CASH Financial Services Group Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in CASH Financial Services Group Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities.

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 Bermuda with limited liability)

(Stock code: 510)

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE PROPOSED ISSUE OF CONVERTIBLE NOTE(S) – PROPOSED ACQUISITION OF HONG KONG RETAIL BUSINESS

CONTINUING CONNECTED TRANSACTIONS – PROPOSED INTRA-GROUP ACTIVITIES

AND

NOTICE OF SPECIAL GENERAL MEETING

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

Grand Vinco Capital Limited

Wholly-owned subsidiary of Vinco Financial Group Limited

A notice convening a special general meeting of CASH Financial Services Group Limited to be held at 28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong on 11 June 2009 (Thursday) at 9:00 am is set out on pages 190 to 192 of this circular. A letter from the Independent Financial Adviser (as defined herein) containing its advice to the Independent Board Committee (as defined herein) and the Independent Shareholders (as defined herein) in relation to, inter alia, the S&P Agreement (as defined herein), the Convertible Note(s) (as defined herein) and the Agreements (as defined herein) is set out on pages 43 to 61 of this circular. Whether or not you are able to attend the meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event by no later than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting. Completion and return of a form of proxy will not preclude you from attending and voting at the meeting should you so wish.

26 May 2009

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
The S&P Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Convertible Note(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Shareholding structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Adjustment to the Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
The Retail Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Reasons for the Proposed Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Reasons for the issue of the Convertible Note(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
The Agreements and non-exempt continuing connected transactions
on the First Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Financial and trading prospects of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . .	24
Management discussion and analysis of the Group and the Retail Group . . . . . . . . . .	26
Effects of the Proposed Transfer and the Proposed Transactions on the earnings,
assets and liabilities of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
Fund raising of the Company for the past 12 months . . . . . . . . . . . . . . . . . . . . . . . . .	38
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Letter from Vinco Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . .	62
Appendix II – Accountants’ report of the Retail Group. . . . . . . . . . . . . . . . . . . . . . .	129
Appendix III – Unaudited pro forma financial information of the Enlarged Group. .	169
Appendix IV – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	182
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	190

– i –

DEFINITIONS

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

“Accountants”

Deloitte Touche Tohmatsu, Certified Public Accountants and auditor of the Company

“Adjustment”

the adjustment, notwithstanding up or down to a maximum of HK$100 million, to the final Consideration for sale and purchase of the Interest and the remaining 40% of the Equity Interest to an amount equivalent to 10 times the Audited Net Profits of the Retail Group for the year ending 31 December 2008 as per the Audited Accounts 2008 of the Retail Group, and the rounding up of the adjusted Consideration to the nearest thousand figures pursuant to the S&P Agreement, as more particularly described in the sub-heading of “Adjustment” under the heading of “The S&P Agreement” in the section of “Letter from the Board”. An upward adjustment of HK$10,340,000 to the Consideration of HK$300 million as set out in the First Announcement has been made in accordance with the Audited Net Profits as shown in the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date

“Agreement(s)” the First Agreement, the Second Agreement and the Third Agreement, details of which are set out under the heading of “The Agreements and non-exempt continuing connected transactions on the First Completion” in the section of “Letter from the Board”
“Associates” has the same meaning ascribed in the Listing Rules
“Audited Accounts 2008”
the consolidated audited accounts of the Retail Group for the year ending 31 December 2008 prepared in accordance with the HKFRS and as agreed by both CGL and the Company. The Audited Accounts 2008 have been prepared as at the Latest Practicable Date
“Audited Net Profits” the audited consolidated net profits (after taxation, minority interest and extraordinary items) of the Retail Group for the financial year ending 31 December 2008 as shown on the Audited Accounts 2008. The Audited Net Profits is HK$31,034,000 in accordance with the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date
“Board”

the board of Directors

– 1 –

DEFINITIONS

“CASH”	Celestial Asia Securities Holdings Limited (stock code: 1049),
	a company incorporated in Bermuda with limited liability
	and listed on the main board of the Stock Exchange, and is
	the controlling Shareholder and a connected person of the
	Company (as defined under the Listing Rules)
“CASH Group”	CASH and its subsidiaries
“CFT”	CASH Frederick Taylor Limited, a company incorporated in
	Hong Kong with limited liability, and is currently an indirect
	wholly-owned subsidiary of the Company. It engages in wealth
	management business. Its name has been changed to CASH
	Wealth Management Limited with effect from 21 May 2009
“CGL” or “Vendor”	CASH Group Limited, a company incorporated in the British
	Virgin Islands with limited liability, and is currently a wholly-
	owned subsidiary of CASH
“CIGL”	Celestial Investment Group Limited, a company incorporated
	in the British Virgin Islands with limited liability, and is
	currently a wholly-owned subsidiary of CASH
“Company” or “Purchaser”	CASH Financial Services Group Limited (stock code: 510),
	a company incorporated in Bermuda with limited liability
	and listed on the main board of the Stock Exchange, and is
	currently a non-wholly-owned subsidiary of CASH
“Completion”	the First Completion and the Second Completion
“Conditions”	the conditions of the S&P Agreement as set out in the sub-
	heading of “Conditions” under the heading of “The S&P
	Agreement” in the section of “Letter from the Board”
“Consideration”	the consideration of approximately HK$300 million (subject
	to Adjustment) for the sale and purchase of the Interest and
	the remaining 40% of the Equity Interest pursuant to the S&P
	Agreement as set out in the sub-headings of “Consideration”
	and “Adjustment” under the heading of “The S&P Agreement”
	in the section of “Letter from the Board”. The final
	Consideration has been fixed at HK$310,340,000 as adjusted
	in accordance with the Audited Net Profits as shown in the
	Audited Accounts 2008, which have been prepared as at the
	Latest Practicable Date
“Conversion Price”	HK$1.482 per Conversion Share (as adjusted from HK$1.15
	per Conversion Share as set out in the First Announcement
	with effect from 19 March 2009 due to the Rights Issue) and
	subject to further adjustments, if any
“Conversion Share(s)”	the new Share(s) issuable upon the conversion of any part of
	the Convertible Note(s)

– 2 –

DEFINITIONS

“Convertible Note(s)”	the proposed convertible note(s) of approximately
	HK$240 million (subject to maximum adjustment amount,
	notwithstanding up or down, for HK$100 million), in
	aggregate, to be issued at the First Completion and the Second
	Completion (assuming the Purchaser Call Option is exercised)
	pursuant to the S&P Agreement. The principal amount of
	Convertible Note(s), in aggregate, to be issued at the First
	Completion and the Second Completion has been adjusted
	to HK$233,952,000 (subject to the actual amounts due from
	CASH Group to the Retail Group as at the date of the First
	Completion, as more particularly described in the heading of
	“Adjustment to the Consideration” in the section of “Letter
	from the Board”) as at the Latest Practicable Date
“CRM(HK)”	CASH Retail Management (HK) Limited, a company
	incorporated in the British Virgin Islands with limited liability,
	and is currently a wholly-owned subsidiary of CASH. It is the
	holding company of the Retail Group to be transferred under
	the S&P Agreement
“Director(s)”	director(s) of the Company
“Enlarged Group”	the Group including the Retail Group after the completion of
	the Proposed Transfer
“Equity Interest”	the entire equity shareholding interest in CRM(HK) which is
	currently owned by CGL
“First Agreement”	the agreement dated 19 December 2008 entered into among
	the Company, CASH and CRM(HK) relating to the provision
	of guarantee by the Company and CASH to the Retail Group
	upon the First Completion
“First Announcement”	the joint announcement made by the Company and CASH on
	19 December 2008 relating to the Transactions
“First Completion”	the completion of the S&P Agreement by which the Interest
	will be transferred from CGL to the Company, the Purchaser
	Call Option will be issued by CGL to the Company and the
	Convertible Note(s) of approximately HK$124 million (subject
	to Adjustment) will be issued by the Company to CGL or
	its nominee. The principal amount of Convertible Note(s)
	to be issued on the First Completion has been adjusted to
	HK$109,816,000 (subject to the actual amounts due from
	CASH Group to the Retail Group as at the date of the First
	Completion, as more particularly described in the heading of
	“Adjustment to the Consideration” in the section of “Letter
	from the Board”) as at the Latest Practicable Date

– 3 –

DEFINITIONS

“Game Group”	Netfield Technology Limited and its subsidiaries, which
	operate online game business and has been disposed by the
	Group to CASH Group on 1 June 2007
“Group”	the Company and its subsidiaries
“HKFRS”	the accounting standards and interpretations issued by the
	Hong Kong Institute of Certified Public Accountants
“Independent Board	the independent board committee of the Company comprising
Committee”	the independent non-executive Directors, namely Mr Cheng
	Shu Shing Raymond, Mr Lo Kwok Hung John and Mr Lo Ming
	Chi Charles
“Independent Shareholder(s)”	holder(s) of the Share(s) (other than CIGL and its Associates)
“Interest”	60% of the Equity Interest and the Loan
“Latest Practicable Date”	22 May 2009, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	referred to in this circular
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange
“Loan”	being all of the interest-free shareholder’s loan due from
	the Retail Group to CGL, if any, as at the date of the First
	Completion. The amount of the Loan as at 31 December 2008
	and the Latest Practicable Date is both nil
“Model Code”	the required standards of dealings regarding securities
	transactions by Directors or the Model Code for Securities
	Transactions by Directors of Listed Issuers as set out in the
	Listing Rules
“P/E Ratio”	price to earnings ratio
“PRC”	the People’s Republic of China
“Prime Rate”	the prime lending rate being offered by The Hongkong and
	Shanghai Banking Corporation Limited from time to time
“Proposed Transactions”	the transactions contemplated under the Agreements
“Proposed Transfer”	the acquisition by the Company and the sale by CGL of
	the Interest, the grant of Purchaser Call Option by CGL to
	the Company to acquire from CGL the remaining 40% of
	the Equity Interest (including the exercise of the Purchaser
	Call Option, if any) and the issue of the Convertible Note(s)
	pursuant to the S&P Agreement

– 4 –

DEFINITIONS

“Purchaser Call Option”	the option granted by the Vendor in favour of the Purchaser
	upon the First Completion in respect of the option to acquire
	40% of the Equity Interest, exercisable at the discretion of
	both the Company or its nominee or CGL, at the Consideration
	of approximately HK$116 million (subject to Adjustment)
	at any time from the date of the First Completion up to 31
	December 2011, as more particularly described in the sub-
	heading of “Purchaser Call Option” under the heading of “The
	S&P Agreement” in the section of “Letter from the Board”.
	The final Consideration for acquisition of 40% of the Equity
	Interest has been adjusted to HK$124,136,000 as at the Latest
	Practicable Date
“Retail Group”	CRM(HK) and its subsidiaries which mainly engage in the
	retail business of retailing of furniture and household items in
	Hong Kong
“Rights Issue”	the issue of a total of 205,702,702 rights shares at a
	subscription price of HK$0.45 each by the Company (as set out
	in its prospectus dated 19 March 2009) on 17 April 2009
“S&P Agreement”	the sale and purchase agreement entered into between CGL and
	the Company on 19 December 2008 as supplemented by the
	Supplemental Agreement in relation to the sale and purchase of
	the Interest and the remaining 40% of the Equity Interest
“Second Agreement”	the agreement dated 19 December 2008 entered into between
	CASH and CRM(HK) relating to the lease arrangement
	between CASH Group and the Retail Group upon the First
	Completion
“Second Announcement”	the joint announcement made by the Company and CASH on
	21 May 2009 relating to the entering into the Supplemental
	Agreement
“Second Completion”	the completion of the transfer of the remaining 40% of the
	Equity Interest from the Vendor to the Company upon exercise
	of the Purchaser Call Option pursuant to the S&P Agreement,
	by which 40% of the Equity Interest will be transferred
	from CGL to the Company and the Convertible Note(s) of
	approximately HK$116 million (subject to Adjustment) will be
	issued by the Company to CGL or its nominee. The principal
	amount of Convertible Note(s) to be issued on the Second
	Completion has been adjusted to HK$124,136,000 as at the
	Latest Practicable Date

– 5 –

DEFINITIONS

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SGM” the special general meeting of the Company to be held on 11 June 2009 at 9:00 am to approve the Transactions, notice of which is set out on pages 190 to 192 of this circular “Share(s)” share(s) of HK$0.10 each in the share capital of the Company “Shareholder(s)” holders of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Supplemental Agreement” the supplemental agreement entered into between CGL and the Company, being the same parties to the S&P Agreement, on 21 May 2009 in relation to the amendment of the terms of the S&P Agreement with regard to the exercise right of the Purchaser Call Option “Takeovers Code” The Hong Kong Code on Takeovers and Mergers “Third Agreement” the agreement dated 19 December 2008 entered into among the Company, CASH and CRM(HK) relating to the provision of services by the Retail Group to the CASH Group (excluding the Group) and the Group (excluding the Retail Group) upon the First Completion “Transactions” the Proposed Transfer, the issue of the Convertible Note(s) and the Proposed Transactions “Vinco Capital” or Grand Vinco Capital Limited, a wholly-owned subsidiary of “Independent Financial Vinco Financial Group Limited, a licensed corporation to Adviser” carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders “HK$” Hong Kong dollar(s), the lawful currency of Hong Kong “RMB” Renminbi, the lawful currency of the PRC

– 6 –

LETTER FROM THE BOARD

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CASH FINANCIAL SERVICES GROUP LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 510)

Board of Directors:

Executive: KWAN Pak Hoo Bankee CHAN Chi Ming Benson LAW Ping Wah Bernard CHENG Man Pan Ben YUEN Pak Lau Raymond

Independent non-executive: CHENG Shu Shing Raymond LO Kwok Hung John LO Ming Chi Charles

Registered office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business:

21/F Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong 26 May 2009

To Shareholders

Dear Sir/Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE PROPOSED ISSUE OF CONVERTIBLE NOTE(S) – PROPOSED ACQUISITION OF HONG KONG RETAIL BUSINESS

AND

CONTINUING CONNECTED TRANSACTIONS – PROPOSED INTRA-GROUP ACTIVITIES

INTRODUCTION

On 19 December 2008, the Board made the First Announcement relating to the Transactions entered on 19 December 2008. On 21 May 2009, the Board made the Second Announcement relating to the Supplemental Agreement. Details of the Transactions are as follows:–

(a) the Proposed Transfer which constituted a very substantial acquisition and connected transaction of the Company under the Listing Rules:–
(i) The Company shall, subject to the Conditions, acquire from CGL (a whollyowned subsidiary of CASH) the Interest (being 60% of the Equity Interest in CRM(HK) and the Loan due from the Retail Group to CGL, if any) at the Consideration of approximately HK$184 million (as adjusted to HK$186,204,000 as at the Latest Practicable Date as more particularly described in the heading of “Adjustment to the Consideration” in this section); and

– 7 –

LETTER FROM THE BOARD

(ii) CGL, subject to the Conditions, will grant to the Company the Purchaser Call Option (upon the First Completion) to acquire the remaining 40% of the Equity Interest in CRM(HK) at the Consideration of approximately HK$116 million (as adjusted to HK$124,136,000 as at the Latest Practicable Date as more particularly described in the heading of “Adjustment to the Consideration” in this section) at any time from the date of the First Completion up to 31 December 2011. The Purchaser Call Option is exercisable at the discretion of both the Company or its nominee or CGL.

The Consideration has been settled as to HK$60 million in cash upon signing of the S&P Agreement, and part of the Consideration will be settled by the issue of the Convertible Note(s) as set out in (b) below.

(b) the proposed issue of the Convertible Note(s) by the Company

The Convertible Note(s) shall be issued by the Company for settlement of balance of the Consideration at principal value of approximately HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion as more particularly described in the heading of “Adjustment to the Consideration” in this section). Assuming the Convertible Note(s) are issued at principal amount of HK$233,952,000 and the conversion of the Convertible Note(s) at the Conversion Price of HK$1.482 per Conversion Share (as adjusted after the First Announcement due to the Rights Issue) (subject to adjustment to the initial Conversion Price) is exercised in full, an aggregate of 157,862,348 new Shares will be issued. The Conversion Shares represent about 25.58% and 20.37%, respectively of the Company’s existing issued share capital and its issued share capital as enlarged by the issue of the Conversion Shares.

(c) the Proposed Transactions relating to certain intra-group activities which constituted continuing connected transactions of the Company under the Listing Rules

Upon the First Completion, the Company, CASH and CRM(HK) will conduct certain intra-group activities relating to provision of guarantee, leasing arrangement and provision of services, which are to be made in the their usual and ordinary course of businesses and on normal commercial terms, subject to conditions. The Proposed Transactions are conditional upon (among other things) the approval by the Independent Shareholders at the SGM.

Under the Listing Rules, the Proposed Transfer constituted a very substantial acquisition and a connected transaction for the Company, and the Proposed Transactions constituted nonexempt continuing connected transactions for the Company under the Listing Rules. Accordingly, the Transactions are conditional upon, among other things, the approval of the Independent Shareholders at the SGM.

CIGL is a wholly-owned subsidiary and an Associate of CASH. As at the Latest Practicable Date, CIGL controls over the voting rights in respect of 298,156,558 Shares (approximately 48.32%) they entitled to as disclosed in the heading of “Shareholding Structure” in this section. CIGL and its Associates who have material interests in the Transactions will abstain from voting at the SGM pursuant to the Listing Rules and the voting at the SGM must be taken by poll.

The Independent Board Committee has been established to advise the Independent Shareholders as to the terms of the Transactions. Grand Vinco Capital Limited has been appointed as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in connection with Transactions.

– 8 –

LETTER FROM THE BOARD

The purpose of this circular is to give you further information regarding the S&P Agreement, the principal terms and conditions of the Convertible Note(s), the Agreements and the notice of the SGM at which ordinary resolutions will be proposed to approve the S&P Agreement, the issue of the Convertible Note(s) and the Agreements.

THE S&P AGREEMENT

Vendor : CGL, a wholly-owned subsidiary of CASH, is a connected person of the Company (as defined under the Listing Rules). Purchaser : the Company, a non-wholly-owned subsidiary of CASH owned as to 48.32% by CASH as at the Latest Practicable Date. Transaction : the Company shall, subject to the Conditions, acquire from CGL the Interest (being 60% of the Equity Interest and the Loan) at the Consideration of approximately HK$184 million (Note (1)) (subject to Adjustment), and the Company will be granted the Purchaser Call Option (upon the First Completion) to acquire from CGL the remaining 40% of the Equity Interest at the Consideration of approximately HK$116 million (Note (1)) (subject to Adjustment). Purchaser Call Option : CGL shall grant to the Company upon the First Completion an option to acquire the remaining 40% of the Equity Interest at the Consideration of approximately HK$116 million (Note (1)) (subject to Adjustment).

