valuation.

As set out in the Valuation Report, the Valuer has conducted the valuation in accordance with the guidelines set by the International Valuation Standards issued by International Valuation Standards Committee. For the purpose of the valuation, the Valuer has been furnished with the financial and operational data related to Dynamic, which were

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

provided by the Company. The valuation of Dynamic required consideration of all pertinent factors, which may or may not affect the operation of the business and its ability to generate future investment returns. The factors considered by the Valuer in the valuation included, but are not necessarily limited to, the following:

the nature and prospect of Dynamic;
the financial condition of Dynamic;
economic outlook in general and the specific economic environment and market elements affecting the business, industry and market;
the stage of development of Dynamic;
the current production capacity of Dynamic;
relevant licenses and agreements;
business risk of Dynamic such as the ability in maintaining competent technical and professional personnel; and
Investment returns and market transactions of entities engaged in similar lines of business.

As part of our due diligence, we have discussed with the Valuer regarding, inter alias, (i) the major assumptions behind the Valuation Report, (ii) the methodologies adopted; and (iii) the basis of marketability discount in arriving at the relevant valuation.

In this connection, we understand that the Valuer has considered three generally accepted valuation methods, namely the market-based approach, income-based approach and asset-based approach. According to the Valuation Report, among the three approaches, the Valuer considers the market-based approach to be the most appropriate method to assess the market value of Dynamic. We understand from the Valuer that the income-based approach is not appropriate in this case as a lot of assumptions will have to be made and the valuation could be largely influenced by any inappropriate assumptions made. Regarding the asset-based approach, the Valuer also considered that this is not appropriate for valuing the market value of Dynamic as this approach cannot reflect the market value of Dynamic. The market-based approach, instead, relies generally on deriving value through comparing prices at which other business entities in a similar nature changed hands in arm’s length transactions.

Based on our discussion with the Valuer, we consider that, the assumptions, the basis and the methodology for the valuation of Dynamic are fair and reasonable.

Having considered all of the above, we consider the Valuation Report provides a good reference for Independent Shareholders to assess the fairness and reasonableness of the non-exercise of the Put Option. On the basis that the Sales Shares are valued at approximately HK$29.58 million under the Valuation Report, and when aggregated with the

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face value of the Sale Loan of HK$10 million, the aggregate value of the Sale Shares and the Sale Loan of approximately HK$39.58 million represents a premium of 55.8% of the exercise price of the Put Option of HK$25.4 million, we are of the opinion that the non-exercise of the Put Option is fair and reasonable so far as the Independent Shareholders are concerned.

9 Possible financial effects

The following summarises the possible financial effects on the Group as a result of the exercise of the Put Option. We would like to draw the attention of the Independent Shareholders that provided that the Put Option is not exercised, based on the Group’s consolidated accounts for the year ended 31 December 2009, there would be no financial effects on the Group.

(i) Accounting effect

In the event that the Put Option is exercised by the Group, the Group would cease to have any shareholding interests or shareholder’s loan to Dynamic, as such, Dynamic will cease to be a subsidiary of the Group and their financial results will not be consolidated into the Group’s financial results.

Based on the Dynamic Audited Accounts (2009), the loss of the biodiesel products segment for the year ended 31 December 2009 was approximately HK$8.4 million. If the Put Option had been exercised and Dynamic was not a subsidiary of the Group during the year ended 31 December 2009, such loss will not be consolidated into the Group’s consolidated accounts for the year ended 31 December 2009. The profit for the year ended 31 December 2009 of the Group will then increase by HK$8.4 million, 51% of which or HK$4.3 million will be entitled by the equity holders of the Company and the profit attributable to the equity holders of the Company will increase by the same amounts accordingly.

On the other hand, the Group will record a gain on disposal (subject to audit) upon the exercise of the Put Option of approximately HK$18.9 million, which is determined by comparing the proceeds of the exercise price of the Put Option of approximately HK$25.4 million to the adjusted carrying value of Dynamic attributable to the Sale Shares of approximately HK$6.5 million, being the aggregate amount of, as at 31 December 2009, (i) the aggregate carrying value of the Sale Shares and the Sale Loan of a deficit of approximately HK$2.3 million; and (ii) the carrying amount of the intangible assets of Dynamic attributable to the Group of approximately HK$8.8 million.