The Purchaser Call Option is exercisable, in whole or in part (in a multiple of HK$1 million), at any time from the date of the First Completion up to 31 December 2011. The exercise of the Purchaser Call Option is at the discretion of both the Purchaser or its nominee (ie its right of exercise) or CGL (ie its right to request the Purchaser or its nominee to exercise) by serving on the other party the exercise notice (in the case of the Purchaser or its nominee) or the request notice (in the case of CGL) (Note (4)).

The Purchaser Call Option is not transferable to any third party (save for the wholly-owned subsidiaries of the Company).

In case the exercise of the Purchaser Call option is at the discretion of the Company or its nominee, the Company will comply with the relevant requirements under rule 14A.70(2) of the Listing Rules on exercise of the Purchaser Call Option.

– 9 –

LETTER FROM THE BOARD

Consideration : The Consideration for the Interest and the remaining 40% of the Equity Interest shall be approximately HK$300 million (Note (2)) (subject to Adjustment), which will be adjusted to an amount equivalent to P/E Ratio of 10 times of the Audited Net Profits of the Retail Group for the year ending 31 December 2008 in accordance with the Audited Accounts 2008 of the Retail Group.

The Consideration will be settled in the following manner:

(1) For acquisition of the Interest at the Consideration of approximately HK$184 million (Note (1)) (subject to Adjustment):
(a) HK$60 million refundable deposit in cash as paid upon the signing of the S&P Agreement; and
(b) the balance will be settled in full by issue of the Convertible Note(s); and
(2) For acquisition of the remaining 40% of the Equity Interest under the Purchaser Call Option of approximately HK$116 million (Note (1)) (subject to Adjustment):
(a) 100% will be settled in full by the issue of the Convertible Note(s) on completion of transfer of the 40% Equity Interest.

The deposit paid on signing of the S&P Agreement is financed by the Group from internal resources and the balance of the Consideration will be settled by the issue of the Convertible Note(s).

The Consideration is arrived at after arm’s length negotiations between the parties and being a price acceptable to the parties with reference to P/E Ratio of 10 times of the Audited Net Profits of the Retail Group for the year ending 31 December 2008 which is determined after arm’s length negotiations by reference to prospective P/E Ratio for the year 2008 of various companies listed in Hong Kong engaging in the retail business. In determining the Consideration, the Directors have conducted researches and compared the P/E Ratio of 16 comparable companies listed in Hong Kong engaging in the retail business and the mean value of P/E Ratio for such companies is approximately 9.6 times. The Board has also taken into account the reputable brand name of “Pricerite”, the corporate image, the established supply chain management platform, the efficient logistic system, the extensive retail networks in Hong Kong, the profit track record, the continuous growth in operating profits, the various revamps of retail business for recent years of the Retail Group.

– 10 –

LETTER FROM THE BOARD

The Directors considered that P/E Ratio is one of the common approaches used to value the fairness of the Consideration. The Directors noted that, as set out in the section of “Letter from Vinco Capital”, the Independent Financial Adviser has also identified 9 comparable companies listed in Hong Kong engaging in the retail business and the mean value of P/E Ratio for such companies is 12.12 times. Accordingly, it further demonstrates that the Consideration of 10 times of the P/E Ratio is comparable to the market.

The Consideration was determined after arm’s length negotiations and has also taken into account all the above factors. In view of the above, although there is significant disparity between the Consideration and the net asset value of the Retail Group, the Board is of the opinion that the Consideration is fair and reasonable and on normal commercial terms.

Adjustment : The Consideration for the Interest and the remaining 40% of the Equity Interest was determined at approximately HK$300 million (Note (2)), which will be adjusted (up or down), on a dollar-to-dollar basis, to an amount equivalent to P/E Ratio of 10 times of the Audited Net Profits of the Retail Group for the year ending 31 December 2008 as per the Audited Accounts 2008 of the Retail Group and then be round up to the nearest thousand figures. However, the adjustment amount for the Consideration for the Interest and the remaining 40% of the Equity Interest, notwithstanding up or down, shall not be more than HK$100 million in aggregate.

The final Consideration for acquisition of the Interest will be the aggregate of (i) 60% of the above adjusted Consideration after deducting the actual amount of the Loan, and (ii) the actual amount of the Loan. The final Consideration for acquisition of the remaining 40% Equity Interest under the Purchaser Call Option will be 40% of the above adjusted Consideration after deducting the actual amount of the Loan.

The final consideration has been fixed at HK$310,340,000 as adjusted in accordance with the Audited Net Profits as shown in the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date.

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LETTER FROM THE BOARD

Conditions

: Completion for the Transactions is conditional upon, among other things:–
(1) the approval by the shareholders of CASH at the special general meeting of CASH for the S&P Agreement, the Agreements and the transactions contemplated thereunder;
(2) the approval by the Independent Shareholders at the SGM for the S&P Agreement, the Agreements and the transactions contemplated thereunder including but not limited to the issue of the Convertible Note(s) and the allotment and issue of the Conversion Shares;
(3) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Conversion Shares;
(4) the receipt of the Audited Accounts 2008 for the Retail Group by the Company in form and content satisfactory to the Company; and
(5) the obtaining of all relevant consents, which are necessary in connection with the execution and performance of the S&P Agreement, the Agreements and the transactions contemplated thereunder.

The S&P Agreement and the Agreements are interconditional. The Conditions are required to be fulfilled on or before 31 August 2009, or such later date as may be agreed between CGL and the Company. If the Conditions are not fulfilled by such date, the S&P Agreement shall terminate and any part of the Consideration having been paid prior to such termination shall be refunded to the Company and no party to the S&P Agreement should have any claim against the other party save and except the rights of any such party in respect of any antecedent breaches.

As at the Latest Practicable Date, save as the Condition (4) listed above which has been fulfilled, all of the Conditions are subject to fulfilment.

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LETTER FROM THE BOARD

The First Completion : The S&P Agreement shall be completed within 7 business days (or any other date as agreed between CGL and the Company) after the S&P Agreement becoming unconditional. The Second Completion : The transfer of the remaining 40% of the Equity Interest shall be completed within 7 business days (or any extended period as agreed between CGL and the Company) after the date of receipt of the notice of exercise by CGL from the Company. Upon the Second Completion, the Company shall issue to CGL or its nominee the Convertible Note(s) with principal amount of the final Consideration for acquisition of the remaining 40% of the Equity Interest.

Notes:

(1) The above Consideration of approximately HK$184 million and HK$116 million respectively have been adjusted to HK$186,204,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion, as particularly described in the heading of “Adjustment to the Consideration” in this section below) and HK$124,136,000 in accordance with the Audited Net Profits as shown in the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date.
(2) The final Consideration, in aggregate, has been adjusted to HK$310,340,000 in accordance with the Audited Net Profits as shown in the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date.
(3) Details of the adjustment to the Consideration are set out in the heading of “Adjustment to the Consideration” in this section below.
(4) The exercise right of the Purchaser Call Option has been amended from at the discretion of the Purchaser only to at the discretion of both the Purchaser or its nominee or CGL pursuant to the Supplemental Agreement.

CONVERTIBLE NOTE(S)

Principal terms

The principal terms of the Convertible Note(s) proposed to be issued are set out below.

Consideration : Approximately HK$240 million (Note (5)) (subject to maximum adjustment amount, notwithstanding up or down, of HK$100 million), as part payment for the Consideration upon the First Completion and full payment for the Consideration upon the Second Completion. Principal amount : The principal amount of the Convertible Note(s) shall be the same as the Consideration for the Proposed Transfer.

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LETTER FROM THE BOARD

Conversion Price

: HK$1.15 (Note (6)) per Conversion Share (subject to adjustments). The Conversion Price was determined on an arm’s length basis between the Company and the Vendor, being:
about 30.7% premium over the closing price of HK$0.88 per Share on 18 December 2008 (the last trading day prior to the date of the First Announcement);
about 23.7% premium over the average closing price of about HK$0.93 per Share based on the closing prices as quoted on the Stock Exchange for the 5 trading days ended on 18 December 2008;
about 23.7% premium over the average closing price of about HK$0.93 per Share based on the closing prices as quoted on the Stock Exchange for the 10 trading days ended on 18 December 2008;
about 45.5% discount to the latest unaudited net asset value of HK$2.11 per Share based on the unaudited net asset value of the Company as at 30 June 2008; and

The adjusted Conversion Price of HK$1.482 as at the Latest Practicable Date represents:–

about 11.8% discount to the latest audited net asset value of HK$1.68 per Share based on the audited net asset value of the Company as at 31 December 2008; and
about 124.5% premium over the closing price of HK$0.66 per Share on the Latest Practicable Date.

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LETTER FROM THE BOARD

The initial Conversion Price may be adjusted upon occurrence of events for (i) share consolidation, (ii) share subdivision, (iii) capitalisation of profits or reserves, (iv) capital distributions in cash or specie, (v) rights issues, (vi) issue of any securities which are convertible or exchangeable into Shares for cash at an effective price which is less than 90% of the market price at the date of announcement of terms of issue of such securities, (vii) the effective price of Shares receivable from the rights of conversion, exchange or subscription of such securities are modified to be less than 90% of the market price at the date of announcement of the proposed modification, (viii) issue of Shares at a price which is less than 90% of the market price at the date of the announcement of the terms of such issue, (ix) issue Shares for the acquisition of assets at an effective price which is less than 90% of the market price at the date of the announcement of the terms of such issue, and will in any event not be adjusted below the par value of a Share. The adjustment, when it takes place, will in appropriate circumstances be reviewed by approved merchant bank or financial adviser or auditor of the Company, and will be disclosed in the relevant announcement or annual report of the Company (as consider appropriate by the Board).

The Conversion Price was determined by the Company and CGL with reference to the recent market closing prices of the Shares. The Board is of the opinion that the Conversion Price is fair and reasonable and in the interests of the Company and Shareholders as a whole.

Interest rate : 2% per annum on the outstanding principal amount of the Convertible Note(s), payable on a quarterly basis.

Redemption rights

: At the discretion of the Company only, in whole or in part of integral multiple of HK$1 million, at any time during the conversion period (as described below).

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LETTER FROM THE BOARD

Conversion right and : restrictions

At the discretion of both the Company (ie its right to request CGL or its nominee to exercise its right of conversion) or CGL (ie its right of conversion) or its nominee by serving on the other party the request notice (in the case of the Company) or the conversion notice (in the case of CGL or its nominee) (in each case shall be in an amount of integral multiple of HK$1 million) for conversion of the Convertible Note(s) into Conversion Shares issued in the name of CGL or its nominee, provided that:–

(i) the Company shall not request CGL or its nominee to or CGL or its nominee shall not exercise its right of conversion if the then trading price of the Share as quoted on the Stock Exchange is lower than the Conversion Price; and
(ii) the Company shall not request CGL or its nominee to or CGL or its nominee shall not exercise the right of conversion if immediately following such exercise there will be insufficient public float for the Shares (as required by the Listing Rules).

As CIGL and parties acting in concert with it are already holding more than 50% of the shareholding interest in the Company, the Company and CGL are not aware of any general offer implications, which will arise under the Takeovers Code as a consequence of the exercise of the Convertible Note(s) in full.

Conversion period : Any time after the expiry of 6 months from the issue date of the Convertible Note(s) and ending on the maturity date (as described below).
Maturity date : 3 years from the issue date of the Convertible Note(s), or any other date mutually agreed between the Company and CGL, on which all outstanding principal amount of the Convertible Note(s) shall be fully repaid.

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LETTER FROM THE BOARD

Transferability

: The Convertible Note(s) should not be transferable except with the written consent of the Company (save for the wholly-owned subsidiaries of CGL or CASH, which shall not require the consent of the Company).

Notes:

(5) The above Consideration of approximately HK$240 million has been adjusted to HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion, as particularly described in the heading of “Adjustment to the Consideration” in this section below) in accordance with the Audited Net Profits as shown in the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date.
(6) The Conversion Price has been adjusted from HK$1.15 to HK$1.482 per Conversion Share with effect from 19 March 2009 due to the Rights Issue and subject to further adjustments, if any, as at the Latest Practicable Date.

Conversion Shares to be issued upon conversion

The Conversion Shares to be issued upon conversion of the Convertible Note(s) will rank pari passu in all respects with the Shares then in issue at the relevant dates of conversion. There are no pre-emptive rights for the Conversion Shares nor there is other restriction, which applies to the subsequent sale of such Conversion Shares under the terms of the Convertible Note(s).

Assuming that the Convertible Note(s) are issued at principal amount of HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion), in aggregate, and full conversion of the Convertible Note(s) at the Conversion Price of HK$1.482 per Conversion Share, 157,862,348 Conversion Shares, representing approximately 25.58% of the existing issued share capital of the Company, and approximately 20.37% of the issued share capital of the Company as enlarged by the issue of the Conversion Shares, will be issued by the Company.

The Conversion Shares will be issued by the Company under a specific mandate to be sought at the SGM.

Voting rights of the holder of the Convertible Note(s)

The holder of the Convertible Note(s) will not have any right to vote at the general meetings of the Company by virtue of its being the holder of the Convertible Note(s).

Listing of the Convertible Note(s)

No listing of the Convertible Note(s) will be sought on the Stock Exchange or any other stock exchange. However, the Company has applied for the listing on the Stock Exchange of the Conversion Shares issuable upon the conversion of the Convertible Note(s).

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE

As at the Latest Practicable Date, the Company does not have any existing convertible note in issue. The shareholding structures of the Company as at the Latest Practicable Date and after the full conversion of the Convertible Note(s) (assuming the Convertible Note(s) are issued at principal amount of HK$233,952,000, in aggregate, at the adjusted Conversion Price of HK$1.482 per Conversion Share) are as follows:

Shareholders CIGL (Note 1) and Associates Cash Guardian Limited (“Cash Guardian”) and parties acting in concert with it (Note 2) Directors of CASH Mr Kwan Pak Hoo Bankee Mr Law Ping Wah Bernard Mr Lin Che Chu George Directors and Associates (other than those who are also directors of CASH) Mr Chan Chi Ming Benson Mr Cheng Man Pan Ben Mr Yuen Pak Lau Raymond Mr Lo Kwok Hung John Sub-total Abdulrahman Saad Al-Rashid & Sons Company Limited (“ARTAR”) (Note 3) Public (Note 3) Total	As at the Latest Practicable Date No. of Shares Approximate % 298,156,558 48.32 17,076,647 2.77 8,168,000 1.32 13,771,120 2.23 5,913,600 0.96 10,000,000 1.62 5,334,000 0.86 5,010,000 0.81 169,000 0.03 363,598,925 58.92 64,372,480 10.43 189,136,702 30.65 617,108,107 100.00	After the Proposed Transfer, assuming the Convertible Note(s) are issued at principal amount of HK$233,952,000, in aggregate, and full conversion of the Convertible Note(s) No. of Shares Approximate % 456,018,906 58.84 17,076,647 2.20 8,168,000 1.05 13,771,120 1.78 5,913,600 0.76 10,000,000 1.29 5,334,000 0.69 5,010,000 0.65 169,000 0.02 521,461,273 67.28 N/A(Note 3) N/A(Note 3) 253,509,182 32.72 774,970,455 100.00	After the Proposed Transfer, assuming the Convertible Note(s) are issued at principal amount of HK$233,952,000, in aggregate, and full conversion of the Convertible Note(s) No. of Shares Approximate % 456,018,906 58.84 17,076,647 2.20 8,168,000 1.05 13,771,120 1.78 5,913,600 0.76 10,000,000 1.29 5,334,000 0.69 5,010,000 0.65 169,000 0.02 521,461,273 67.28 N/A(Note 3) N/A(Note 3) 253,509,182 32.72 774,970,455 100.00
			67.28
			N/A(Note 3)
			32.72
			100.00

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LETTER FROM THE BOARD

Notes:

(1) CIGL is a wholly-owned subsidiary and an Associate of CASH. As at the Latest Practicable Date, CIGL controls over the voting rights in respect of 298,156,558 Shares (approximately 48.32%) they entitled to as disclosed above. CIGL and its Associates have material interests in the Transactions and will abstain from voting at the SGM pursuant to the Listing Rules.
(2) Cash Guardian is a company controlled by Mr Kwan Pak Hoo Bankee, the chairman of the Company. The parties acting in concert with Cash Guardian are close relatives of Mr Kwan Pak Hoo Bankee.
(3) ARTAR is a substantial Shareholder and not a public Shareholder as at the Latest Practicable Date. However, when the Convertible Note(s) are converted in full, the shareholding interest of ARTAR in the Company will be diluted to below 10%. ARTAR will be regarded as a public Shareholder and the 64,372,480 Shares held by ARTAR will be counted as part of the Shares held by the public.

The Board anticipates that the Proposed Transfer and the issue of the Convertible Note(s) will not result in a change of control of the Group.

ADJUSTMENT TO THE CONSIDERATION

Pursuant to the terms of the S&P Agreement as set out in the First Announcement, the Consideration for the sale and purchase of the Interest and the remaining 40% of the Equity Interest shall be approximately HK$300 million, which will be adjusted (up or down to a maximum amount of HK$100 million), on a dollar-to-dollar basis, to an amount equivalent to P/E Ratio of 10 times of the Audited Net Profits of the Retail Group for the year ending 31 December 2008 as per the Audited Accounts 2008 of the Retail Group to be prepared and then be round up to the nearest thousand figures.

As at the Latest Practicable Date, the Audited Accounts 2008 have been prepared and the Audited Net Profits as shown in the Audited Accounts 2008 is HK$31,034,000. Therefore, the final Consideration has been fixed at HK$310,340,000, being 10 times of the Audited Net Profits, as at the Latest Practicable Date, and an upward adjustment of HK$10,340,000 has been made to the Consideration of HK$300 million as set out in the First Announcement. Based on the balance sheet in the accountants’ report of the Retail Group as set out in Appendix II to this circular, as at 31 December 2008, there were amounts due from CASH Group to the Retail Group of HK$51,006,000 and amounts due to CASH Group by the Retail Group of HK$34,618,000. After netting off such amounts, there were outstanding amounts due from CASH Group to the Retail Group of HK$16,388,000 instead of any Loan due from the Retail Group to CASH Group as at 31 December 2008.

Accordingly, (i) the Consideration for acquisition of the Interest (being 60% of the Equity Interest) has been fixed at HK$186,204,000, being 60% of the final Consideration of HK$310,340,000, (ii) the amount to be settled on the First Completion as well as the principal amount of Convertible Note(s) to be issued on the First Completion shall be approximately HK$109,816,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion), being HK$186,204,000 less the deposit paid upon the signing of the S&P Agreement of HK$60 million and further less the above outstanding amounts due from CASH Group to the Retail Group of HK$16,388,000, (iii) the amount to be settled on the Second Completion as well as the principal amount of Convertible Note(s) to be issued on the Second Completion has been fixed at HK$124,136,000, being 40% of the final Consideration of HK$310,340,000. Accordingly, the aggregate amount of the Convertible Note(s) to be issued on the First Completion and the Second Completion shall be HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion). As at the Latest Practicable Date, a letter of confirmation had been signed between CGL and the Company to confirm the above adjustments of the Consideration and payment on the First Completion and the Second Completion.