(ii) Cash position, gearing and total equity

Based on the 2009 Annual Report, the Group had cash and cash equivalents of approximately HK$91.17 million as at 31 December 2009. If the Put Option had been exercised by the Company during the year ended 31 December 2009, the cash and cash equivalents of the Group as at 31 December 2009 will be increased by HK$25 million,

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

being the difference between the total exercise price of the Put Option of approximately HK$25.4 million and the non-consolidation of the Dynamic’s cash and cash equivalents of approximately HK$0.4 million.

Based on Dynamic Audited Accounts (2009), Dynamic had net liabilities of HK$24.14 million as at 31 December 2009. If the Put Option had been exercised by the Company during the year ended 31 December 2009, the total equity of the Group will be increased by HK$12.31 million, being 51% of the share of the reduction in the net liabilities attributable to Dynamic. Given that the equity of the Group would increase, the gearing ratio is expected to improve as a result of the exercise of the Put Option.

10 View

In summary, we have the following analysis and opinion:

(i) as far as business prospects of Dynamic is concerned, we consider there is a growth potential for biodiesel products, based particularly on industry overview on the biodiesel in Hong Kong and its government supportive nature; and
(ii) notwithstanding that the unsatisfactory performance of Dynamic during the year of 2009 and its products are newly developed which marketability is uncertain, Dynamic has actually commenced commercialization of biodiesel products in late 2008;

Based on the above, we consider that non-exercise of the Put Option is, on balance, in the interests of the Company and the Shareholders. Despite the consecutive loss-making financial performance of Dynamic since its incorporation, the non-exercise of the Put Option represents an opportunity for the Company to diversify its business into the fast growing environmentally-friendly biodiesel business which is entitled to widespread governmental support.

RECOMMENDATIONS

Having considered the principal factors and reasons referred to above, we consider that the non-exercise of the Put Option is in the interests of the Company and the Shareholders as a whole, and is fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the non-exercise of the Put Option.

For and on behalf of GF Capital (Hong Kong) Limited Dino Ng

Managing Director and Co-head of Corporate Finance

– 29 –

APPENDIX I

VALUATION REPORT

==> picture [106 x 75] intentionally omitted <==

Room 1603, Tung Chiu Commercial Centre, 193 Lockhart Road, Wan Chai, Hong Kong Tel (852) 2529 6878 Fax (852) 2529 6806 E-mail [email protected] http://www.roma-international.com

8 June 2010

Alltronics Holdings Limited Room 1108, 11th Floor, Eastwood Centre 5 A Kung Ngam Village Road Shau Kei Wan, Hong Kong

Dear Sir/Madam,

Re: Valuation of the 100% equity interest in Dynamic Progress International Limited

In accordance with the instructions from Alltronics Holdings Limited (hereinafter referred to as the “Company”) to us to conduct a business valuation on the 100% equity interest in Dynamic Progress International Limited (hereinafter referred to as the “Business Enterprise”), we are pleased to report that we have made relevant enquiries and obtained other information which we consider are relevant for the purpose of providing our valuation as at 31 March 2010 (hereinafter referred to as the “Date of Valuation”).

This report states the purpose and basis of valuation, scope of work, economic and industry overview, an overview of the Business Enterprise, major assumptions, valuation methodology, limiting conditions, and presents our opinion of value.

This report has been prepared in accordance with the guidelines set by the International Valuation Standards published by the International Valuation Standards Committee.

1. PURPOSE OF VALUATION

This report is prepared solely for the use of the directors and management of the Company. The Company is a public company listed on the Main Board of The Stock Exchange of Hong Kong Limited (Stock Code: 833.HK). In addition, Roma Appraisals Limited (“Roma Appraisals”) acknowledges that this report may be made available to the independent financial adviser of the Company and used as one of the sources of information and bases in formulating its advice to the independent non-executive directors of the Company and independent shareholders of the Company and if requested, The Stock Exchange of Hong Kong Limited. This report may also be included in the Company’s circular dated 8 June 2010.

Roma Appraisals assumes no responsibility whatsoever to any person other than the Company in respect of, or arising out of, the contents of this report. If others choose to rely in any way on the contents of this report they do so entirely on their own risk.

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VALUATION REPORT

APPENDIX I

2. SCOPE OF WORK

Our valuation conclusion is based on the assumptions stated herein and on information provided by the management of the Company, and/or its representative (together referred to as the “Management”).

In preparing this report, we have had discussions with the Management in relation to the development, operations and other relevant information of the Business Enterprise. As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Business Enterprise provided to us by the Management and have considered such information and data as attainable and reasonable.

We have no reason to believe that any material facts have been withheld from us, however, we do not warrant that our investigations have revealed all of the matters which an audit or more extensive examination might disclose.

3. ECONOMIC AND INDUSTRY OVERVIEW

3.1 Economy of Hong Kong

Hong Kong has long been a free market economy highly dependent on international trade and finance. For this reason it was heavily exposed to the global economic turmoil that began in 2008 which resulted in a sharp drop of the Gross Domestic Product (“GDP”) of Hong Kong in the first quarter in 2009. Since then, the economy of Hong Kong has been recovering. The GDP of Hong Kong in the fourth quarter in 2009 was HK$446,009 million, a 6.49% increase over the last quarter and 2.80% higher than the same quarter in 2008. Figure 1 and Figure 2 illustrate the trend of Hong Kong’s GDP over the past few quarters.

Figure 1 – Hong Kong’s GDP from the 1st Quarter in 2008 to the 4th Quarter in 2009

==> picture [353 x 178] intentionally omitted <==

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

450000
440000
430000
420000
410000
400000
390000
380000
370000
2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4
GDP (millions HK$)
----- End of picture text -----

Source: Hong Kong Census and Statistics Department

– 31 –

VALUATION REPORT

APPENDIX I

Figure 2 – Percentage Change of Hong Kong’s GDP from the 1st Quarter in 2008 to the 4th Quarter in 2009

==> picture [354 x 179] intentionally omitted <==

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

10.00%
5.00%
0.00%
2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q1 2009 Q1 2009 Q1
-5.00%
-10.00%
-15.00%
Percentage Change in GDP
----- End of picture text -----

Source: Hong Kong Census and Statistics Department

3.2 Overview of the Biodiesel Industry in Hong Kong

In recent years, there has been an increasing concern for energy and environmental issues around the world. In order to satisfy the energy demand and ensure sustainable development, many countries have turned to renewable power generation. As a result, there is a great development potential in the industry.

Biodiesels are seen as potential alternative to fossil fuels, because they can be manufactured from various sustainable sources. Biodiesel feedstock available in Hong Kong includes waste cooking oil and animal fats. According to Asia-Pacific Economic Cooperation, about 10,000 liters of used cooking oil are produced in Hong Kong every day, which translates into around 3.5 million liters of biodiesel per year.

Motor vehicle emission is one of the most pressing issues leading to serious air pollution problems within Hong Kong. To cope with the situation, the government of Hong Kong has adopted many programs and measures focused on improving the fuel quality and efficiency. Biofuels and especially biodiesel have also been considered in recent years. The government of Hong Kong is highly supportive of the utilization of biodiesel and has already introduced a duty-free policy on its use.

The recent global financial crisis has had a major effect on the industry. The sharp decline in crude oil price, together with the slower growth of downstream industries including the logistic industry and the passenger vehicle industry has lead to a considerable drop to the price and demand for biodiesel in 2008 and in 2009.

However, given the public’s increasing environmental concern and the limitation of the quantity of crude oil, the biodiesel market is expected to recover gradually from the current recession in 2010.

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VALUATION REPORT

APPENDIX I

4. THE BUSINESS ENTERPRISE

The Business Enterprise is a private limited liability company incorporated in Hong Kong on 3 January 1997 and has remained dormant since incorporation until 1 June 2005. Since June 2005, a significant amount of investment was provided to the Business Enterprise for its initial working capital and setting up of various plants and equipments in Hong Kong for the production of biodiesel.

The Business Enterprise is principally engaged in scientific research and development of environmental recycling and protection in Hong Kong, including the production of biodiesel. Biodiesel produced from renewable and biological resources such as waste oils, vegetable oils or animal fats is a viable alternative fuel to conventional petroleum-based diesel. It is expected that alternative fuels such as biodiesel can significantly reduce global dependence on crude oil. In order to give priority to the use of vegetable oils for food consumption purposes, the Business Enterprise focuses on using waste oils or oils from plants not used for food consumption as feedstock for the production of biodiesel.

As at the Date of Valuation and to the best knowledge of the management of the Business Enterprise, the Business Enterprise is the first and currently the only company in Hong Kong with all the relevant government licenses required for the manufacturing and storage of biodiesel. These licenses included various licenses issued by the Fire Services Department, Environmental Protection Department and Customs & Excise Department.

5. BASIS OF VALUATION

Our valuation is based on going concern premise and conducted on a market value basis. Market value is defined as “the estimated amount for which an asset could be exchanged, or a liability settled, between willing parties in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

6. INVESTIGATION AND ANALYSIS

Our investigation included discussions with members of the Management in relation to the development, operations and other relevant information of the Business Enterprise. In addition, we have made relevant inquiries and obtained further information and statistical figures regarding the economy of Hong Kong as we considered necessary for the purpose of valuation.