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LETTER FROM THE BOARD

THE RETAIL GROUP

The Retail Group currently mainly operates the retail business in Hong Kong including retailing of furniture and household items under the brand name of “Pricerite”. The Retail Group also owns the beneficial interest of a property at “Pricerite Group Building, No. 6 Hong Ting Road, Sai Kung, New Territories, Hong Kong” with market value of HK$60.0 million as at 31 December 2008 in accordance with the valuation of an independent valuer using market value approach. The property is currently used by the Retail Group as a godown for its business operation.

According to page 132 of the accountants’ report of the Retail Group as set out in appendix II to this circular, the profits, before and after taxation, minority interest and extraordinary items, of the Retail Group for the year ended 31 December 2007 were both approximately HK$30.1 million, and the profits, before and after taxation, minority interest and extraordinary items, of the Retail Group for the year ended 31 December 2008 were about HK$35.9 million and HK$31.0 million respectively.

REASONS FOR THE PROPOSED TRANSFER

The financial services business of the Group is one of the hard hitted businesses amid the recent global financial crunch. The business performance of the Group is very much affected by the financial market and the local and global economy. It has been the strategy of the Group to diversify its income stream and broaden the source of revenues. Though the overall consumer spending in Hong Kong is also affected by the recent unfavourable local economy, the effect on retail business for economical and quality furniture and household products is to certain extent not so severe since consumers will look for economical but quality products in adverse economic environment and therefore the demand for such kind of products remains relatively strong. The Retail Group has shown continued improvement in operations and management efficiency with a lean cost base after the revamped works during the recent years. The Retail Group has been recording remarkable growth with 496.9% increase in profits for the year ended 31 December 2007, as compared with the year ended 31 December 2006. The Retail Group reported turnover of HK$864.0 million and profits of HK$31.0 million for the year ended 31 December 2008. The Board is confident about the retail business for economical and quality furniture and household products in Hong Kong amid the unfavourable local and global economy.

The management of the Group is experienced in running the financial services business in Hong Kong, and will provide new idea or visions in operation of retail business so as to further improve the growth potential of the Retail Group in the long run. Also, the grant of Purchaser Call Option provides more flexibility for both the Company or CGL to complete the acquisition of the remaining 40% Equity Interest as and when the Board or the board of CASH might consider appropriate, and it will not impose an immediate heavy financial burden on cash flow of the Group.

The Board considers that the terms of the Proposed Transfer are fair and reasonable and on normal commercial terms, and the entering into of the S&P Agreement is in the interest of the Company and the Shareholders as whole.

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LETTER FROM THE BOARD

Upon the First Completion (assuming the Purchaser Call Option is not exercised), the Retail Group will become a 60%-owned subsidiary of the Company and its results will be consolidated into the accounts of the Company. Upon the Second Completion, the Retail Group will become a wholly-owned subsidiary of the Company.

REASONS FOR THE ISSUE OF THE CONVERTIBLE NOTE(S)

The purpose of the issue of the Convertible Note(s) is for settlement of the balance of the Consideration for the Proposed Transfer such that it will not impose an immediate financial burden on cash flow of the Group. The Convertible Note(s) also provides high flexibility for the Company to convert the Convertible Note(s) into Conversion Shares as and when the Board considers appropriate.

THE AGREEMENTS AND NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS ON THE FIRST COMPLETION

Upon the First Completion, the Retail Group will be owned as to 60% and 40% by the Company and CASH respectively, and (assuming the Purchaser Call Option is not exercised) CRM(HK) will become a non-wholly-owned subsidiary of the Company and remain a subsidiary of CASH with CGL holding 40% interest therein. Upon the First Completion, CASH will remain a connected person and (assuming the Purchaser Call Option is not exercised) CRM(HK) will become a connected person of the Company (as defined under the Listing Rules) by virtue of Rule 14A.11(1) of the Listing Rules, and the Proposed Transactions to be made between the Company, the Retail Group and CASH respectively will constitute connected transactions on the part of the Company upon the First Completion.

On 19 December 2008, the Company, CASH and CRM(HK) entered into the Agreements relating to certain intra-group activities proposed to be made among the Group, the CASH Group and the Retail Group in their normal and usual course of business and on normal commercial terms, subject to conditions, on the First Completion, and such activities will constitute nonexempt continuing connected transactions of the Company under the Listing Rules on the First Completion:–

(a) The First Agreement relating to provision of guarantee

Date of	:	19 December 2008
the First
Agreement
Parties to	:	The Company, CASH and CRM(HK)
the First
Agreement
Annual cap	:	Each of the Company and/or CASH will provide financial
of financial		guarantee (as might be necessary as per request of various
guarantee		banks) not exceeding HK$200 million per annum, for the
and terms		purpose of assisting the Retail Group to obtain banking
		facilities from various banks for each of the three financial
		years ending 31 December 2011.

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LETTER FROM THE BOARD

Basis of : The amount of financial guarantee to be provided by the determination Company and CASH is determined with reference to the of financial existing financial guarantee provided by CASH Group to guarantee the Retail Group of up to HK$137 million, HK$135 million and HK$133 million in the two years ended 31 December 2007 and 6 months ended 30 June 2008, respectively to various banks. Reasons for : As the Retail Group will continue to rely on such banking the First facilities in order to carry on its business operation upon Agreement the First Completion, it is expected that the Company and/ or CASH will be required to provide financial guarantee (as might be necessary as per request of various banks) not exceeding HK$200 million per annum to various banks for such purposes for each of the three financial years ending 31 December 2011 in view of the steady growth of retail business during the relevant period.

(b) The Second Agreement relating to leasing arrangement

Date of : 19 December 2008 the Second Agreement Parties to : CASH and CRM(HK) the Second Agreement Premises :

A member of the CASH Group will sub-lease around 60% of floor area of “28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong” to the Retail Group as office premises.

Annual cap of : Rental (including rent and management fees) not exceeding rental and HK$5 million per annum, in total, for each of the three term financial years ending 31 December 2011.

Basis for : determination of rental

The annual cap of rental is determined in accordance with the monthly rental of not exceeding HK$400,000 (including the management fees) per month, representing around 60% of the monthly rental payable by the CASH Group (excluding the Group) under the lease agreement entered into between the member of CASH Group with an independent third party.

Such rental is calculated on the basis of prevailing market rate of the above office premises.

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LETTER FROM THE BOARD

Reasons for : The sharing of the office premises by the Retail Group with the Second the CASH Group (excluding the Group) will allow both the Agreement CASH Group (excluding the Group) and the Retail Group to enjoy economy of scale and effective utilisations of resources.

As at the date of the Second Agreement, the Retail Group occupied part of an office premises at “21/F The Center, 99 Queen’s Road Central, Hong Kong” with a gross floor area of 14,872 square feet, which was leased by CASH from an independent third party pursuant to a lease agreement entered between CASH and such independent third party. Under such sub-lease arrangement, the Retail Group was obliged to pay to CASH a monthly rental (including management fees) of approximately HK$392,000, representing around 60% (as determined in accordance with the percentage of actual floor area of such existing office premises occupied by the Retail Group) of the rental payable by CASH to such independent third party under a lease agreement which has been expired on 31 March 2009. A member of CASH Group (excluding the Group) has signed a tenancy agreement for the above new premises at “28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong” with an independent third party and is currently sub-leasing around 60% of the floor area of such new premises, with similar percentage of the actual floor area occupied by the Retail Group at the existing premises, at a monthly rental of not exceeding the HK$400,000 under the current new sub-lease arrangement.

(c) The Third Agreement relating to relating to provision of services

Date of the Third : 19 December 2008 Agreement Parties to : The Company, CASH and CRM(HK) the Third Agreement Provision of : The Retail Group will provide services, including sales services and marketing, advertising, promotional, etc, with annual services fees of not exceeding HK$2 million, in total, to each of the Group and CASH Group (not including the Group) for each of the three financial years ending 31 December 2011.

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LETTER FROM THE BOARD

Reasons for : It is expected that the cross-selling and cross-marketing the Third activities among the Group (excluding the Retail Group), Agreement the CASH Group (excluding the Group) and the Retail Group will broaden the revenue base for the Retail Group. The service fees charged by the Retail Group will be on normal commercial terms and on terms, which are no less, favorable to the Company and CASH than those available to independent third parties.

The Agreements are conditional upon (among other things) the approval by the Independent Shareholders at the SGM and the approval by the shareholders of CASH at the special general meeting of CASH.

The above annual caps are determined with reference to the existing utilisation of banking facilities or various services and the anticipated level of utilisation for the coming three years. Also, all of the above activities will be conducted in the ordinary and usual course of businesses and on normal commercial terms. In view of the above reasons, the Board is of the view that the terms of the Agreements are fair and the entering into of the Agreements is in the interests of the Group and the Shareholders as a whole.

INFORMATION OF THE GROUP

The current principal activities of the Group are provision of (a) online and traditional brokerage of securities, options, futures, and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products, (b) margin financing, (c) corporate finance, and (d) other financial services.

FINANCIAL INFORMATION OF THE GROUP

The audited consolidated net profits, before and after taxation, minority interest and extraordinary items, of the Group for the year ended 31 December 2007 were about HK$235.5 million and HK$206.7 million respectively, and the audited consolidated net loss, before and after taxation, minority interest and extraordinary items, of the Group for the year ended 31 December 2008 were about HK$90.5 million and HK$86.2 million respectively. The audited consolidated net assets value of the Group as at 31 December 2007 and 31 December 2008 were about HK$898.4 million and HK$689.3 million respectively.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

Upon completion of the Proposed Transfer, the Enlarged Group will be engaged in two core areas of businesses: the financial services business (including the provision of brokerage, margin financing, corporate finance, wealth management and asset management) and the retail business of furniture and household products in Hong Kong via the Retail Group.

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LETTER FROM THE BOARD

As shown in the 2008 annual report of the Company, the Group recorded a decrease of revenue from its financial services, from HK$666.4 million as recorded in year 2007 to HK$324.7 million in year 2008, due to reduction in both the commission income generated from its brokerage business and interest income from its financing activities. It was in turn the result of weak investor sentiment and the lack of mega IPO activities in the midst of the worsening US sub-prime credit crisis since last year, followed by the downturn in both the local and global economies in 2008. Despite the fact that 2008 had been a most difficult year for the financial services sector at home and overseas, the Group’s core financial services business still recorded an operating profit of HK$62.3 million for year 2008.

With regard to the retail business of the Retail Group, it had recorded a profit of HK$31.0 in year 2008. Thanks to the solid labour market conditions towards the end of 2008, the overall consumer spending had not been severely affected by the recent financial market turbulence and economic slowdown. The Retail Group recorded a mild growth in revenue to HK$864.0 million for year 2008 as compared to revenue of HK$773.3 million in year 2007 while still being able to maintain decent gross profit margins for the household products amid the rising merchandising costs brought about by the galloping inflation at home and abroad.

The property investment and other investments of the Group also experienced a fall in value and rental income after the global financial crises. The Group recognised an investment loss of HK$172.1 million on financial assets in year 2008. As a result of the above operating performance of sub-groups, the Group recorded a net loss of HK$86.2 million in year 2008.

Looking forward, it is anticipated that the financial turmoil will persist for a considerable period of time, rendering the most difficult operating environment in the recent decade. Global economic uncertainties have subdued demand worldwide while the unprecedented joint policy responses of various US-Euro governments have yet to take effect. However, China is expected to be among the first to recover, assisted by the huge capital spending programme launched by the central government and its commitment to maintain GDP growth of about 8% p.a. With the support of the central government, and closer economic ties with the Mainland, Hong Kong is expected to benefit from the recovery.

Upon completion of the Proposed Transfer, the Board will re-engineer the financial service business and the retail business so as to enable elimination of duplications in the existing infrastructure and enhance the utilisation and flexibility of human resources, operations and capital investments for both divisions, and keep a lean cost structure to enhance our competitiveness for our diversified businesses in such unfavourable environment.

In 2009, the Enlarged Group will focus on maintaining and leveraging our operational excellence, healthy financial position, disciplined management and innovation to ride out market adversity. The Board is cautiously optimistic about the long-term outlook of Hong Kong and hence the performance of the Enlarged Group.

– 25 –

LETTER FROM THE BOARD

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP AND THE RETAIL GROUP

Business and financial review for the year ended 31 December 2006

The Group

Business review and result

Achieved a net profit of HK$40.2 million as compared to HK$27.3 million in the previous year. Such increase was mainly attributable to an improved performance of the Group’s broking business, but having consolidated the loss of the Game Group of HK$27.5 million.
Recorded revenue of HK$346.0 million from its financial services business as compared to HK$213.6 million for the previous year. The increase was attributable to the significant growth in securities brokerage income due to the continued speculation over appreciation of RMB as well as the continuous boom of initial public offerings (IPO) during the year under review, especially for mega China-related enterprises.
During the year, the Group’s share in the Hong Kong stock market by turnover improved handsomely due partly to the general market strength and partly to the Group’s previous efforts to improve the delivery channels and execution platforms, which contributed to the significant growth in operating profits. There was strong demand for margin financing from clients as a result of the robust market environment. The investment banking division continued to focus its efforts on emerging Chinese private and state-owned enterprises which were listing candidates. During the year, the Group successfully sponsored the listing of Lingbao Gold, a high profile H-share, on the Stock Exchange which drew good publicity and attention from the financial services industry. Meanwhile, the Game Group’s online game business performed in line with the financial targets as set out in the business plan.

Financial resources and liquidity

Total equity amounted to HK$483.6 million on 31 December 2006, the improvement of which was due to the growth in retained earnings and new funds raised to strengthen capital bases during the first half of the year.
Cash and bank balances including trust and segregated accounts totaled HK$675.6 million. The cash and bank balances of the trust and segregated accounts increased as compared with the end of previous year due to a rise in clients’ deposits as they became more active in trading near year end. On the other hand, the cash and bank balances of our house accounts decreased because of intense demand for margin financing from our clients during the year.

– 26 –

LETTER FROM THE BOARD

Total outstanding bank borrowings were HK$279.8 million, comprising bank loans of HK$190.4 million and overdrafts of HK$89.4 million. The bank borrowings of HK$277.4 million were drawn to fund securities margin financing to our clients. HK$262.3 million of these bank borrowings were collateralised by our margin clients’ securities pledged to us for seeking financing. A cash deposit of HK$10.2 million was pledged as collateral for a general overdraft facility of HK$30 million. However, no overdraft was drawndown under this facility at the balance sheet date. Another deposit of HK$0.9 million was pledged to secure a general banking facility granted to a subsidiary.
In addition, pursuant to a letter of undertaking provided by the Group to a bank, the Group covenanted to maintain deposits of not less than HK$15.0 million with the bank as a pre-condition for an overdraft facility granted by the bank. At the year-end, a bank deposit of approximately HK$16.7 million was held for the purpose. The remaining bank borrowing of HK$2.4 million was drawn for financing the working capital of the Game Group. It was secured by personal guarantee from a director of a subsidiary, Fugleman Entertainment Company.
There was a convertible loan note with outstanding nominal value amounted to HK$30.5 million as at the end of the previous year. During the year, the noteholder partially exercised the note in the amount of HK$16.2 million at the conversion price of HK$0.27 each to convert into a total number of 60 million new Shares and the Company had made early partial repayments of the note in the total amount of HK$14.3 million. The convertible loan note was fully repaid as at the end the year.
Liquidity ratio on 31 December 2006 remained healthy at 1.2 times.
Gearing ratio, which was calculated based on the total borrowings of the Group divided by the total Shareholders’ equity, was approximately 0.58 time on 31 December 2006.
There was no material contingent liability at the year-end.

Foreign exchange risks

There was no material un-hedged foreign exchange exposure or interest rate mismatch at the year-end.

Material acquisitions and disposals

There was no material acquisitions or disposals during the year.

Capital commitments

There was no outstanding material capital commitment as at the year-end.

– 27 –

LETTER FROM THE BOARD

Material investments

As at 31 December 2006, the Group was holding a portfolio of listed investments with market value of approximately HK$54.3 million and a profit on such listed investments of HK$10.3 million was recorded for the year.
Save as disclosed, the Group did not have any future plans for material investments, nor addition of capital assets.

Employee information

As at 31 December 2006, the Group had 390 employees. The total amount of remuneration cost of employees of the Group for the year under review was approximately HK$79.5 million.
Our employees were remunerated according to their performance, working experience and market conditions.
The Company also have mandatory provident fund scheme, medical insurance scheme, discretionary share options, performance bonus and sales commission for staffs.
The Group has implemented various training policies and organised a number of training programs aimed specifically at improving the skills of its employees and generally to increase the competitiveness, productivity and efficiency of the Group.

The Retail Group

Business review and result

Achieved a net profit of HK$5.0 million which was attributable to the continuing improvement in the local economy throughout the year, the revamping of the retail network and product ranges and improvement in profit margin for household products.
Recorded revenue of HK$763.2 million for the year under review.

Financial resources and liquidity

Total equity stood at a deficit of HK$23.8 million on 31 December 2006.
Cash, bank balances and pledged bank deposits totaled HK$85.7 million at the year-end. Bank deposits of HK$47.8 million were pledged to secure the general banking facilities granted by banks.
Total outstanding bank borrowings of HK$85.5 million were secured bank loans and trust receipt loans.
Liquidity ratio on 31 December 2006 was 0.6 time.

– 28 –

LETTER FROM THE BOARD

Gearing ratio, which was calculated based on the total borrowings of the Retail Group divided by the total shareholders’ equity, stood at a deficit of approximately 3.59 times on 31 December 2006.
There was no material contingent liability at the year-end.

Foreign exchange risks

There was no material un-hedged foreign exchange exposure or interest rate mismatch at the year-end.

Material acquisitions and disposals

The Retail Group did not make any material acquisitions or disposals during the year.

Capital commitments

There was no outstanding material capital commitment as at the year-end.

Material investments

There was no investment in listed securities.
There was no future plan for material investments, nor addition of capital assets.

Employee information

As at 31 December 2006, the Retail Group had 784 employees. The total amount of remuneration cost of employees of the Retail Group for the year under review was approximately HK$85.0 million.
Our employees were remunerated according to their performance, working experience and market conditions.
The Retail Group also had mandatory provident fund scheme, medical insurance scheme, discretionary share options, performance bonus and sales commission for staffs. The Retail Group also provided its employees in the PRC with medical and other subsidies, and contributes to the retirement benefit plans.
The Retail Group has implemented various training policies and organised a number of training programs aimed specifically at improving the skills of its employees and generally to increase the competitiveness, productivity and efficiency of the Retail Group.