As part of our analysis, we have reviewed such financial information and other pertinent data concerning the Business Enterprise provided to us by the Management and had considered such information and data as attainable and reasonable. We have also consulted other sources of financial and business information.

– 33 –

VALUATION REPORT

APPENDIX I

The valuation of the Business Enterprise requires consideration of all pertinent factors, which may or may not affect the operation of the business and its ability to generate future investment returns. The factors considered in our valuation include, but are not necessarily limited to, the followings:

The nature and prospect of the Business Enterprise;
The financial condition of the Business Enterprise;
The economic outlook in general and the specific economic environment and market elements affecting the business, industry and market;
The stage of development of the Business Enterprise;
The current production capacity of the Business Enterprise;
Relevant licenses and agreements;
The business risk of the Business Enterprise such as the ability in maintaining competent technical and professional personnel; and
Investment returns and market transactions of entities engaged in similar lines of business.

7. VALUATION METHODOLOGY

There are generally three accepted approaches to obtain the market value of the Business Enterprise, namely the Market-Based Approach, Income-Based Approach and Asset-Based Approach. Each of these approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a particular approach will be determined by the most commonly adopted practice in valuing business entities that are similar in nature.

7.1 Market-Based Approach

The Market-Based Approach values a business entity by comparing prices at which other business entities in a similar nature changed hands in arm’s length transactions. The underlying theory of this approach is that one would not pay more than one would have to for an equally desirable alternative. By adopting this approach, the valuer will first look for valuation indication of prices of other similar business entities that have been sold recently.

The right transactions employed in analyzing indications of values need to be sold at an arm’s length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell.

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VALUATION REPORT

APPENDIX I

7.2 Income-Based Approach

The Income-Based Approach focuses on the economic benefits due to the income producing capability of the business entity. The underlying theory of this approach is that the value of the business entity can be measured by the present worth of the economic benefits to be received over the useful life of the business entity. Based on this valuation principle, the Income-Based Approach estimates the future economic benefits and discounts them to their present values using a discount rate appropriate for the risks associated with realizing those benefits.

Alternatively, this present value can be calculated by capitalizing the economic benefits to be received in the next period at an appropriate capitalization rate. This is subject to the assumption that the business entity will continue to maintain stable economic benefits and growth rate.

7.3 Asset-Based Approach

The Asset-Based Approach is based on the general concept that the earning power of a business entity is derived primarily from its existing assets. The assumption of this approach is that when each of the elements of working capital, tangible and intangible assets is individually valued, their sum represents the value of a business entity and equals to the value of its invested capital (“equity and long term debt”). In other words, the value of the business entity is represented by the money that has been made available to purchase the business assets needed.

This money comes from investors who buy stocks of the business entity (“equity”) and investors who lend money to the business entity (“debt”). After collecting the total amounts of money from equity and debt, and converted into various types of assets of the business entity for its operation, their sum equals the value of the business entity.

7.4 Business Valuation

In the process of valuing the Business Enterprise, we have taken into account of the uniqueness of its operation and the industry it is participating. The Income-Based Approach is not adopted because a lot of assumptions will have to be made and the valuation could be largely influenced by any inappropriate assumptions made. The Asset-Based Approach is not adopted because it cannot reflect the market value of the Business Enterprise. We have therefore considered the adoption of Market-Based Approach in arriving at the market value of the Business Enterprise.

By adopting the Market-Based Approach, we have to determine the appropriate value multiples of similar companies, in which we have considered price to sales, price to earnings and price to book ratio. In this valuation, we have adopted the price to sales ratio, in which we considered as the most appropriate method to value companies in the developing biodiesel industry.

– 35 –

VALUATION REPORT

APPENDIX I

In the course of our valuation, we have carried out searches for comparable companies from public sources, including The Stock Exchange of Hong Kong Limited and a number of stock exchanges worldwide. With our utmost care and best endeavors to include as much as possible the suitable and relevant comparable companies as we were aware and those that were come to our attention.

To the best of our knowledge, we are not aware of any comparable companies engaged in the biodiesel industry which are listed in Hong Kong. We have hence expanded our research and have selected comparable companies which are engaged in the biodiesel business in other countries all over the world.