– 29 –

LETTER FROM THE BOARD

Business and financial review for the year ended 31 December 2007

The Group

Business review and result

Ceased to consolidate the revenue and operating results of the Game Group subsequent to the completion of the disposal of the Game Group on 1 June 2007.
Achieved a net profit of HK$206.7 million as compared to HK$40.2 million recorded in the previous year. Such a significant increase was mainly attributable to an improved performance of the Group’s broking business and the incorporation of the gain on disposal of the Game Group of HK$41.7 million.
Recorded revenue from the continuing operations of HK$666.4 million as compared to HK$346.0 million for the previous year. The increase was attributable to the significant growth in the Group’s brokerage business and interest income from its financing activities for the year, which in turn, was mainly due to the buoyant stock markets in Hong Kong and the PRC throughout 2007.
During the year, the Group’s market share and securities turnover surged sharply as a result of the large inflow of funds after the announcement that Mainland individuals would be allowed to invest directly in the Hong Kong stock market and the commencement of QDII investments. The strong appetite for IPO subscriptions increased the demand for margin financing which also led to the satisfactory growth of the Group’s broking business. Thanks to the buoyant market, the Group’s investment banking unit was particularly active in financial advisory and continued to look for IPO sponsorships opportunities for emerging private and state-owned enterprises in China. On the other hand, the Game Group’s online game services division was discontinued on 1 June 2007.

Financial resources and liquidity

Total equity amounted to HK$899.4 million on 31 December 2007, the improvement of which, apart from the growth of retained earnings, was mainly attributed to the completion of 5-for-2 rights issue in November 2007 raising approximately HK$237.4 million (before expenses) to strengthen capital bases during the year.
Cash and bank balances including trust and segregated accounts totaled HK$1,213.9 million. The cash and bank balances increased significantly as compared with the end of previous year was the combined results of the cash generated from the net profit and the net proceeds raised by the aforesaid rights issue during the year as well as an increase in clients’ deposits at the year end date.

– 30 –

LETTER FROM THE BOARD

Total outstanding bank borrowings were HK$231.1 million, comprising bank loans of HK$229.0 million and overdrafts of HK$2.1 million. Bank borrowings of HK$126.1 million, which were drawn to fund securities margin financing to its clients, were collateralised by its margin clients’ securities pledged to the Group for seeking financing. The Group had obtained a 3-year term syndicated bank loan with total facilities of HK$175.0 million and the total bank borrowings of HK$231.1 million had included a partial draw-down of the syndicated bank loan amounting to HK$105 million at the year-end date.
Cash deposit of approximately HK$10.6 million was pledged as collateral for a loan facility of HK$10.0 million but the facility had not been drawn down at the year-end. A further deposit of HK$1.0 million was pledged to secure a general banking facility granted to a subsidiary of the Company. In addition, pursuant to a letter of undertaking provided by the Group to a bank, the Group covenanted to maintain deposits of not less than HK$15.0 million with the bank as a pre-condition for an overdraft facility of HK$15.0 million granted by the bank. Therefore a bank deposit of approximately HK$17.1 million was held for this purpose.
Liquidity ratio on 31 December 2007 remained healthy at 1.3 times.
Gearing ratio, which was calculated based on the total borrowings of the Group divided by the total Shareholders’ equity, was approximately 0.29 time on 31 December 2007.
There was no material contingent liability at the year-end.
Foreign exchange risks
There was no material un-hedged foreign exchange exposure or interest rate mismatch at the year-end.

Material acquisitions and disposals

On 9 January 2007, the Company proposed the disposal of the Game Group to CASH Group. The final consideration was fixed at HK$120 million and the transaction was completed on 1 June 2007. Details of the disposal were disclosed in the Company’s announcement dated 9 January 2007 and the circular dated 4 April 2007.
On 27 June 2007, the Company announced the formation of a joint venture entity with two independent third parties in equal shares for investing in a PRC property with maximum capital contribution of the Group up to RMB150 million (approximately HK$153.2 million). Details of the transaction were disclosed in the Company’s announcement dated 27 June 2007 and the circular dated 18 July 2007,
Save as aforesaid, the Group did not make any material acquisitions or disposals during the year.

– 31 –

LETTER FROM THE BOARD

Capital commitments

Outstanding material capital commitment was HK$11.6 million in relation to decoration works and acquisitions of equipment.
Save as aforesaid, the Group did not have any material capital commitment as at the year-end.

Material investments

As at 31 December 2007, the Group was holding a portfolio of listed investments with a market value of approximately HK$59.3 million and a gain on such investments of HK$20.3 million was recorded for the year.
Save as disclosed, the Group did not have any future plans for material investments, nor addition of capital assets.

Employee information

As at 31 December 2007, the Group had 283 employees. The total amount of remuneration cost of employees of the Group for the year under review was approximately HK$80.0 million.
Our employees were remunerated according to their performance, working experience and market conditions.
The Company and some of its subsidiaries also have mandatory provident fund scheme, medical insurance scheme, discretionary share options, performance bonus and sales commission for staffs. The Company also provides its employees in the PRC with medical and other subsidies, and contributes to the retirement benefit plans.
The Group has implemented various training policies and organised a number of training programs aimed specifically at improving the skills of its employees and generally to increase the competitiveness, productivity and efficiency of the Group.

The Retail Group

Business review and result

Achieved a net profit of HK$30.1 million which was attributable to the stable growth in the Hong Kong economy and the territory’s property boom in the second half of the year which led to strong domestic consumption.
Recorded a mild growth of revenue to HK$773.3 million due to local strong domestic consumption and consistent improvement in its service and products quality and operational effectiveness of the retail business.

– 32 –

LETTER FROM THE BOARD

Financial resources and liquidity

Total equity amounted to HK$6.3 million on 31 December 2007, which was due to the increase in retained earnings and the reported profit for the year.
Cash, bank balances and pledged bank deposits totaled HK$81.8 million. Bank deposits of HK$48.6 million were pledged to secure the general banking facilities granted by banks.
Total outstanding bank borrowings were HK$77.6 million, all of which were secured bank loans and trust receipt loans which would be due within one year.
Liquidity ratio on 31 December 2007 was 0.8 time.
Gearing ratio, which was calculated based on the total borrowings of the Retail Group divided by the total shareholders’ equity, was approximately 12.33 times on 31 December 2007.
There was no material contingent liability at the year-end.

Foreign exchange risks

There was no material un-hedged foreign exchange exposure or interest rate mismatch at the year-end.

Material acquisitions and disposals

There was no material acquisition or disposal during the year.

Capital commitments

There was no outstanding material capital commitment as at the year-end.

Material investments

There was no investment in listed securities.
There was no future plan for material investments, nor addition of capital assets.

Employee information

As at 31 December 2007, the Retail Group had 811 employees. The total amount of remuneration cost of employees of the Retail Group for the year under review was approximately HK$98.7 million.
Our employees were remunerated according to their performance, working experience and market conditions.

– 33 –

LETTER FROM THE BOARD

The Retail Group also had mandatory provident fund scheme, medical insurance scheme, discretionary share options, performance bonus and sales commission for staffs. The Retail Group also provided its employees in the PRC with medical and other subsidies, and contributes to the retirement benefit plans.
The Retail Group has implemented various training policies and organised a number of training programs aimed specifically at improving the skills of its employees and generally to increase the competitiveness, productivity and efficiency of the Retail Group.

Business and financial review for the year ended 31 December 2008

The Group

Business review and result

Recorded a net loss of HK$86.2 million which was mainly due to recognition of investment loss of HK$163.4 million on financial assets when the financial crisis in the last quarter of 2008.
Recorded revenue of HK$324.7 million which was significantly decreased as compared with previous year. It was due to reduction in both the commission income generated from the brokerage business and interest income from its financing activities, which had in turn resulted from the weak investors’ sentiment and the lack of mega IPO activities in the midst of the worsening US sub-prime credit crisis since late 2007, followed by the downturn in both the local and global economies in 2008.
Its financial services business still recorded an operating profit of HK$62.3 million even though the poor investment sentiment caused by the US sub prime credit crisis started to take toll on the local stock market.
The Group’s securities broking industry was hit hard by the unprecedented financial turmoil and economy downturn, resulting in significant fall in turnover and operating profit. With the decline in market turnover and the lack of mega IPO activities, interest income for margin financing business substantially dropped. Under this challenging environment, the Group’s corporate finance unit shifted its focus to financial advisory and special transactions such as corporate restructuring and capital injections.

Financial resources and liquidity

Total equity amounted to HK$706.1 million on 31 December 2008, which was due to reduction in retained earnings and the loss for the year.
Cash and bank balances including the trust and segregated accounts totaled HK$752.5 million. The cash balances decreased as compared with end of previous year due to drop in deposits by securities’ clients whose confidence in the stock market had been weakened as the financial crisis was deepening in the last quarter of 2008.

– 34 –

LETTER FROM THE BOARD

Total outstanding bank borrowings were HK$232.1 million, comprising bank loans of HK$179.0 million, mortgage loans of HK$38.1 million and overdrafts of HK$15.0 million. Among the above bank borrowings, HK$14.0 million were collateralised by its margin clients’ securities pledged to the Group. Another bank loan of HK$10.0 million was secured by a pledged deposit. Mortgage loans of HK$38.1 million were secured by the investment properties under construction with a total carrying amount of approximately HK$63.3 million. There were also unsecured borrowings including a syndicated bank loan of HK$105.0 million, unsecured bank loans of HK$50.0 million and unsecured overdrafts of HK$15.0 million.
Bank deposits of HK$10.7 million was pledged as collateral for a bank loan of HK$10.0 million. Another deposit of HK$0.2 million was pledged to facilitate a bank guarantee of a rental deposit. A further deposit of HK$7.1 million was pledged to facilitate a standby letter of credit facility granted by a bank to an associate of the Company. In addition, pursuant to a letter of undertaking provided by the Group to a bank, the Group undertakes to maintain deposits of not less than HK$15.0 million with the bank as a pre-condition for an overdraft facility of HK$15.0 million granted by this bank. Accordingly, a bank deposit of approximately HK$17.1 million was held for this purpose.
Liquidity ratio on 31 December 2008 remained healthy at 1.4 times.
Gearing ratio, which was calculated based on the total borrowings of the Group divided by the total Shareholders’ equity, was approximately 0.37 time on 31 December 2008.
There was no material contingent liability at the year-end.

Foreign exchange risks

There was no material un-hedged foreign exchange exposure or interest rate mismatch at the year-end.

Material acquisitions and disposals

On 19 December 2008, the Group entered into the S&P Agreement relating to the Proposed Transfer at a total consideration of approximately HK$300 million (subject to Adjustment), details of the Transactions are disclosed in the First Announcement and this circular.
Save as aforesaid, the Group did not make any material acquisitions or disposals during the year.

Capital commitments

There was no outstanding material capital commitment as at the year-end.

– 35 –

LETTER FROM THE BOARD

Material investments

As at 31 December 2008, the Group was holding a portfolio of listed investments and unlisted investment funds with market values of approximately HK$79.2 million and net losses on listed investments, unlisted investment funds, equity-linked structured deposits and derivative financial instruments totally of HK$163.4 million was recorded for the year.
Save as disclosed, the Group did not have any future plans for material investments, nor addition of capital assets.

Employee information

As at 31 December 2008, the Group had 258 employees. The total amount of remuneration cost of employees of the Group for the year under review was approximately HK$71.8 million.
Our employees were remunerated according to their performance, working experience and market conditions.
The Company and some of its subsidiaries also had mandatory provident fund scheme, medical insurance scheme, discretionary share options, performance bonus and sales commission for staffs. The Company also provides its employees in the PRC with medical and other subsidies, and contributes to the retirement benefit plans.
The Group had implemented various training policies and organised a number of training programs aimed specifically at improving the skills of its employees and generally to increase the competitiveness, productivity and efficiency of the Group.

The Retail Group

Business review and result

Despite the adverse external environment in 2008, the Retail Group still made remarkable progress in 2008, with revenue and profits both recording satisfactory growth.
Achieved a net profit of HK$31.0 million, reflecting the consistent improvement in the services and products quality and operational effectiveness, including the continued overhaul brand rejuvenation for its retail network since late last year of the retail business.
Recorded revenue of HK$864.0 million with a mild growth as compared with the previous year. The overall consumer spending had not been severely affected by the recent financial market turbulence and economic slowdown beginning in the last quarter of the year, as a result of the solid labour market conditions towards the year-end.

– 36 –

LETTER FROM THE BOARD

Financial resources and liquidity

Total equity amounted to HK$37.5 million on 31 December 2008, which was due to the increase in retained earnings and the reported profit for the year.
Cash, bank balances and pledged bank deposits totaled HK$91.8 million, which was kept at a similar level as compared with the previous year. Bank deposits of HK$54.0 million were pledged to secure the general banking facilities granted by banks.
Total outstanding bank borrowings were HK$79.1 million, all of which were secured bank borrowings of trust receipt loans which would be due within one year.
Liquidity ratio on 31 December 2008 was 0.9 time.
Gearing ratio, which was calculated based on the total borrowings of the Retail Group divided by the total shareholders’ equity, was approximately 2.11 times on 31 December 2008.
There was no material contingent liability at the year-end.

Foreign exchange risks

There was no material un-hedged foreign exchange exposure or interest rate mismatch at the year-end.

Material acquisitions and disposals

The Retail Group did not make any material acquisitions or disposals during the year.

Capital commitments

There was no outstanding material capital commitment as at the year-end.

Material investments

There was no investment in listed securities.
There was no future plan for material investments, nor addition of capital assets.

Employee information

As at 31 December 2008, the Retail Group had 814 employees. The total amount of remuneration cost of employees of the Retail Group for the year under review was approximately HK$101.2 million.

– 37 –

LETTER FROM THE BOARD

Our employees were remunerated according to their performance, working experience and market conditions.
The Retail Group also had mandatory provident fund scheme, medical insurance scheme, discretionary share options, performance bonus and sales commission for staffs.
The Retail Group has implemented various training policies and organised a number of training programs aimed specifically at improving the skills of its employees and generally to increase the competitiveness, productivity and efficiency of the Retail Group.

EFFECTS OF THE PROPOSED TRANSFER AND THE PROPOSED TRANSACTIONS ON THE EARNINGS, ASSETS AND LIABILITIES OF THE GROUP

Based on the unaudited pro forma consolidated balance sheet of the Enlarged Group as set out in 1(b) of Appendix III to this circular, assuming the Proposed Transfer (before the conversion of the Convertible Note(s)) had been completed on 31 December 2008, the Group’s assets will be increased by approximately HK$391.4 million, while the total liabilities of the Group will be also increased by approximately HK$382.7 million. The net assets value of the Group will be increased by approximately HK$8.7 million.

There will be no immediate effect on the earnings of the Group upon completion of the Proposed Transfer. On the other hand, based on the unaudited pro forma consolidated income statement of the Enlarged Group as set out in 2(b) of Appendix III to this circular, assuming the Proposed Transfer (before the conversion of the Convertible Note(s)) had been completed on 1 January 2008, the Group’s net loss will be decreased by approximately HK$0.8 million.

Upon the First Completion (assuming the Purchaser Call Option is not exercised), the Retail Group will be accounted for as a non-wholly-owned subsidiary of the Group, and upon the Second Completion, the Retail Group will be accounted for as a wholly-owned subsidiary of the Group. In both cases, the assets, liabilities and results of the Retail Group will be fully consolidated into the accounts of the Enlarged Group.

The Directors do not expect the Proposed Transactions will have any immediate material effects on the assets, liabilities and earnings of the Group.

FUND RAISING OF THE COMPANY FOR THE PAST 12 MONTHS

On 20 February 2009, the Company announced the Rights Issue to raise approximately HK$92,600,000 capital. The net proceeds to be raised are intended to be used as additional working capital to strengthen the financial position of the Company. The Rights Issue had been completed on 17 April 2009. Details of the Rights Issue are set out in the prospectus of the Company dated 19 March 2009.

Save as disclosed herein, the Company did not have any other fund raising activity in the past 12 months.

– 38 –

LETTER FROM THE BOARD

GENERAL

Application has been made by the Company to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the Conversion Shares.

The current principal activities of CASH Group consist of (a) financial services provided via the Group including online and traditional brokerage of securities, options, futures and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products, margin financing, corporate finance, other financial services; (b) retail management business including the retail business via the Retail Group; (c) provision of online game services, sales of online game auxiliary products and licensing services via the Game Group; and (d) property investment and other investments holding. Immediately after the First Completion, the business of CASH Group will focus on online game business in the PRC and investment holding.

CASH is the controlling Shareholder holding 48.32% equity interest in the Company and CGL is a wholly-owned subsidiary of CASH, thus an Associate of CASH, and both CASH and CGL are connected persons of the Company (as defined under the Listing Rules). Upon the First Completion (assuming the Purchaser Call Option is not exercised), CRM(HK) will become a nonwholly-owned subsidiary of the Company, the remaining 40% of which will continue to be held by CGL, an Associate of CASH. As such, CRM(HK) will become a connected person of the Company upon the First Completion (assuming the Purchaser Call Option is not exercised) by virtue of Rule 14.11(1) of the Listing Rules. Under the Listing Rules, the Proposed Transfer constituted a very substantial acquisition and connected transaction for the Company, and the Proposed Transactions constituted non-exempt continuing connected transactions for the Company upon the First Completion (assuming the Purchaser Call Option is not exercised). Accordingly, the Transactions are conditional upon, among other things, the approval of the Independent Shareholders at the SGM. CIGL and its Associates who have material interests in the Transactions will abstain from voting at the SGM and the voting at the SGM must be taken by poll.

SGM

Set out on pages 190 to 192 of this circular is a notice convening the SGM in which ordinary resolutions will be proposed to be considered and, if thought fit, be passed by the Independent Shareholders for approving (i) the S&P Agreement, the issue of the Convertible Note(s) and the Conversion Share(s) under a specific mandate, and (ii) the Agreements. CIGL and its Associates who have material interests in the Transactions will abstain from voting at the SGM and the voting at the SGM must be taken by poll.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM, please complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and in any event by no later than 48 hours before the time appointed for the holding of the SGM. Completion and return of a form of proxy will not preclude you from attending and voting in the SGM should you so wish.

– 39 –

LETTER FROM THE BOARD

RECOMMENDATION

In relation to the Transactions, the Directors (including all the independent non-executive Directors forming the Independent Board Committee) are of the opinion that the S&P Agreement, the issue of the Convertible Note(s) and the Agreements are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, and the Directors (including all the independent non-executive Directors forming the Independent Board Committee) therefore recommend the Independent Shareholders to vote in favour of the resolutions relating to (i) the S&P Agreement, the issue of the Convertible Note(s) and the Conversion Share(s) under a specific mandate, and (ii) the Agreements at the SGM.

Your attention is also drawn to the letters from the Independent Board Committee and the Independent Financial Adviser and their respective recommendations set out on pages 41 to 61 of this circular.

ADDITIONAL INFORMATION

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

Yours faithfully, On behalf of the Board Bankee P Kwan Chairman

– 40 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [116 x 56] intentionally omitted <==

CASH FINANCIAL SERVICES GROUP LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 510)

26 May 2009

To the Independent Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE PROPOSED ISSUE OF CONVERTIBLE NOTE(S) – PROPOSED ACQUISITION OF HONG KONG RETAIL BUSINESS

AND

CONTINUING CONNECTED TRANSACTIONS – PROPOSED INTRA-GROUP ACTIVITIES

We refer to the circular dated 26 May 2009 of the Company (“Circular”) of which this letter forms part. Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

We have been appointed to form an Independent Board Committee to consider the Proposed Transfer and the Proposed Transactions and to advise the Independent Shareholders whether, in our opinion, the Proposed Transfer and the Proposed Transactions are fair and reasonable so far as the Independent Shareholders as a whole are concerned and are in the interests of the Company and the Independent Shareholders as a whole. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transfer and the Proposed Transactions.

We wish to draw your attention to the letter from the Board set out on pages 7 to 40 of the Circular which contains, inter alia, information on the Proposed Transfer and the Proposed Transactions and the letter from the Independent Financial Adviser set out on pages 43 to 61 of the Circular which contains its advice in respect of the respective terms of the Proposed Transfer and the Proposed Transactions.

– 41 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice of the Independent Financial Adviser, we consider the Proposed Transfer and the Proposed Transactions are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Independent Shareholders and the Company as a whole. The Proposed Transfer and the Proposed Transactions were entered into upon normal commercial terms. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Proposed Transfer and the Proposed Transactions.

Yours faithfully Independent Board Committee Cheng Shu Shing Raymond Lo Kwok Hung John Lo Ming Chi Charles Independent non-executive Directors

– 42 –

LETTER FROM VINCO CAPITAL

The following is the text of a letter of advice from Grand Vinco Capital Limited to the Independent Board Committee and the Independent Shareholders in connection with the Proposed Transfer and the Proposed Transactions which has been prepared for the purpose of incorporation in this circular:

Grand Vinco Capital Limited Units 4909-4910, 49/F., The Center 99 Queen’s Road Central, Hong Kong

26 May 2009

To the Independent Board Committee and the Independent Shareholders of CASH Financial Services Group Limited

Dear Sirs,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION INVOLVING THE PROPOSED ISSUE OF CONVERTIBLE NOTE(S) – PROPOSED ACQUISITION OF HONG KONG RETAIL BUSINESS

AND

CONTINUING CONNECTED TRANSACTIONS – PROPOSED INTRA-GROUP ACTIVITIES

INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in connection with the Proposed Transfer and the Proposed Transactions, details of which are set out in the section headed “Letter from the Board” in the circular (“Circular”) issued by the Company to the Shareholders dated 26 May 2009 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.

On 19 December 2008 (in relation to the Transactions) and 21 May 2009 (in relation to the Supplemental Agreement), the Company announced that CGL (a wholly-owned subsidiary of CASH) entered into the S&P Agreement, pursuant to which, subject to the Conditions, the Company will acquire from CGL the Interest (being 60% of the Equity Interest in CRM(HK)) and the Loan due from the Retail Group to CGL (if any) at the Consideration of approximately HK$184 million (as adjusted to HK$186,204,000 as at the Latest Practicable Date as more particularly described in the heading of “Adjustment to the Consideration” in the “Letter from the Board” section of the Circular). Upon the First Completion, subject to the Conditions, the Company will be granted the Purchaser Call Option to acquire the remaining 40% of the Equity Interest in CRM(HK) at the Consideration of approximately HK$116 million (as adjusted to HK$124,136,000 as at the Latest Practicable Date as more particularly described in the heading of “Adjustment to the Consideration” in the “Letter from the Board” section of the Circular) at any time from the date of

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LETTER FROM VINCO CAPITAL

the First Completion up to 31 December 2011, in which the Purchaser Call Option is exercisable at the discretion of both the Company or its nominee or CGL. The aggregate Consideration (including the Interest and the remaining 40% of the Equity Interest in CRM(HK)) of approximately HK$300 million (as adjusted to HK$310,340,000 as at the Latest Practicable Date) was determined in accordance with the P/E Ratio of 10 times of the Audited Net Profits of the Retail Group for the year ended 31 December 2008. The Consideration has been settled as to HK$60 million in cash upon signing of the S&P Agreement and part of the Consideration of HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the First Completion as more particularly described in the heading of “Adjustment to the Consideration” in the “Letter from the Board” section of the Circular) will be satisfied by the proposed issue of the Convertible Note(s) at the Conversion Price of HK$1.482 (as adjusted from HK$1.15 after the First Announcement due to the Rights Issue) per Conversion Share.

Assuming the Convertible Note(s) are issued at principal amount of HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion as more particularly described in the heading of “Adjustment to the Consideration” in the “Letter from the Board” section of the Circular) at the adjusted Conversion Price of HK$1.482 and the conversion rights attaching to all the Convertible Note(s) are exercised in full, an aggregate of 157,862,348 new Shares (subject to adjustment to the initial Conversion Price) shall be allotted and issued, representing approximately 25.58% of the Company’s existing issued share capital and 20.37% of the issued share capital of the Company as enlarged by the allotment and issue of the Conversion Shares.

As the applicable percentage ratios (as calculated in accordance with Rule 14.07 of the Listing Rules) for the Proposed Transfer exceed 100%, the Proposed Transfer constituted a very substantial acquisition of the Company under Rule 14.06 of the Listing Rules. Given that (i) CASH is beneficially interested in approximately 48.32% of the equity interest in the Company and is thus a controlling shareholder of the Company; and (ii) CGL is a wholly-owned subsidiary of CASH and is thus an Associate of CASH, as such both CASH and CGL are connected persons of the Company (as defined under the Chapter 14A of the Listing Rules). Accordingly, the Proposed Transfer also constituted a connected transaction for the Company under Chapter 14A.13(1)(a) of the Listing Rules.

In addition, the Company has entered into the First Agreement and the Third Agreement with CASH and CRM(HK) on 19 December 2008 in relation to the provision of guarantees and the provision of services respectively. Meanwhile, CASH has entered into the Second Agreement with CRM(HK) in relation to the leasing arrangement. Upon the First Completion and assuming the Purchaser Call Option is not exercised, the Retail Group will be owned as to 60% and 40% by the Company and CASH respectively, CRM(HK) will become a non-wholly-owned subsidiary of the Company and remain a subsidiary of CASH with CGL holding 40% interest therein. Accordingly, CASH will remain a connected person and CRM(HK) will become a connected person of the Company under Chapter 14A.11(1) of the Listing Rules. The Proposed Transactions to be made between the Retail Group and the Company, and CASH, respectively will constitute connected transactions on the part of the Company, and thus will constitute non-exempt continuing connected transactions for the Company pursuant to the Listing Rules.

Hence, the Proposed Transfer and the Proposed Transactions are subject to, inter alia, the approval of the Independent Shareholders taken by way of poll at the SGM. Under the Listing Rules, CIGL and its Associates shall abstain from voting on the resolutions to approve the Proposed Transfer and the Proposed Transactions at the SGM.

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LETTER FROM VINCO CAPITAL

The Independent Board Committee, comprising Mr Cheng Shu Shing Raymond, Mr Lo Kwok Hung John and Mr Lo Ming Chi Charles, all being the independent non-executive Directors, has been formed to advise the Independent Shareholders on the Proposed Transfer and the Proposed Transactions. We have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transfer and the Proposed Transactions. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders for the purposes of the Listing Rules, our role is to give you an independent opinion as to whether the Proposed Transactions are in the ordinary and usual course of business and both the Proposed Transfer and the Proposed Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

BASIS OF OUR OPINION AND RECOMMENDATION

In forming our opinion and recommendation, we have relied on the information, facts and representations contained or referred to in the Circular and the information, facts and representations provided by, and the opinions expressed by the Directors, management of the Company and its subsidiaries. We have assumed that all information, facts, opinions and representations made or referred to in the Circular were true, accurate and complete at the time they were made and continued to be true, accurate and complete as at the date of the Circular and that all expectations and intentions of the Directors, management of the Company and its subsidiaries, will be met or carried out as the case may be. We have no reason to doubt the truth, accuracy and completeness of the information, facts, opinions and representations provided to us by the Directors, management of the Company and its subsidiaries. The Directors have confirmed to us that no material facts have been omitted from the information supplied and opinions expressed. We have no reason to doubt that any relevant material facts have been withheld or omitted from the information provided and referred to in the Circular or the reasonableness of the opinions and representations provided to us by the Directors, management of the Company and its subsidiaries.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular, the omission of which would make any statement in the Circular misleading.

We have relied on such information and opinions and have not, however, conducted any independent verification of the information provided, nor have we carried out any independent investigation into the business, financial conditions and affairs of the Group or its future prospects.

Based on the foregoing, we confirm that we have taken all reasonable steps, which are applicable to the Proposed Transfer and the Proposed Transactions, as referred to in Rule 13.80 of the Listing Rules (including the notes thereto).

This letter is issued for the information for the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Proposed Transfer and the Proposed Transactions and, except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.

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LETTER FROM VINCO CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Proposed Transfer and the Proposed Transactions, we have considered the principal factors and reasons set out below:

Business and financial information of the Group

As stated in the Letter from the Board, the Group is principally engaged in the provision of (a) online and traditional brokerage of securities, options, futures, and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products; (b) margin financing; (c) corporate finance; and (d) other financial services.

The following is a summary of the financial results of the Group for each of the two years ended 31 December 2008:

	For the year ended	For the year ended
	31 December
	2007	2008
	HK$’000	HK$’000
	(approximately)	(approximately)
Revenue	666,378	324,651
Profit/(Loss) for the year	206,690	(86,218)
Profit/(Loss) attributable to the Shareholders	207,779	(99,595)
	As at 31	December
	2007	2008
	HK$’000	HK$’000
	(approximately)	(approximately)
Net assets	899,366	706,055
Net assets value attributable to the Shareholders	898,365	689,293

Source: Annual reports of the Company for each of the two years ended 31 December 2008.

As disclosed in the annual report 2008 of the Group for the financial year ended 31 December 2008, the Group’s revenue was approximately HK$324,651,000. Loss for the year was approximately HK$86,218,000, in which the amount attributable to the Shareholders was approximately HK$99,595,000. As at 31 December 2008, the net assets of the Group were amounted to approximately HK$706,055,000 in which the amount attributable to the Shareholders was approximately HK$689,293,000.

For the year ended 31 December 2007, the Group recorded revenue of approximately HK$666,378,000. Profit for the year was approximately HK$206,690,000, in which the amount attributable to the Shareholders was approximately HK$207,779,000. As at 31 December 2007, the Group’s net assets were amounted to approximately HK$899,366,000 in which the amount attributable to the Shareholders was approximately HK$898,365,000.

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LETTER FROM VINCO CAPITAL

For the year ended 31 December 2008, the Group’s segment revenue from broking, financing and corporate finance were approximately HK$270,878,000 (2007: approximately HK$502,039,000), HK$46,187,000 (2007: approximately HK$154,497,000) and HK$7,586,000 (2007: approximately HK$9,842,000) respectively. In general, we noted that the abovementioned segments recorded decrease in the revenue when compared to the corresponding period in 2007. We noted that the operating and financial results of the Group for the year under our review were adversely impacted by the financial crisis during the year ended 31 December 2008.

As set out in the Letter from the Board, it is noted that it has been the strategy of the Group to diversify its income stream and widen its sources of revenue. Given that the proposed acquisition of CRM(HK) (“Proposed Acquisition”) would allow the Group to diversify its income stream in the retail business for economical and quality furniture and household products, we are thus of the opinion that the Proposed Acquisition is in line with the Group’s strategy and is in the interests of the Company and the Independent Shareholders as a whole.

Background and reasons for the Proposed Acquisition

(1) Information of the Retail Group

The Retail Group is principally engaged in the operation of the retail business in Hong Kong, including retailing of furniture and household items under the brand name of “Pricerite”. Also, the Retail Group beneficially owns the entire interest of a property which is located at Pricerite Group Building, No.6 Hong Ting Road, Sai Kung, New Territories, Hong Kong. In accordance with the valuation report of an independent valuer using market value approach, the market value of the property was estimated at HK$60.0 million as at 31 December 2008. Currently, the property is used by the Retail Group as a godown for its business operation.

Set out below is a table of financial summary of the Retail Group as extracted from appendix II to the Circular:

	For the	year ended 31 December	year ended 31 December
	2006	2007	2008
	HK$’000	HK$’000	HK$’000
	(approximately)	(approximately)	(approximately)
Revenue	763,233	773,264	863,997
Profit for the year from
the Retail Group	5,044	30,106	31,034

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LETTER FROM VINCO CAPITAL

According to the audited financial information of the Retail Group for the three years ended 31 December 2008 as set out in appendix II to the Circular, the Retail Group recorded revenue of approximately HK$863,997,000 (2007 and 2006: approximately HK$773,264,000 and HK$763,233,000 respectively) and its profit for the year was approximately HK$31,034,000 (2007 and 2006: approximately HK$30,106,000 and HK$5,044,000 respectively). In view of the above, we noted that the Retail Group was able to (i) maintain continued and satisfactory growth in both revenue and profits for the past three years, (ii) achieve remarkable growth in profits for the year ended 31 December 2007 with approximately 496.9% increase as compared with the year ended 31 December 2006, (iii) achieve mild growth in both revenue and profits and still recorded operating profits for the year ended 31 December 2008 amid the adverse economy and market conditions during the year.

(2) Information of the CASH Group

The CASH Group is principally engaged in: (a) the provision of financial services provided via the Group including online and traditional brokerage of securities, options, futures and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products, margin financing, corporate finance and other financial services; (b) retail management business including the retail business via the Retail Group; (c) the provision of online game services, sale of online game auxiliary products and licensing services via the Game Group; and (d) property investment and other investments holding. Immediately after the First Completion, the CASH Group will focus on online game business in the PRC and investment holding.

(3) Reasons for the Proposed Acquisition

Given that the recent global financial crisis, the financial services business in which the Group is operated was materially and adversely affected. The business performance of the Group is highly dependent on the performance of the financial market and the local and global economies.

As set out in the Letter from the Board, it has been the strategy of the Group to diversify its income stream and broaden its sources of revenue. As discussed with the Directors, despite the recent unfavourable local and global economy and the subsequent adverse effects on the overall consumer spending in Hong Kong, the Directors believed that the effect on the retail business for economical and quality furniture and household products is relatively insignificant as consumers will look for economic but quality products in adverse economic environment and the demand for such kind of products will remain relatively strong. Accordingly, the Directors are thus optimistic about the retail business for economical and quality furniture and household products in Hong Kong. We have also reviewed the “Provisional statistics of retail sales for December 2008 and for the whole year of 2008” published by the Census and Statistics Department, it is noted that the total retail sales for year 2008 recorded an increase by 10.5% in value or 5.0% in volume when compared to year 2007, with the volume of sales of furniture and fixtures increased by 7.6% in 2008 compared with a year earlier.

In addition, the grant of the Purchaser Call Option provides an opportunity for both CGL and the Company to acquire the remaining 40% Equity Interest and results in no immediate heavy financial burden on cash flow of the Group.

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LETTER FROM VINCO CAPITAL

Accordingly, we concur with the Directors’ view that the performance of the retail business for economical and quality furniture and household products in Hong Kong remains positive in the near future, and thus the Proposed Acquisition would be able to contribute positively to the Company to future growth and development by diversifying its income stream.

Having considered that (i) the Proposed Acquisition is in line with the Group’s business strategy; (ii) the satisfactory performance of the Retail Group for the past three years; (iii) the Proposed Acquisition can diversify the income stream of the Company; and (iv) the grant of the Purchaser Call Option provides an opportunity for both CGL and the Company to acquire the remaining 40% Equity Interest without imposing an immediate heavy financial burden on cash flow of the Group, we are of the view that the Proposed Acquisition is in the interests of the Company and its Independent Shareholders as a whole.

Principal terms of the S&P Agreement

(1) Basis of the Consideration

Pursuant to the S&P Agreement as set out in the First Announcement, the Company will acquire from CGL the Interest (being 60% of the Equity Interest in CRM(HK)) and the Loan due from the Retail Group to CGL (if any) at the Consideration of approximately HK$184 million (as adjusted to HK$186,204,000 as at the Latest Practicable Date as more particularly described in the heading of “Adjustment to the Consideration” in the “Letter from the Board” section of the Circular). Meanwhile, the Company will be granted the Purchaser Call Option (upon the First Completion) to acquire the remaining 40% of the Equity Interest in CRM(HK) at the Consideration of approximately HK$116 million (as adjusted to HK$124,136,000 as at the Latest Practicable Date as more particularly described in the heading of “Adjustment to the Consideration” in the “Letter from the Board” section of the Circular) at any time from the date of the First Completion up to 31 December 2011. Upon signing of the S&P Agreement, the Consideration has been settled as to HK$60 million in cash and part of the Consideration will be settled by the proposed issue of the Convertible Note(s) (“Proposed Issue”), subject to the terms and conditions as set out in the “Letter from the Board”.

The aggregate Consideration of approximately HK$300 million (as adjusted to HK$310,340,000 in accordance with the Audited Net Profits as shown in the Audited Accounts 2008, which have been prepared as at the Latest Practicable Date) was determined at after arm’s length negotiations between the parties and being a price acceptable to the parties with reference to (i) the P/E Ratio of 10 times of the Audited Net Profits of the Retail Group for the year ended 31 December 2008 (which was determined at after arm’s length negotiations with reference to prospective P/E Ratio the year 2008 of various companies listed in Hong Kong engaging in the retail business); (ii) the reputable brand name of “Pricerite”; (iii) the corporate image; (iv) the established supply chain management platform; (v) the efficient logistics system; (vi) the extensive retail networks in Hong Kong; (vii) the profit track record; (viii) the continuous growth in operating profits; and (ix) the various revamps of retail business for recent years of the Retail Group.

P/E Ratio is one of the common approaches used to value the fairness of the consideration. As for the Consideration, having taken into account of the Audited Net Profits of the Retail Group for the year ended 31 December 2008 of HK$31,034,000 and the final Consideration of approximately HK$310,340,000, the P/E Ratio of the Proposed Acquisition was 10.00 times.