Based on our research, we have considered eleven comparable companies listed in various stock exchanges worldwide, including United States, United Kingdom, Australia, Singapore, and Poland. Among the eleven comparables, two of them were excluded as there was insufficient financial information, and the remaining nine companies were regarded as the comparable companies of the Business Enterprise (hereinafter referred to as the “Comparable Companies”).

Details of the Comparable Companies are as follows:

Comparable			Place of
Company		Place of	Principal
(Bloomberg ticker)	Principal Business	Listing	Business
China Biodiesel	This company researches and develops,	United	China
International	manufactures, markets, and sells biodiesel	Kingdom
Holding Co., Ltd.	products.
(CBI. LN)
Gushan Environmental	This company produces biofuel. The	United	China
Energy Limited	company produces biodiesel and by-products	States
(GU.US)	of biodiesel production, including glycerine,
	plant asphalt, erucic acid and erucic amide.
China Clean Energy	This company, through its subsidiary,	United	China
Inc. (CCGY.US)	develops, manufactures, and distributes	States
	biodiesel fuel and specialty chemical products
	made from renewable resources. The
	company refines biodiesel fuel from waste
	grease and vegetable oils.
Australian Renewable	This company produces biodiesel, a clean	Australia	Australia
Fuels Limited	burning diesel fuel produced from renewable
(ARW.AU)	resources such as animal fats and vegetable
	oils.
Pure Biofuels	This company is developing the Callao Port	United	United
Corporation	biodiesel refinery near Lima, Peru.	States	States
(PBOF.US)
Momentum Biofuels,	This company manufactures biodiesel fuels	United	United
Inc. (MMBF.US)	from vegetable oils. It markets to local	States	States
	distributors, jobbers, and state and local
	government fleets.

– 36 –

VALUATION REPORT

APPENDIX I

Comparable			Place of
Company		Place of	Principal
(Bloomberg ticker)	Principal Business	Listing	Business
Lereno Bio-Chem	This company produces biodiesel fuels. It	Singapore	Malaysia
Limited (LBIO.SP)	uses vegetable oils in the manufacture of its
	product.
SKOTAN SA	This company produces and sells biofuels in	Poland	Poland
(SKT.PW)	Poland. It also trades conventional fuels such
	as diesel and motor gasoline. SKOTAN SA
	produces bio-components such as fatty acid
	methyl esters.
New Generation	This company is a renewable fuels provider.	United	United
Biofuels Holdings,	It holds a license for North America, Central	States	States
Inc. (NGBF.US)	America and the Caribbean to commercialize
	its own technology to manufacture alternative
	biofuels from vegetable oils and animal fats.

Price to sales ratio of an entity is obtained by dividing its market value of equity by its annual sales. The price to sales ratio employed in this valuation is the median price to sales ratio of the Comparable Companies that are similar in business nature. The price to sales ratios of the Comparable Companies as extracted from Bloomberg as at the Date of Valuation are shown as follows:

Comparable Company

Price to Sales Ratio

China Biodiesel International Holding Co., Ltd. (CBI. LN) Gushan Environmental Energy Limited (GU.US) China Clean Energy Inc. (CCGY.US) Australian Renewable Fuels Limited (ARW.AU) Pure Biofuels Corporation (PBOF.US) Momentum Biofuels, Inc. (MMBF.US) Lereno Bio-Chem Limited (LBIO.SP) SKOTAN SA (SKT.PW) New Generation Biofuels Holdings, Inc. (NGBF.US) Median	0.27 1.05 1.34 3.43 10.48 12.91 42.05 80.21 113.60
	10.48

The equity value of the Business Enterprise is hence obtained by multiplying the price to sales ratio by the trailing 12 months sales of the Business Enterprise as at 31 March 2010 which equals to HK$7,930,463. A 30% marketability discount has been given in arriving at our opinion of value.

– 37 –

VALUATION REPORT

APPENDIX I

8 MAJOR ASSUMPTIONS

We have adopted certain specific assumptions in our valuation and the major ones are as follows:

All relevant legal approvals and business certificates or licenses to operate the business in the localities in which the Business Enterprise operates or intends to operate would be officially obtained and renewable upon expiry;
There will be sufficient supply of technical staff in the industry in which the Business Enterprise operates, and the Business Enterprise will retain competent management, key personnel and technical staff to support its ongoing operations and developments;
There will be no major change in the current taxation laws in the localities in which the Business Enterprise operates or intends to operate and that the rates of tax payable shall remain unchanged and that all applicable laws and regulations will be complied with;
There will be no major change in the political, legal, economic or financial conditions in the localities in which the Business Enterprise operates or intends to operate, which would adversely affect the revenues attributable to and profitability of the Business Enterprise; and
Interest rates and exchange rates in the localities of the operation of the Business Enterprise will not differ materially from those presently prevailing.

9 INFORMATION REVIEWED

Our opinion requires consideration of relevant factors affecting the market value of the Business Enterprise. The factors considered included, but were not necessarily limited to, the following:

Financial statements of the Business Enterprise;
Historical information of the Business Enterprise;
Market trends of the industry and other dependent industries;
General descriptions in relation to the Business Enterprise; and
Economic outlook in Hong Kong.

We have discussed the details with the Management. We have also conducted research from various sources to verify the reasonableness and fairness of information provided and we believe that such information is reasonable and reliable. We had assumed the accuracy of information provided and relied to a considerable extent on such information in arriving at our opinion of value.

– 38 –

VALUATION REPORT

APPENDIX I

10 LIMITING CONDITIONS

The valuation reflects facts and conditions existing at the Date of Valuation. Subsequent events have not been considered and we are not required to update our report for such events and conditions.

To the best of our knowledge, all data set forth in this report are reasonable and accurately determined. The data, opinions, or estimates identified as being furnished by others that have been used in formulating this analysis are gathered from reliable sources; yet, no guarantee is made nor liability is assumed for their accuracy.

We have relied to a considerable extent on information provided by the Management in arriving at our opinion of value. We are not in the position to verify the accuracy of all information provided to us. However, we have had no reason to doubt the truth and accuracy of the information provided to us and to doubt that any material facts have been omitted from the information provided. No responsibilities for the operation and financial information that have not been provided to us are accepted.

We have not investigated the title to or any legal liabilities of the Business Enterprise and have assumed no responsibility for the title to the Business Enterprise appraised.

We would particularly point out that our valuation was based on the information such as the company background, business nature and market share of the Business Enterprise provided to us.

Our conclusion of the market value was derived from generally accepted valuation procedures and practices that rely substantially on the use of various assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained.

We assume no responsibility whatsoever to any person other than the directors and management of the Company in respect of, or arising out of, the content of this report. If others choose to rely in any way on the contents of this report, they do so entirely on their own risk.

11 REMARKS

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

We hereby confirm that we have neither present nor prospective interests in the Company, the Business Enterprise and the associated companies, or the values reported herein.

12 OPINION OF VALUE

Based on the investigation and analysis stated above and on the valuation method employed, the market value of 100% equity interest in the Business Enterprise as at the Date of Valuation, in our opinion, is reasonably stated as HK$58,000,000 (HONG KONG DOLLARS FIFTY EIGHT MILLION ONLY) .

Yours faithfully, For and on behalf of Roma Appraisals Limited

Kelvin Luk

BSc (Actuarial Sci.) PDip (Acct.) MIBA Director

Carman Li BBA CPA Manager

– 39 –

GENERAL INFORMATION

APPENDIX II

RESPONSIBILITY STATEMENT

This document, for which the Directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this document is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this document misleading.

SHARE CAPITAL

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

HK$

Authorised share capital:

10,000,000,000 Shares Issued: 314,320,000 issued Shares	100,000,000

	3,143,200

All the issued Shares rank pari passu with each other in all respects including the rights to voting, dividends and return of capital.

As at the Latest Practicable Date, there were no options granted and remain outstanding under the Company’s share option scheme.

DISCLOSURE OF INTERESTS

Directors and chief executive

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

– 40 –

GENERAL INFORMATION

APPENDIX II

(i) Interests in the Shares of the Company:

						% of the
			Number	of Shares		issued share
		Personal	Family	Corporate		capital of the
Name of Director		interests	interests	interests	Total	Company
Mr Lam Yin Kee	Long positions	12,449,000	–	210,000,000	222,449,000	70.8%
		(Note 1)		(Note 2)
Ms Yeung Po Wah	Long positions	–	222,449,000	–	222,449,000	70.8%

Notes:

Each of Mr Lam Yin Kee and Ms Yeung Po Wah is taken to be interested in the entire 5,500,000 Consideration Shares comprised in the Deferred Consideration pursuant to Part XV of the SFO and such Shares have been included in the 12,449,000 Shares as shown above.
210,000,000 Shares are owned by Profit International Holdings Limited, a company incorporated in the British Virgin Islands and is owned as to 95% by Mr Lam Yin Kee and 5% by Ms Yeung Po Wah. Ms Yeung Po Wah is an executive Director of the Company and the spouse of Mr Lam Yin Kee.
Mr Lam Yin Kee and Ms Yeung Po Wah are directors and beneficial owners of Profit International Holdings Limited.
(ii) Interests in an associated corporation:

Name: Profit International Holdings Limited (Ordinary shares of US$1 each)

						% of the
			Number of shares			issued share
						capital of the
		Personal	Family	Corporate		associated
Name of Director		interests	interests	interests	Total	corporation
Mr Lam Yin Kee	Long positions	950	–	–	950	95.0%
Ms Yeung Po Wah	Long positions	50	–	–	50	5.0%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company held any interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange.