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LETTER FROM VINCO CAPITAL

In accessing the fairness and reasonableness of the pricing of the Consideration, we have reviewed and included, on our best effort, 9 companies listed on the Main Board of the Stock Exchange (“Comparables”). With reference to our search for companies that fall within the retail business with more than 40% of its segmental revenue are contributed by business in Hong Kong, details of which including their respective P/E Ratios are set out below:

		Closing
		price on		Price-to-
	Stock	19 December	Earning	earning
Company name	code	2008	per share	ratio	Year ended
		(HK$)	(HK$)
Water Oasis Group Limited	1161	1.84	0.197	9.34	30 September 2008
Lifestyle International	1212	7.80	0.5452	14.31	31 December 2008
Holdings Limited
Dickson Concepts	113	2.30	0.622	3.70	31 March 2008
(International) Limited
Sa Sa International	178	2.05	0.052	39.42	31 March 2008
Holdings Limited
Sincere Company Limited	244	0.218	N/A	N/A	29 February 2008
Wing On Company	289	8.15	N/A	N/A	31 December 2008
International Limited
Bonjour Holdings Limited	653	2.28	0.577	3.95	31 December 2008
Chow Sang Sang Holdings	116	4.25	0.782	5.43	31 December 2008
International Limited
AEON Stores (Hong Kong)	984	9.10	1.0496	8.67	31 December 2008
Company Limited
Max				39.42
Mean				12.12
Min				3.70

Source: http://www.hkex.com.hk

Note: N/A denotes “not applicable” as the companies are recording losses for the relevant period.

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LETTER FROM VINCO CAPITAL

Based on the table above, we noted that the P/E Ratios of the Comparables, based on the closing price of the date of signing the S&P Agreement, represented a range from approximately 3.70 times to 39.42 times with a mean of approximately 12.12 times. Accordingly, the P/E Ratio of the Proposed Acquisition of approximately 10 times is slightly lower than the average P/E Ratio of the Comparables of approximately 12.12 times, and falls within the range of the Comparables. As such, we are of the opinion that the pricing of the Consideration is fair and reasonable so far as the Company and the Independent Shareholders as a whole are concerned.

Having considered that (i) the Consideration was arrived at after arm’s length negotiation between the parties; (ii) the pricing of the Consideration was determined in accordance with the P/E Ratio of 10 times of Audited Net Profits of the Retail Group for the year ended 31 December 2008 is comparable to the market, we are thus of the view that the basis of determining the Consideration is fair and reasonable so far as the Company and Independent Shareholders are concerned.

(2) Settlement method of the Consideration

An upward adjustment of HK$10,340,000 has been made to the Consideration of approximately HK$300 million (as set out in the First Announcement) in accordance with the Audited Net Profits as shown in the Audited Accounts 2008 of the Retail Group, which have been prepared as at the Latest Practicable Date. Therefore, the final Consideration has been fixed at HK$310,340,000 as at the Latest Practicable Date. Accordingly, the Consideration for acquisition of the Interest has been fixed at HK$186,204,000 (being 60% of the final Consideration of HK$310,340,000). Meanwhile, the amount to be settled upon the First Completion and the principal amount of the proposed issue of the Convertible Note(s) upon the First Completion shall be approximately HK$109,816,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion) (being HK$186,204,000 less the cash settlement of HK$60 million upon the signing of the S&P Agreement and further less the above outstanding amounts due from CASH Group to the Retail Group of HK$16,388,000 as at 31 December 2008). In addition, the amount to be settled upon the Second Completion and the principal amount of the proposed Convertible Note(s) upon the Second Completion has been fixed at HK$124,136,000. As such, the Group will issue Convertible Note(s) in an aggregate amount of HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of First Completion), which can be converted into an aggregate of 157,862,348 new Shares at the adjusted Conversion Price of HK$1.482 per Conversion Share (subject to adjustments to the initial Conversion Price).

As confirmed by the Directors, it is considered that the Proposed Issue will not result in an immediate financial burden on the cash flow of the Group and also will not result in immediate dilution of the existing shareholding of the Shareholders. Also, the Proposed Issue will provide high flexibility for the Company to convert the Convertible Note(s) into Conversion Shares as and when appropriate. As such, we are of the view that the Proposed Issue is flexible and cost efficient to strengthen the financial position of the Group for its future growth and development.

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LETTER FROM VINCO CAPITAL

(3) Principal terms of the Convertible Note(s)

In assessing the reasonableness of the terms of the Convertible Note(s), we have reviewed and identified, on a best effort basis, 27 companies listed on the Main Board of the Stock Exchange that announced to issue or already issued convertible bonds/notes (“CN Comparables”) from 19 December to 22 May 2009 (being the Latest Practicable Date). However, Independent Shareholders should note that the business, operations and prospects of the Company are not the same as the CN Comparables and we have not conducted any in-depth investigation into the business and operations of the CN Comparables. Thus, the CN Comparables are only used to provide a general reference for the common market practice of companies listed on the Stock Exchange in transactions which involved the issue of convertible notes/bonds. The table below summarizes our findings:

						Premium/
						(discount) of
						conversion
						price
						over/(to) the
						closing price
						as at the
						respective
Date of		Stock	Conversion		Interest	last
the announcement	Company name	code	price	Maturity	rate	trading day
			(HK$)	(years)	(%)	(%)
21-May-09	China Timber Resources Group	269	0.056	3.0	21.50	(33.33)
	Limited
14-May-09	China Water Industry Group	1129	0.182	4.0	0.00	(17.65)
	Limited
13-May-09	Shougang Concord Technology	521	0.60	5.0	0.00	20
	Holdings Limited
6-May-09	China Fortune Group Limited	290	0.16	3.0	0.00	(44.83)
30-Apr-09	Genesis Energy Holdings	702	0.46	4.0	2.00	64.29
	Limited
28-Apr-09	Sino Prosper Holdings Limited	766	0.075	5.0	0.00	7.14
26-Apr-09	Beijing Enterprises	392	43.50	5.0	2.25	22.54
	Holdings Limited			(Note 1)
7-Apr-09	Forefront Group	885	0.19	3.0	0.00	0.00
1-Apr-09	Temujin International	204	1.60	3.0	12.00	(13.51)
	Investments Limited
23-Mar-09	Global Flex Holdings Limited	471	0.10	2.0	0.00	194.10
20-Mar-09	New City (China) Development	456	0.03	3.0	Floating	(88.68)
	Limited				interest
					rate
16-Mar-09	China Fortune Group Limited	290	0.16	3.0	Floating	(36.00)
					interest
					rate
10-Mar-09	Jackin International Holdings	630	N/A	3.0	12.00	N/A
	Limited

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LETTER FROM VINCO CAPITAL

						Premium/
						(discount) of
						conversion
						price
						over/(to) the
						closing price
						as at the
						respective
Date of		Stock	Conversion		Interest	last
the announcement	Company name	code	price	Maturity	rate	trading day
			(HK$)	(years)	(%)	(%)
5-Mar-09	Pearl Oriental Innovation	632	0.30	2	Floating	15.38
	Limited				interest
					rate
4-Mar-09	SEEC Media Group Limited	205	0.422	3.0	3.00	101.00
27-Feb-09	Smart Rich Energy Finance	1051	N/A	3.33	0.00	N/A
	(Holdings) Limited
26-Feb-09	National Investments Fund	1227	0.05	3.00	2.00	(2.00)
	Limited
24-Feb-09	Sino Gas Group Limited	260	0.20	2.00	2.00	80.18
24-Feb-09	PME Group Limited	379	0.10	3.00	0.00	(67.21)
18-Feb-09	Golden Resources Development	677	0.26	5.00	2.00	4.42
	International Limited
13-Feb-09	Bright International Group	1163	0.25	2.00	0.00	(7.41)
	Limited
11-Feb-09	Sino Union Petroleum &	346	1.25	1.00	Floating	76.10
	Chemical International				interest
	Limited				rate
4-Feb-09	China Energy Development	228	0.168	30.00	0.00	0.00
	Holdings Limited
2-Feb-09	Asia Resources	899	0.30	5.00	0.00	(21.10)
	Holdings Limited
23-Jan-09	Cosmopolitan International	120	0.30	2.0	0.00	(16.67)
	Holdings Limited
7-Jan-09	China Fortune Holdings Limited	110	0.70	2.0	0.00	337.50
31-Dec-08	COL Capital Limited	383	0.75	3.0	9.00	(2.60)
Maximum				30.0	21.50	337.50
Mean				4.2	2.95	22.87
Minimum				1.0	0.00	(88.68)
The Company				3.0	2.00	30.7
						(Note 2)
				3.0	2.00	124.5
						(Note 3)

Source: http://www.hkex.com.hk

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LETTER FROM VINCO CAPITAL

Note:

(1) The convertible notes will be due in 2 June 2014.
(2) The Conversion Price of HK$1.15 represents a premium of approximately 30.7% over the closing price of HK$0.88 per Share on the last trading day prior to the date of the First Announcement (“Last Trading Day”).
(3) The adjusted Conversion Price of HK$1.482 represents a premium of approximately 124.5% over the closing price of the HK$0.66 per Share as at the Latest Practicable Date.
(a) Conversion Price

The Convertible Note(s) are convertible into the Conversion Shares at the initial Conversion Price of HK$1.15 per Conversion Share. As set out in the Letter from the Board, the initial Conversion Price of HK$1.15 was determined at after arm’s length negotiations between the Company and CASH with reference to the recent market closing prices of the Shares. The initial Conversion Price represents:

i. a premium of approximately 30.7% over the closing price of HK$0.88 per Share on the Last Trading Day;
ii. a premium of approximately 23.7% over the average closing price per Share of approximately HK$0.93 per Share for the five consecutive trading days up to and including the Last Trading Day;
iii. a premium of approximately 23.7% over the average closing price per Share of approximately HK$0.93 for the ten consecutive trading days up to and including the Last Trading Day; and
iv. a discount of approximately 45.5% to the latest unaudited net asset value of HK$2.11 per Share based on the unaudited net asset value of the Company as at 30 June 2008;

As at the Latest Practicable Date, the Conversion Price is adjusted to HK$1.482 and thus represents:

i. a premium of approximately 124.5% over the closing price of HK$0.66 per Share as at the Latest Practicable Date;
ii. a discount of approximately 11.8% to the latest audited net asset value of HK$1.68 per Share based on the audited net asset value of the Company as at 31 December 2008.

As disclosed in the table above, the conversion prices of the CN Comparables range from a discount of approximately 88.68% to a premium of approximately 337.50% to the respective closing price as at the respective last trading day prior to the release of the relevant announcements. The initial Conversion Price of HK$1.15 and the adjusted Conversion Price of HK$1.482, which represent a premium of approximately 30.7% over the closing price on the Last Trading Day and a premium of 124.5% over the closing price as at the Latest Practicable Date respectively, fall within the range of those of the CN Comparables and is higher than the mean of the CN Comparables of a premium of approximately 22.87%.

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LETTER FROM VINCO CAPITAL

(b) Interest rate

The Convertible Note(s) will bear interest at a rate of 2% per annum on the outstanding principal amount of the Convertible Note(s), payable on a quarterly basis.

As set out in the table above, the interest rate of the CN Comparables ranges from nil to 21.5% per annum. The Convertible Note(s) bears an interest rate of 2% per annum, which falls within the range of the CN Comparables and is lower than the average interest rate of approximately 29.5% per annum of the CN Comparables.

(c) Maturity

The maturities of the CN Comparables range from 1 to 30 years with an average of about 4.2 years. The Convertible Note(s) has a maturity of 3 years, which falls within the range of the CN Comparables and is slightly lower than the average maturity of about 4.2 years of the CN Comparables.

(d) Other terms of the Convertible Note(s)

We have also reviewed the other terms of the Convertible Note(s) and are not aware of any terms under the Proposed Issue are of material irregularity.

Based on the foregoing, we are thus of the opinion that the terms of the Convertible Note(s) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

(e) Other financing alternatives

We have also enquired into the Directors regarding other financing alternatives available to the Company. As confirmed by the Directors, given the recent financial turmoil and the resulting global credit crunch has tightened the availability of fund and increased the cost of funding for the Company, it may be difficult for the Company to secure a principal amount of HK$233,952,000 borrowings/debts from banks or other financial institutions with favorable terms. As for the other forms of equity financing such as placing, rights issue or open offer, most would incur substantial costs in form of placing commission or underwriting commission. Therefore, the Directors believe that the issue of the Convertible Note(s) offers the best balance in terms of financing flexibility and relatively low recurring interest expense and we concur with the Directors’ view that the issue of the Convertible Note(s) is a feasible, cost and time effective fund raising alternative currently available to the Company and is in the interest of the Company and the Independent Shareholders as a whole.

After taking into consideration that (i) the Proposed Issue is one of the best fund raising methods as compared to other financing alternatives; (ii) the Proposed Issue has no immediate shareholding dilution effect before conversion of the Convertible Note(s); and (iii) both the initial Conversion Price and the adjusted Conversion Price represent a premium of approximately 30.7% over the closing price of the Shares on the Last Trading Day and a premium of 124.5% over the closing price of the Shares as at the Latest Practicable Date respectively and is comparable to the CN Comparables, we are thus of the view that the Proposed Issue is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Independent Shareholders as a whole.

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LETTER FROM VINCO CAPITAL

(4) Possible dilution to the existing shareholdings of the Independent Shareholders

The table below illustrates the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) upon the completion of the Proposed Transfer and full conversion of the Convertible Note(s) (assuming the Convertible Note(s) are issued at the principal amount of HK$233,952,000 at the adjusted Conversion Price of HK$1.482 per Conversion Share):

Shareholders CIGL (Note 1) and Associates Cash Guardian Limited (“Cash Guardian”) and parties acting in concert with it (Note 2) Directors of CASH – Mr Kwan Pak Hoo Bankee – Mr Law Ping Wah Bernard – Mr Lin Che Chu George Directors and Associates (other than those who are also directors of CASH) – Mr Chan Chi Ming Benson – Mr Cheng Man Pan Ben – Mr Yuen Pak Lau Raymond – Mr Lo Kwok Hung John Sub-total Abdulrahman Saad Al-Rashid & Sons Company Limited (“ARTAR”) (Note 3) Public (Note 3) Total	Existing shareholding structure as at the Latest Practicable Date Number of Shares Approximate % 298,156,558 48.32 17,076,647 2.77 8,168,000 1.32 13,771,120 2.23 5,913,600 0.96 10,000,000 1.62 5,334,000 0.86 5,010,000 0.81 169,000 0.03 363,598,925 58.92 64,372,480 10.43 189,136,702 30.65 617,108,107 100.00	Upon the completion of the Proposed Transfer and full conversion of the Convertible Note(s) (assuming the Convertible Note(s) are issued at the principal amount of HK$233,952,000) Number of Shares Approximate % 456,018,906 58.84 17,076,647 2.20 8,168,000 1.05 13,771,120 1.78 5,913,600 0.76 10,000,000 1.29 5,334,000 0.69 5,010,000 0.65 169,000 0.02 521,461,273 67.28 N/A(Note 3) N/A(Note 3) 253,509,182 32.72 774,970,455 100.00	Upon the completion of the Proposed Transfer and full conversion of the Convertible Note(s) (assuming the Convertible Note(s) are issued at the principal amount of HK$233,952,000) Number of Shares Approximate % 456,018,906 58.84 17,076,647 2.20 8,168,000 1.05 13,771,120 1.78 5,913,600 0.76 10,000,000 1.29 5,334,000 0.69 5,010,000 0.65 169,000 0.02 521,461,273 67.28 N/A(Note 3) N/A(Note 3) 253,509,182 32.72 774,970,455 100.00
			67.28
			N/A(Note 3)
			32.72
			100.00

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LETTER FROM VINCO CAPITAL

Notes:

(1) CIGL is a wholly-owned subsidiary and an Associate of CASH. As at the Latest Practicable Date, CIGL controls over the voting rights in respect of 298,156,558 Shares (approximately 48.32%) they entitled to as disclosed above.
(2) Cash Guardian is a company controlled by Mr Kwan Pak Hoo Bankee, the chairman of the Company. The parties acting in concert with Cash Guardian are close relatives of Mr Kwan Pak Hoo Bankee.
(3) ARTAR is a substantial Shareholder of the Company and not a public Shareholder of the Company as at the Latest Practicable Date. However, when the Convertible Note(s) are converted in full, the shareholding interest of ARTAR in the Company will be diluted to below 10%. ARTAR will be regarded as a public shareholder of the Company and the 64,372,480 Shares held by ARTAR will be counted as part of the Shares held by the public.

Upon Completion and immediately after the issue of the Convertible Note(s) and full conversion of the Convertible Note(s) (assuming the Convertible Note(s) are issued at the principal amount of HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion) at the adjusted Conversion Price of HK$1.482, an aggregate of 157,862,348 new Shares shall be issued, representing approximately 25.58% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 20.37% of the issued share capital of the Company as enlarged by the full conversion of the Convertible Note(s).

From the table above, we noted that the shareholding interests of the public Shareholders (not including the shareholding interest of the substantial Shareholder of ARTAR) would be diluted from approximately 30.65% to approximately 24.41% of the enlarged issued share capital of the Company following the issue of the Convertible Note(s).

Given that (i) the Proposed Issue is one of the best fund raising methods as compared to other financing alternatives; (ii) the fact that the Proposed Issue would not result in immediate dilution effect on shareholdings; (iii) the issue of the Convertible Note(s) will enable the Group to strengthen its financial position; and (iv) both the initial Conversion Price and the adjusted Conversion Price represent a premium of approximately 30.7% and 124.5% over the closing price of the Shares on the Last Trading Day and as at Latest Practicable Date respectively, we are of the view that the possible dilution to the existing public Shareholders as a result of the Proposed Issue is acceptable.

(5) Financial effects of the Proposed Transfer

i. Earnings

As revealed in the annual report 2008, the audited net loss of the Group before and after taxation for the year ended 31 December 2008 were approximately HK$81,924,000 and HK$86,218,000 respectively.

According to the pro forma statement of income statement of the Enlarged Group set out in appendix III to the Circular, upon the First Completion, CRM(HK) will become an indirect non-wholly-owned subsidiary of the Company and remain a subsidiary of CASH with CGL holding 40% interest therein and the pro forma consolidated net loss of the Group will be decreased to HK$69,383,000, indicating an improvement of approximately HK$16,835,000. Upon the Second Completion, CGL will become an indirect subsidiary wholly-owned of the Company and the pro forma consolidated net loss of the Enlarged Group will be increased to HK$85,434,000.

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LETTER FROM VINCO CAPITAL

ii. Net assets value

As revealed in the annual report 2008, the audited net assets value of the Group as at 31 December 2008 was approximately HK$689,293,000.

According to the pro forma statement of assets and liabilities of the Enlarged Group set out in appendix III to the Circular, upon the First Completion, the pro forma consolidated net assets value of the Group will be increased to HK$693,393,000, indicating an increase of approximately HK$4,100,000. Upon the Second Completion, the pro forma consolidated net assets value of the Enlarged Group will be increased to HK$697,993,000, indicating an increase of approximately HK$4,600,000.

iii. Working Capital

As set out in the annual report 2008, the Group’s net current assets as at 31 December 2008 were amounted to approximately HK$366,496,000.