– 41 –

GENERAL INFORMATION

APPENDIX II

SERVICE CONTRACTS

None of the Directors has any existing or proposed service contracts with the Company or any of its subsidiaries other than contracts expiring or determinable by the Group within one (1) year without payment of compensation (other than statutory compensation).

DIRECTORS’ OTHER INTERESTS

Save for (a) the Put Option Agreement in which Mr Lam is interested; (b) the tenancy agreement dated 28 March 2009 (“Tenancy Agreement”) between Alltronics Tech. Mftg. Limited (a wholly-owned subsidiary of the Company) as tenant and Profit Home Investments Limited (in which Ms Yeung Po Wah, an executive Director, is a director and holds 60% shareholding interest) as landlord under which the Group has rented Flat B, 39th Floor, Broadview Villa, 20 Broadwood Road, Happy Valley, Hong Kong as Director’s quarter at a monthly rental of HK$100,000 from 1 April 2009 to 31 March 2011; and (c) personal guarantees dated 28 June 2007, 19 September 2008 and 12 November 2008 (collectively, “Guarantees”) given by Mr Lam up to HK$20,000,000 to banks in respect of banking facilities granted to Dynamic, none of the Directors:

had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group as at the Latest Practicable Date since 31 December 2009 (being the date to which the latest published audited accounts of the Group were made up); and
was materially interested in any contract or arrangement entered into by any member of the Group which contract or arrangement was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

COMPETING INTERESTS

None of the Directors or their respective associate(s) was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

EXPERTS AND CONSENTS

The following is the qualification of each of the experts who have given opinion or advice as contained in this circular:

Name	Qualification
GF Capital (Hong Kong) Limited	A licensed corporation to carry on		Type 6
	(advising on	corporate finance)	regulated
	activities under	the SFO.
Roma Appraisals Limited	An independent	professional valuer

– 42 –

GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, the above experts did not have:

any direct or indirect interest in any assets which have since 31 December 2009 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group; and
any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Each of the above experts has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter or report and reference to its name, in the form and context in which it is included.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, there had been no material adverse change in the financial or trading position of the Group since 31 December 2009, being the date to which the latest published audited financial statements of the Group were made up.

LITIGATION

So far as the Directors are aware, no member of the Group was engaged in any litigation, arbitration or claims of material importance and no litigation, arbitration or claims of material importance was known to the Directors to be pending or threatened by or against any member of the Group as at the Latest Practicable Date.

MISCELLANEOUS

The registered office of the Company is situated at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal place of business of the Company in Hong Kong is situated at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong.
The qualified accountant and secretary of the Company is Mr Leung Fuk Cheung. He is currently a fellow member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.
The branch share registrar of the Company in Hong Kong is Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

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GENERAL INFORMATION

APPENDIX II

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principal place of business of the Company in Hong Kong at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong during normal business hours on any business day from the date hereof up to and including the date of the EGM:

the Put Option Agreement, the Biodiesel Acquisition Agreement, the Tenancy Agreement and the Guarantees;
the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders as set out in this circular;
the Valuation Report as set out in appendix I of this circular; and
the consent letters of the Independent Financial Adviser and the Valuer as referred to in the section headed “Experts and consents” in this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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ALLTRONICS HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 833)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “Meeting”) of Alltronics Holdings Limited (the “Company”) will be held at Room 1108, 11th Floor, Eastwood Centre, 5 A Kung Ngam Village Road, Shau Kei Wan, Hong Kong on Monday, 28 June 2010 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution or resolutions of the Company which will be proposed as ordinary resolution or resolutions:

ORDINARY RESOLUTIONS

“ THAT , the non-exercise of the Put Option (as defined in the circular dated 8 June 2010 of the Company) be and is hereby approved.”
“ THAT , subject to ordinary resolution numbered 1 set out in the notice convening the extraordinary general meeting of the Company dated 8 June 2010 of which this resolution forms part not being passed, the exercise of the Put Option (as defined in the circular dated 8 June 2010 of the Company) be and is hereby approved.”

On behalf of the Board Alltronics Holdings Limited Lam Yin Kee Chairman

Hong Kong, 8 June 2010 Registered office: Principal place of business Cricket Square in Hong Kong: Hutchins Drive, P.O. Box 2681 Room 1108, 11th Floor Grand Cayman KY1-1111 Eastwood Centre Cayman Islands 5 A Kung Ngam Village Road Shau Kei Wan Hong Kong

Notes:

A member of the Company who is entitled to attend and vote at the Meeting convened by the above notice is entitled to appoint a proxy to attend and vote on his behalf.
A proxy need not be a member of the Company but must attend in person to represent the member.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is so appointed.
In order to be valid, the form of proxy (enclosed under the circular of the Company dated the same date of this notice) together with any power of attorney or other authority under which it is signed, or a certified copy of such power of attorney or authority, must be deposited with the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for holding the Meeting, or any adjournment thereof. Delivery of the form of proxy shall not preclude a member of the Company from attending and voting in person at the meeting and in such event, the instrument appointing a proxy shall be deemed to be revoked.

As at the date of this notice, the Board of the Company comprises Mr Lam Yin Kee, Ms Yeung Po Wah and Mr So Kin Hung as executive directors; Mr Fan, William Chung Yue as non-executive director; and Ms Yeung Chi Ying, Mr Yau Ming Kim, Robert and Mr Leung Kam Wah as independent non-executive directors.

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AI assistant

Alltronics Holdings Limited — Proxy Solicitation & Information Statement 2010

49498_rns_2010-06-07_b511771d-d067-4b50-a77b-836b0861d274.pdf

ALLTRONICS HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

ALLTRONICS HOLDINGS LIMITED

Mr Lam Yin Kee (Chairman)

Ms Yeung Po Wah # Mr So Kin Hung

To the Shareholders

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A. INTRODUCTION

LETTER FROM THE BOARD

B. BACKGROUND

C. THE PUT OPTION

(a) Date

(b) Parties

(c) Subject matter

(d) Consideration

(e) Put Option Period

D. THE PROFIT GUARANTEE UNDER THE BIODIESEL ACQUISITION AGREEMENT

LETTER FROM THE BOARD

E. REASONS FOR, AND BENEFITS OF, THE NON-EXERCISE OF THE PUT OPTION

LETTER FROM THE BOARD

(i) The lack of operating history of Dynamic and retaining a loss making business segment in the Group

(ii) Fluctuation in the crude oil prices

(iii) Uncertainty of demand for biodiesel and yet-to-be proven growing sales trend of biodiesel in Hong Kong and yet-to-be proven large scale market acceptance and application of biodiesel as alternative green energy in Hong Kong

(iv) Uncertainties of the effectiveness of government regulations on the use of biodiesel

(v) Renewals of prerequisite permits and licenses

(vi) Need for an experienced management team to operate Dynamic

(vii) The threats of competition from similar or substitutable products available in the market, or due to technological changes or advancement

F. THE EGM

LETTER FROM THE BOARD

G. GENERAL

ALLTRONICS HOLDINGS LIMITED

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS

DISCLOSEABLE AND CONNECTED TRANSACTION

PUT OPTION IN RESPECT OF THE GROUP’S 51% EQUITY AND LOAN INTERESTS IN BIODIESEL BUSINESS

INTRODUCTION

INDEPENDENT BOARD COMMITTEE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1 The Acquisition

2 The Put Option

3 Information of the Group

3.1 Principal business of the Group

3.2 Financial performance of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4 Information of Dynamic

4.1 Principal business of Dynamic

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.3 Business development of Dynamic

5 Reasons for, and benefits of the non-exercise of the Put Option

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6 Risk factors of the non-exercise of the Put Option

7 Outlook of the biodiesel industry in Hong Kong

(i) Brief overview of biodiesel market

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Government support

8 Valuation

9 Possible financial effects

(i) Accounting effect

(ii) Cash position, gearing and total equity

10 View

RECOMMENDATIONS

For and on behalf of GF Capital (Hong Kong) Limited Dino Ng

APPENDIX I

VALUATION REPORT

Re: Valuation of the 100% equity interest in Dynamic Progress International Limited

1. PURPOSE OF VALUATION

2. SCOPE OF WORK

3. ECONOMIC AND INDUSTRY OVERVIEW

Alltronics Holdings Limited Proxy Solicitation & Information Statement 2010