Upon the First Completion, the pro forma consolidated working capital of the Group will be decreased to HK$281,718,000, indicating a decrease of approximately HK$84,778,000. Upon the Second Completion, the pro forma working capital of the Enlarged Group will be approximately HK$340,472,000, representing an increase of approximately HK$58,754,000. As such, there will be a slight decrease of approximately HK$26,024,000 in the working capital of the Enlarged Group upon the completion of the Proposed Transfer.

iv. Gearing

As at 31 December 2008, the Group’s gearing ratio (being calculated as total borrowings to total equity of the Group) was approximately 0.37 time.

In accordance with the unaudited pro forma financial information of the Enlarged Group and assuming the Convertible Note(s) are issued at the principal amount of HK$109,816,000 at the adjusted Conversion Price of HK$1.482 at the First Completion, the Group’s gearing ratio would be increased from approximately 0.37 time to approximately 0.63 time (which is derived by the total borrowings of the Group of approximately HK$405,197,000 and the total equity of the Group of approximately of HK$645,742,000. Upon the Second Completion, the Enlarged Group’s gearing ratio will be approximately 0.67 time (which is derived by the total borrowings of the Enlarged Group of approximately HK$479,991,000 and the total equity of the Enlarged Group of approximately HK$714,755,000).

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LETTER FROM VINCO CAPITAL

Based on the abovementioned, upon the completion of Proposed Transfer, the Proposed Transfer would have positive financial effects on the Group in terms of earnings and net asset value but negative impacts on both the working capital and gearing of the Enlarged Group. Having considered the abovementioned potential benefits from the Proposed Transfer and the overall financial impacts which the Proposed Transfer would likely to bring to the Group, we consider that the negative impacts on both the working capital and gearing are justifiable.

Background and reasons for the Proposed Transactions

(1) Terms of and reasons for the First Agreement relating to provision of guarantee

On 19 December 2008, the Company entered into the First Agreement with CASH and CRM(HK), pursuant to which, each of CASH and/or the Company will provide financial guarantee (as might be necessary as per request of various banks) not exceeding HK$200 million per annum with the purpose to assist the Retail Group to obtain banking facilities from various banks for each of the three financial years ending 31 December 2011 (in the case of CASH, assuming the Purchaser Call Option is not exercised).

It is noted that the amount of financial guarantee to be provided by CASH and the Company is determined with reference to the existing financial guarantee provided by the CASH Group to the Retail Group of up to HK$137 million, HK$135 million and HK$137 million in the three years ended 31 December 2008, respectively to various banks.

In the view of the steady growth and prospects of the retail business during the relevant period and given that the recent tightening of credit in the banking and financial industry, it is expected that the Retail Group may not obtain alternative banking facilities or other financing channels with more favourable terms when compared to the existing banking facilities in order to carry on its business operation.

Having taken into consideration that (i) the abovementioned prospects in the retail businesses for economical and quality furniture and household products in Hong Kong; (ii) the amount of the financial guarantee to be provided by CASH and the Company is determined with reference to the existing financial guarantee provided by the CASH Group to the Retail Group and CASH and/or the Company will be required to provide financial guarantee as might be necessary as per request of various banks; (iii) the Retail Group will continue to rely on such banking facilities in order to carry on its business operation upon the First Completion; and (iv) the recent tightening of credit in banking and financial industry, we are of the view that the First Agreement are conducted in the ordinary and usual course of businesses of the Group and are fair and reasonable to the Company and Independent Shareholders as a whole.

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LETTER FROM VINCO CAPITAL

(2) Terms of and reasons for the Second Agreement relating to leasing agreement

On 19 December 2008, CASH entered into the Second Agreement with CRM(HK), pursuant to which, a member of the CASH Group will sub-lease around 60% of floor area of “28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong” to the Retail Group as office premises. The annual cap of rental (including rent and management fees) shall not exceed HK$5 million per annum, in aggregate, for each of the three financial years ending 31 December 2011, in accordance with the monthly rental of not exceeding HK$400,000 (including the management fees) per month, representing 60% of the monthly rental payable by the CASH Group (excluding the Group) under the lease agreement entered into between the member of CASH Group with an independent third party.

Pursuant to a lease agreement entered between CASH and an independent third party and as at the date of the Second Agreement, the Retail Group occupied part of an office premises at “21/F, The Center, 99 Queen’s Road Central, Hong Kong” with a gross floor area of 14,872 square feet, which was leased by CASH from an independent third party. Under such sub-lease arrangement, the Retail Group was obliged to pay to CASH a monthly rental (including management fees) of approximately HK$392,000, representing around 60% (as determined in accordance with the percentage of actual floor area of such existing office premises occupied by the Retail Group) of the rental payable by CASH to such independent third party under a lease agreement which has been expired on 31 March 2009.

Having considered that (i) the sharing of the office premises by the Retail Group with the CASH Group (excluding the Group) will allow both the CASH Group (excluding the Group) and the Retail Group to enjoy the economy of effective utilization of resources; and (ii) the monthly rental under the Second Agreement was determined according to the percentage of actual floor area of such existing office premises occupied by the Retail Group and the rental payable (including management fees by CASH), we are of the view that the Second Agreement are conducted in the ordinary and usual course of businesses of the Group and are fair and reasonable to the Company and Independent Shareholders as a whole.

(3) Terms of and reasons for the Third Agreement relating to provision of services

On 19 December 2008, the Company entered into the Third Agreement with CASH and CRM(HK), pursuant to which, the Retail Group will provide services, including sales and marketing, advertising, promotional, etc, with annual service fees of not exceeding HK$2 million, in total, to each of the Group and CASH Group (excluding the Group) for each of the three financial years ending 31 December 2011. In addition, as confirmed by the Directors, the terms of the Third Agreement will be entered into on terms which are similar to and no less favorable to the Company and CASH than those to independent third parties.

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LETTER FROM VINCO CAPITAL

After taking into consideration that (i) the cross-selling and cross-marketing activities among the CASH Group (excluding the Group), the Group (excluding the Retail Group) and the Retail Group will widen the revenue base for the Retail Group; and (ii) the service fees charged by the Retail Group will be on normal commercial terms and terms that are no less favourable to CASH and the Company than those available to independent third parties, we are of the view that the Third Agreement are conducted in the ordinary and usual course of businesses of the Group and are fair and reasonable to the Company and Independent Shareholders as a whole.

CONCLUSION

Having taken into consideration of the following principal factors and reasons regarding the Proposed Transfer and the Proposed Transactions, including:

a) the adverse impact of the global financial crisis on the financial performance of the Group;
b) the satisfactory performance of the Retail Group and the prospects in the retail business for economical and quality furniture and household products in Hong Kong;
c) the basis of the Consideration and the terms of the S&P Agreement are fair and reasonable to the Company and the Independent Shareholders as a whole;
d) the overall financial effects upon the Proposed Transfer; and
e) the terms of the Agreements are on normal commercial terms, in the ordinary and usual course of business and in the in the interests of the Company and the Independent Shareholders as a whole,

we are thus of the view that the Proposed Transfer and the Proposed Transactions are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Independent Shareholders and the Company as a whole. We also consider that the Proposed Transfer was entered into upon normal commercial terms and the Proposed Transactions were on normal commercial terms and in the ordinary and usual course of business. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the Proposed Transfer and the Proposed Transactions at the SGM.

Yours faithfully, For and on behalf of Grand Vinco Capital Limited Alister Chung Managing Director

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION

A. SUMMARY OF FINANCIAL RESULTS FOR THE THREE YEARS ENDED 31 DECEMBER 2008

The following is a summary of the audited consolidated profit and loss accounts and financial positions for each of the three years ended 31 December 2008 as extracted from the annual reports of the Group for the respective years.

Consolidated Profit and Loss Account

Consolidated Profit and Loss Account
Continuing operations Revenue (Loss) Profit before taxation Taxation (charge) credit (Loss) Profit for the year from continuing operations Discontinued operations Profit (Loss) for the year from discontinued operations (Loss) Profit for the year Attributable to: Equity holders of the Company Minority interests (Loss) Earnings per share – Basic – Diluted Consolidated Assets and Liabilities Total assets Total liabilities Net assets	For theyear ended 31 December
	2008 2007 2006 HK$’000 HK$’000 HK$’000 324,651 666,378 345,997 (81,924) 204,611 73,521 (4,294) (28,825) (5,796 (86,218) 175,786 67,725 – 30,904 (27,527 (86,218) 206,690 40,198 (99,595) 207,779 39,944 13,377 (1,089) 254 (86,218) 206,690 40,198 2008 2007 2006 (restated) (restated) (24.1) HK cents 61.3 HK cents 12.5 HK cents – 60.6 HK cents 12.5 HK cents As at 31 December		2006 HK$’000 345,997

			73,521 (5,796
			67,725

			(27,527
			40,198

			39,944 254
			40,198

			2006 (restated) 12.5 HK cents

			12.5 HK cents

	2008 HK$’000 1,727,258 (1,021,203) 706,055	2007 HK$’000 2,626,917 (1,727,551) 899,366	2006 HK$’000 1,775,485 (1,291,893
			483,592

Note: There were no extraordinary items and exceptional items for the three years ended 31 December 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. FINANCIAL INFORMATION FOR THE TWO YEARS ENDED 31 DECEMBER 2008

The following financial information is extracted from the audited consolidated financial statements of the Group for each of the two years ended 31 December 2008.

Consolidated Income Statement

For the year ended 31 December 2008

NOTES Continuing operations Revenue 7 Other operating income Salaries, commission and related benefits 9 Depreciation Finance costs 10 Other operating and administrative expenses Net (losses) gains on financial assets at fair value through profit or loss 6 Net increase in fair value on derivative financial instruments 6 Share of profit (loss) of an associate 24 (Loss) profit before taxation Taxation charge 13 (Loss) profit for the year from continuing operations Discontinued operations Profit for the year from discontinued operations 14 (Loss) profit for the year 15 Attributable to: Equity holders of the Company Minority interests – Continuing operations – Discontinued operations	2008 HK$’000 324,651 5,260 (151,110) (15,655) (20,134) (100,649) (172,117) 8,734 39,096 (81,924) (4,294) (86,218) – (86,218) (99,595) 13,377 – (86,218)	2007 HK$’000 666,378 1,859 (247,980 (7,403 (91,844 (133,363 20,334 – (3,370
		204,611 (28,825
		175,786 30,904
		206,690

		207,779 (617 (472
		206,690

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Dividend: Proposed final dividend (31 December 2008: nil; 31 December 2007: HK$0.03 per ordinary share based on 2,076,972,027 shares) Dividends recognised as distribution during the year – 2008 Interim – HK$0.10 per ordinary share (2007: HK$0.02 per ordinary share) – 2007 Final – HK$0.03 per ordinary share (2006: HK$0.02 per ordinary share) (Loss) earnings per share 16 From continuing and discontinued operations: – Basic – Diluted From continuing operations: – Basic – Diluted From discontinued operations: – Basic – Diluted NOTES	– 103,566 (24.1) HK cents – (24.1) HK cents – – – 2008 HK$’000	62,309 2007 HK$’000

		57,333

		61.3 HK cents

		60.6 HK cents

		52.0 HK cents

		51.4 HK cents

		9.3 HK cents

		9.1 HK cents

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2008

NOTES Non-current assets Property and equipment 17 Investment property 18 Goodwill 19 Intangible assets 20 Other assets 22 Loans receivable 23 Interests in associates 24 Loan to an associate 24 Amounts receivable on disposal of subsidiaries 25 Current assets Amounts receivable on disposal of subsidiaries 25 Accounts receivable 26 Loans receivable 23 Prepayments, deposits and other receivables Amount due from an associate 25 Amounts due from fellow subsidiaries 25 Tax recoverable Investments held for trading 27 Deposits with brokers 25 Bank deposits subject to conditions 28 Bank balances – trust and segregated accounts 25 Bank balances (general accounts) and cash 25 Current liabilities Accounts payable 29 Accrued liabilities and other payables Derivative financial liabilities 33 Taxation payable Obligations under finance leases – amount due within one year 30 Bank borrowings – amount due within one year 31 Loan from a minority shareholder 25 Net current assets	2008 HK$’000 108,164 – 4,933 11,062 132,718 192 111,684 10,296 – 379,049 171,498 304,042 13,629 22,864 260 341 1,230 79,155 2,730 35,180 542,079 175,201 1,348,209 689,175 46,482 3,067 20,172 127 195,253 27,437 981,713 366,496 745,545	2007 HK$’000 24,787 5,000 4,933 12,392 9,136 176 65,778 10,296 162,703
		295,201
		– 931,595 28,867 28,218 260 447 – 59,271 69,188 28,675 928,527 256,668
		2,331,716
		1,379,521 68,534 – 20,993 – 231,066 27,437
		1,727,551
		604,165
		899,366

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Capital and reserves Share capital 32 Reserves Equity attributable to equity holders of the Company Minority interests Total equity Non-current liabilities Deferred tax liabilities 13 Obligations under finance leases – amount due after one year 30 Bank borrowings – amount due after one year 31 NOTES	41,140 648,153 689,293 16,762 706,055 2,342 315 36,833 39,490 745,545 2008 HK$’000	207,697 690,668 2007 HK$’000
		898,365 1,001
		899,366
		– – –
		–
		899,366

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2008

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company		Total HK$’000 483,592 206,690 1,315
Share capital HK$’000 138,205 – – – 10,150 59,342 – – – – – – – 207,697 – – – – 120 (166,238) (439) – – – – – 41,140	Share premium HK$’000 220,970 – – – 21,419 178,026 (467) – – – – (100,000) – 319,948 – – – – 408 – (10,465) (40) – – – – 309,851	Contributed surplus HK$’000 (Note a) 128,550 – – – – – – – – – – 100,000 (58,000) 170,550 – – – – – 166,238 – – – – – (60,000) 276,788	Share-based payment reserve HK$’000 2,496 – – – (1,525) – – (883) – – – – – 88 – – – – – – – – (88) – – – –	Translation reserve HK$’000 (288) – 855 855 – – – – 288 – – – – 855 – 4,426 79 4,505 – – – – – – – – 5,360	(Accumulated losses) retained earnings HK$’000 (10,102) 207,779 – 207,779 – – – 883 – (27,661) (29,672) – 58,000 199,227 (99,595) – – (99,595) – – – – 88 (62,339) (41,227) 60,000 56,154
						208,005
						30,044 237,368 (467) – (1,843) (27,661) (29,672) – –
						899,366 (86,218) 6,810 79
						(79,329)
						528 – (10,904) (40) – (62,339) (41,227) –
						706,055

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) The contributed surplus of the Group represents the difference between the nominal amount of the shares issued by the Company and the aggregate of the nominal amount of the issued share capital and the reserves of CASH on-line Limited, the then holding company of the Group prior to the group reorganisation, pursuant to the group reorganisation after deducting the expenses in connection with the listing of the Company’s shares and the acquisition of subsidiaries, and the net amount arising from the capital reduction, reduction of share premium account and amounts transferred to eliminate accumulated losses.
(b) (i) In April 2007, 1,000,000 share options were exercised at an exercise price of HK$0.296 per share, resulting in the issue of 1,000,000 shares of HK$0.10 each on 23 April 2008 for a total consideration (before expenses) HK$296,000. These shares rank pari passu in all respect with other shares in issue.
(ii) In July 2007, 8,600,000 share options, 40,100,000 share options, 5,000,000 share options and 9,000,000 share options respectively were exercised at an exercise price of HK$0.296 per share, resulting in the issue of 8,600,000 shares, 40,100,000 shares, 5,000,000 shares and 9,000,000 shares of HK$0.10 each on 3 July 2007, 4 July 2007, 9 July 2007 and 27 July 2007 respectively for a total consideration (before expenses) of HK$18,559,200. These shares rank pari passu in all respects with other shares in issue.
(iii) In August 2007, 2,600,000 share options and 35,200,000 share options respectively were exercised at an exercise price of HK$0.296 per share, resulting in the issue of 2,600,000 shares and 35,200,000 shares of HK$0.10 each on 7 August 2007 and 13 August 2007 respectively for a total consideration (before expenses) of HK$11,188,800. These shares rank pari passu in all respects with other shares in issue.
(c) On 21 November 2007, 593,420,579 shares of HK$0.10 each were issued by way of rights issue at a subscription price of HK$0.40 per share. The gross proceeds before expenses were approximately HK$237,368,000.
(d) Pursuant to a minute of an annual general meeting held on 1 June 2007, an amount of HK$100,000,000 was transferred from the share premium account to contributed surplus account where it may be utilised in accordance with the bye-laws of the Company and all the applicable laws.
(e) (i) Pursuant to a board of directors’ meeting held on 8 June 2007, an amount of HK$28,000,000 was transferred from the contributed surplus account to set off against the accumulated losses of the Company for the payment of 2006 final dividend of HK$27,661,000.
(ii) Pursuant to a minute of a board of directors’ meeting held on 3 September 2007, an amount of HK$30,000,000 was transferred from the contributed surplus account to set off against the accumulated losses of the Company for the payment of 2007 interim dividend of HK$29,672,000.
(f) On 24 April 2008 and 15 July 2008, 1,000,000 share options and 203,000 share options were exercised at an exercise price of HK$0.262 each and HK$1.310 each respectively, resulting in the issue of a total of 1,203,000 new shares of HK$0.10 each for a total consideration (before expenses) of HK$528,000. These shares rank pari passu in all respects with other shares in issue.
(g) Pursuant to a special resolution passed by the shareholders at the annual general meeting of the Company held on 30 April 2008, the Company, with effect from 2 May 2008:
(i) consolidated every 5 issued shares of HK$0.10 each in the issued share capital of the Company to 1 share of HK$0.50 each (“Consolidated Share”) (“Share Consolidation”);
(ii) reduced the issued share capital by cancelling paid up capital to the extent of HK$0.40 on each of the Consolidated Share in issue (“Capital Reduction”); and
(iii) transferred the amount of paid up capital cancelled arising from the Capital Reduction of approximately HK$166,238,000 to the contributed surplus account.
(h) Pursuant to a minute of a board of directors’ meeting held on 3 September 2008, an amount of HK$60,000,000 was transferred from the contributed surplus account to set off against the accumulated losses of the Company for the payment of 2008 interim dividend of HK$41,227,000.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Cash Flow Statement

For the year ended 31 December 2008

NOTES Operating activities (Loss) profit before taxation Adjustments for: Advertising and telecommunication services expenses 35 Allowance for bad and doubtful debt Bad debt on accounts and loans receivable written off directly Amortisation of intangible assets Depreciation of property and equipment Interest income arising from accounts receivable on disposal of subsidiaries Interest expense Gain on disposal of subsidiaries 37 Fair value change on investment property Loss (gain) on disposal of intangible asset Gain on disposal of property and equipment Realised loss on equity-linked structured deposits Impairment loss on amount due from an associate Share of (profit) loss of an associate Operating cash (outflows) inflows before movements in working capital Increase in inventories Decrease (increase) in accounts receivable Decrease (increase) in loans receivable Decrease (increase) in prepayments, deposits and other receivables Decrease (increase) in deposits with brokers Increase in amount due from an associate Increase in amounts due from fellow subsidiaries Increase in investments held for trading Increase in derivative financial liabilities Decrease in equity-linked structured deposits Decrease (increase) in bank balances – trust and segregated accounts (Decrease) increase in accounts payable (Decrease) increase in accrued liabilities and other payables Increase in deferred revenue	2008 HK$’000 (81,924) – 900 177 – 15,655 (8,795) 20,134 – (823) 830 (35) 29,905 – (39,096) (63,072) – 627,376 14,322 5,354 64,902 – 440 (28,143) (8,734) 28,507 386,448 (690,346) (22,052) –	2007 HK$’000 235,515 2,233 1,339 227 1,731 9,809 – 91,928 (41,701 – (9 – – 4,075 3,370
		308,517 (676 (151,142 (10,011 (34,645 (69,188 (4,519 3,016 (4,954 – – (353,950 447,656 62,980 9,942

– 69 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

NOTES Cash from operations Income taxes paid Net cash from operating activities Investing activities Investment in an associate Increase in loan to an associate Disposal of subsidiaries 37 Acquisition of subsidiaries 36(a) Increase in bank deposits subject to conditions Statutory and other deposits (paid) refunded Purchases of property and equipment Proceeds on disposal of property and equipment Proceeds on disposal of intangible assets Proceeds on disposal of investment property Deposits paid for acquisition of fellow subsidiaries 22 Receipt on amounts receivable on disposal of subsidiaries Net cash used in investing activities Financing activities Increase in loan from a minority shareholder Increase (decrease) in bank overdrafts (Decrease) increase in bank loans Repayment of loan payable Payment of repurchase of shares Proceeds on issue of shares Share issue expenses Dividends paid Interest paid on bank borrowings Interest paid on obligations under finance leases Repayment of obligations under finance leases Net cash (used in) from financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of change in foreign exchange rate Cash and cash equivalents at end of year Bank balances (general accounts) and cash	2008 HK$’000 315,002 (4,003) 310,999 – – – (105) (6,505) (311) (98,254) 35 500 5,823 (60,000) – (158,817) – 12,957 (76,613) (35,853) (10,904) 528 (40) (103,566) (20,125) (9) (103) (233,728) (81,546) 256,668 79 175,201 175,201	2007 HK$’000 203,026 (10,685
		192,341
		(67,833 (10,296 (35,976 37 (862 7,105 (10,728 – 1,769 – – 9,855
		(106,929
		27,437 (87,281 40,520 – – 267,412 (467 (57,333 (91,923 (5 (330
		98,030
		183,442 73,226 –
		256,668

		256,668

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2008

1. General

The Company was incorporated in Bermuda as an exempted company with limited liability under the Companies Act 1981 of Bermuda and its shares are listed on the Main Board of the Stock Exchange of Hong Kong Limited (“Stock Exchange”). Its immediate holding company is Celestial Investment Group Limited (“CIGL”), a limited company incorporated in the British Virgin Islands. Its ultimate holding company is Celestial Asia Securities Holdings Limited (“CASH”), a company incorporated in Bermuda with its shares being listed on the Main Board of the Stock Exchange. The address of the registered office of the Company is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda, while the address of the principal place of business of the Company is 21/F Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong.

The principal activity of the Company is investment holding. The principal activities of the Group are the provision of (a) online and traditional brokerage of securities, futures, options and leverage foreign exchange contracts as well as mutual funds and insurance-linked investment products, (b) margin financing and money lending, and (c) corporate finance. In 2007, the operations of online game and related services were discontinued (see note 14).

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

2. Application of New and Revised Hong Kong Financial Reporting Standards (“HKFRSs”)

In the current year, the Group has applied the following amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) which are or have become effective.

HKAS 39 & HKFRS 7 Reclassification of financial assets (Amendments) HK(IFRIC) – INT 11 HKFRS 2: Group and treasury share transactions HK(IFRIC) – INT 12 Service concession arrangements HK(IFRIC) – INT 14 HKAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction

The adoption of the new HKFRSs had no material effect on how the Group’s results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs[1] HKAS 1 (Revised) Presentation of financial statements[2] HKAS 23 (Revised) Borrowing costs[2] HKAS 27 (Revised) Consolidated and separate financial statements[3] HKAS 32 & 1 (Amendments) Puttable financial instruments and obligations arising on liquidation[2] HKAS 39 (Amendment) Eligible hedged items[3] HKFRS 1 First-time adoption of financial reporting standards[3] HKFRS 1 & HKAS 27 Cost of an investment in a subsidiary, jointly controlled entity or associate[2] (Amendments) HKFRS 2 (Amendment) Vesting conditions and cancellations[2] HKFRS 3 (Revised) Business combinations[3] HKFRS 7 (Amendments) Improving disclosures about financial instruments[2] HKFRS 8 Operating segments[2] HK(IFRIC) – INT 13 Customer loyalty programmes[4] HK(IFRIC) – INT 15 Agreements for the construction of real estate[2] HK(IFRIC) – INT 16 Hedges of a net investment in a foreign operation[5] HK(IFRIC) – INT 17 Distribution of non-cash assets to owners[3] HK(IFRIC) – INT 18 Transfer of assets from customers[6]

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009.
2 Effective for annual periods beginning on or after 1 January 2009. 3 Effective for annual periods beginning on or after 1 July 2009. 4 Effective for annual periods beginning on or after 1 July 2008. 5 Effective for annual periods beginning on or after 1 October 2008. 6 Effective for transfers on or after 1 July 2009.

The application of HKFRS 3 (Revised) may affect the Group’s accounting for business combination for which the acquisition date is on or after 1 January 2010. HKAS 27 (Revised) will affect the accounting treatment for changes in the Group’s ownership interest in a subsidiary. The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

3. Significant accounting policies

The consolidated financial statements have been prepared under the historical cost basis except for certain financial instruments and investment property, which are measured at fair values as explained in the accounting policies set out below. The consolidated financial statements have been prepared in accordance with the HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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

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

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

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

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 “Business combinations” are recognised at their fair values at the acquisition date, except for non-current assets that are classified as held for sale in accordance with HKFRS 5 “Non-current assets held for sale and discontinued operations”, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Goodwill

Goodwill arising on acquisitions prior to 1 January 2005

Goodwill arising on an acquisition of net assets and operations of another entity for which the agreement date is before 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the relevant acquiree at the date of acquisition.

Such goodwill is tested for impairment annually, and whenever there is an indication that the cashgenerating unit to which the goodwill relates may be impaired (see the accounting policy below).

Goodwill arising on acquisitions on or after 1 January 2005

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

Capitalised goodwill arising on acquisition of a business is presented separately in the consolidated balance sheet.

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

On subsequent disposal of the relevant cash-generating unit, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Investments in associates

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

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

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

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

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue recognition

Revenue arising from financial services are recognised on the following basis:

The net increase or decrease in fair value of trading investments are recognised directly in net profit or loss;
Commission income for broking business is recorded as income on a trade date basis;
Underwriting commission income, sub-underwriting income, placing commission and sub-placing commission are recognised as income in accordance with the terms of the underlying agreement or deal mandate when relevant significant act has been completed;
Advisory and other fee income are recognised when the relevant transactions have been arranged or the relevant services have been rendered; and
Interest income from clients are recognised on a time proportion basis, taking into account the principal amounts outstanding and the effective interest rates applicable.

Revenue arising from the online game services are recognised on the following basis:

Online game income is recognised when the in-game premium features is consumed or points for in-game premium features is expired. Payments received from the sales of points for in-game premium features that have not been consumed are recorded as deferred revenue;
Sales of online game auxiliary products are recognised when products are delivered and title has passed; and
Licensing fee income is recognised on a straight-line basis over the licensing period.

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

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

Property and equipment

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

Depreciation is provided to write off the cost of items of property and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

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

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

Investment property

An investment property is a property held to earn rentals and/or for capital appreciation.

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

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Leasing

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

The Group as lessee

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

Foreign currencies

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

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

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

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

Retirement benefits costs

Payments to defined contribution retirement benefits plan/state-managed retirement benefits schemes/the Mandatory Provident Fund Scheme are charged as expenses when employees have rendered service entitling them to the contributions.

Borrowing costs

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

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Taxation

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

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

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

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

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

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

Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately and with finite useful lives are carried at costs less accumulated amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite useful lives is provided on a straight-line basis over their estimated useful lives. Alternatively, intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

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

Financial instruments

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

Financial assets

The Group’s financial assets are classified into one of the two categories, including financial assets at fair value through profit or loss and loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt instruments.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including accounts receivable, loans receivable, loan to an associate, other receivables, deposits paid for acquisition of fellow subsidiaries, amounts due from associate and fellow subsidiaries, amounts receivable on disposal of subsidiaries, deposits with brokers, bank balances and deposits) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted.

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty;
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as loans receivable and accounts receivable arising from the business of dealing in securities and equity options with margin clients, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include Group’s past experience of collecting payments and observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of accounts receivable and loans receivable where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When the accounts receivable and loans receivable are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

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

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into other financial liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Interest expense is recognised on an effective interest basis.

Other financial liabilities

Other financial liabilities (including accounts payable, other payables, bank borrowings and loan from a minority shareholder) are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. When the Company reacquires its own equity instruments, those instruments shall be deducted from equity. No gain or loss shall be recognised in profit or loss on the purchase, sale, issue on cancellation of the Company’s own equity instruments.

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.

Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss.

Derecognition

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

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in profit or loss.

Equity-settled share-based payment transactions (share options granted to employees of the Group for their services to the Group)

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period or recognised as an expenses in full at the grant date when share options granted vested immediately, with a corresponding increase in equity (share-based payment reserve).

At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately vest. The effect of change in estimates during the vesting period, if any, is recognised in profit or loss with a corresponding adjustment to share-based payment reserve.

At the time when the share options are exercised, the amount previously recognised in share-based payment reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share-based payment reserve will be transferred to accumulated losses/retained earnings.

Impairment losses on tangible and intangible assets other than goodwill (see the accounting policy in respect of goodwill above)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

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

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. Key Sources of Estimation Uncertainty

In the process of applying the Group’s accounting policies, the management has made various estimates based on past experience, expectations of the future and other information. The key source of estimation uncertainty that may significantly affect the amounts recognised in the consolidated financial statements within the next financial year is disclosed below.

Allowance for bad and doubtful debts

The policy for allowance for bad and doubtful debts of the Group is based on the evaluation of collectability and aging analysis of accounts and on management’s judgment. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each client. If the financial conditions of debtors and their ability to make payments worsen, additional allowance may be required. As at 31 December 2008, the aggregate carrying amount of accounts and loans receivable and other amounts receivable is HK$328,159,000 (2007: HK$970,934,000) (net of allowance for bad and doubtful debts).

5. Capital risk management

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debt, which includes the bank borrowings disclosed in note 31, and equity attributable to equity holders of the Company, comprising issued share capital disclosed in note 32, reserves and retained earnings as disclosed in consolidated statements of changes in equity. The management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt. The Group’s overall strategy remains unchanged throughout the year.

Certain group entities are regulated by the Hong Kong Securities and Futures Commission (“SFC”) and are required to comply with certain minimum capital requirements according to the Hong Kong Securities and Futures Ordinance. Management closely monitors, on a daily basis, the liquid capital level of these entities to ensure the compliance of the minimum liquid capital requirement under the Hong Kong Securities and Futures (Financial Resources) Rules.

6. Financial instruments

(i) Categories of financial instruments

	2008	2007
	HK$’000	HK$’000
Financial assets
Fair value through profit or loss – held-for-trading	79,155	59,271
Loans and receivables (including cash and
cash equivalents)	1,316,747	2,426,222
Financial liabilities
Amortised cost	965,877	1,644,066
Derivative financial liabilities	3,067	–

– 80 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(ii) Net (losses) gains on financial assets at fair value through profit or loss

Held-for-trading investments – Equity securities listed in Hong Kong – Investment funds Designated at fair value through profit or loss – Equity-linked structured deposits (Note 34)	2008 HK$’000 (141,290) (922) (29,905) (172,117)	2007 HK$’000 20,121 213 –
		20,334

(iii) Net increase in fair value on derivative financial instrument

		2008	2007
		HK$’000	HK$’000
Equity-linked derivative contracts (Note	33)	8,734	–

Financial risk management objectives and policies

The Group’s major financial instruments include equity investments, deposits paid for acquisition of fellow subsidiaries, other receivables, other payables, bank balances and deposits, bank borrowings, accounts receivable and accounts payable. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Equity price risk

The Group is exposed to equity price risk as a result of changes in fair value of its investments in equity securities and derivative financial instruments. The directors of the Company manage the exposure by closely monitoring the portfolio of equity investments and derivative financial instrument (see note 33).

Equity price sensitivity

The sensitivity analyses below have been determined based on the exposure to equity price risks at the reporting date. The analysis is prepared assuming the financial instruments outstanding at the balance sheet date were outstanding for the whole year. As a result of the volatility of the financial market in 2008, the management adjusted the sensitivity rate from 10% for 2007 to 30% for 2008 for the purpose of assessing equity price risk. A 30 percent change is used when reporting equity price risk internally to key management personnel and represents management’s assessment of the reasonably possible change in equity price.

As at 31 December 2008, if the market bid prices of the Group’s listed equity investments had been 30 percent higher/lower, the Group’s loss would decrease/increase by HK$23,747,000 (2007: the Group’s profit would increase/decrease by HK$17,781,000). This is mainly attributable to the changes in fair values of the listed investments held for trading.

For derivative financial instruments, the Group has obligations to take up equity securities based on the relevant contract. In addition, since these contracts are mark-to-market at reporting date, the Group will have profit and loss exposure in these contracts. No sensitivity analysis is prepared as the impact for the remaining contracts are expected to be insignificant (see note 33 for loss on settlement subsequent to 31 December 2008).

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent equity price risk as the year end exposure does not reflect the exposure during the year. An unexpected decrease in market bid price may result in the Group suffering significant loss due to the leverage feature.

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to fixed-rate bank balances and deposits with brokers. The Group currently does not have a fair value hedging policy.

The Group is also exposed to cash flow interest rate risk in relation to variable-rate bank borrowings, loans receivable, loans to margin clients and bank balances. The Group currently does not have a cash flow interest rate hedging policy. However, management is closely monitoring its exposure arising from margin financing and other lending activities undertaken by allowing an appropriate margin on the interest received and paid by the Group. A 100 (2007: 100) basis point change is used when reporting cash flow interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of Hong Kong Prime Rate and HIBOR arising from the Group’s variable interest rate instruments.

The sensitivity analysis is prepared assuming the financial instruments outstanding at the balance sheet date were outstanding for the whole year. As at 31 December 2008, if the interest rate of bank borrowings, loans receivable, loans to margin clients and bank balances had been 100 basis point higher/lower, the Group’s loss would decrease/increase by HK$1,509,000 (2007: the Group’s profit would increase/decrease by HK$4,925,000). This is mainly attributable to the bank interest expenses under finance costs or interest income under revenue.

Foreign currency risk

Foreign exchange risk is the risk of loss due to adverse movements in foreign exchange rate relating to receivables from foreign brokers and foreign currency deposits with banks. The management monitors foreign exchange exposure and will consider hedging significant foreign exposure should the need arises.

More than 99% of financial assets and financial liabilities of the Group are denominated in US$ or HK$. As HK$ is pegged to US$, the Group does not expect any significant movements in the US$/HK$ exchange rates. No foreign currency sensitivity is disclosed as in the opinion of directors, the foreign currency sensitivity does not give additional value in view of insignificant movement in the US$/HK$ exchange rates and insignificant exposure of other foreign currencies as at the balance sheet date.

Credit risk

As at 31 December 2008, the Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the consolidated balance sheet.

In order to minimise the credit risk on brokerage, financing and corporate finance operations, the Credit and Risk Management Committee is set up to compile the credit and risk management policies, to approve credit limits and to determine any debt recovery action on those delinquent receivables. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

Other than concentration of credit risk on deposits paid for acquisition of fellow subsidiaries and amounts receivable on disposal of subsidiaries which are payable by CIGL, the Group does not have any other significant concentration of credit risk as the exposure spread over a number of counterparties and customers. CIGL, a wholly owned subsidiary of CASH, is financially supported by CASH. Accordingly, the directors of the Company consider the credit risk is minimal in the view of financial background of CASH.

Bank balances and deposits with brokers are placed in various authorised institutions and the directors of the Company consider the credit risk of such authorised institutions is low.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity risk

As part of ordinary broking activities, the Group is exposed to liquidity risk arising from (1) timing difference between settlement with clearing houses or brokers and customers and (2) derivative financial instruments (trading as accumulator) if it has difficulties in fulfilling its obligation to purchase the agreed amount of equity securities at any agreed point as set out in the contract. Securities market bid price and the associated volatility will affect the Group’s future cash flows and profit and loss. To address the risk, treasury team works closely with the settlement division on monitoring the liquidity gap. In addition, for contingency purposes, clean loan facilities are put in place.

Liquidity and interest risk tables

For derivative financial liabilities, which are to be settled on gross basis, the Group has approximately HK$7.2 million contractual cash outflow in return for listed securities within 2 months from 31 December 2008. The expected cash outflow is calculated with reference to the number of listed securities to be received on the assumption that market price of the underlying securities as at year end remained constant until expiry.

For non-derivative financial liabilities, the following tables detail the Group’s remaining contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and principal cash flows. The difference between the “Total undiscounted cash flows” column and the “Carrying amount at balance sheet date” column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the financial liability on the consolidated balance sheet.

Weighted average effective interest rate % At 31 December 2008 Accounts payable N/A Other payables N/A Bank borrowings Note Loan from a minority shareholder N/A Obligations under finance leases 6% At 31 December 2007 Accounts payable N/A Other payables N/A Bank borrowings Note Loan from a minority shareholder N/A	Repayable on demand HK$’000 542,079 – – – – 542,079 928,527 – – – 928,527	Less than 1 month HK$’000 147,096 16,737 15,067 27,437 10 206,347 450,994 6,042 1 27,437 484,474	Between 1 to 3 months HK$’000 – – – – 21 21 – – 106 – 106	Between 3 months to 1 year HK$’000 – – 184,173 – 100 184,273 – – 239,621 – 239,621	Between 1 to 2 years HK$’000 – – 1,374 – 147 1,521 – – – – –	Between 2 to 5 years HK$’000 – – 4,756 – 218 4,974 – – – – –	Over 5 years HK$’000 – – 42,416 – – 42,416 – – – – –	Total undiscounted cash flows HK$’000 689,175 16,737 247,786 27,437 496 981,631 1,379,521 6,042 239,728 27,437 1,652,728	Carrying amount at balance sheet date HK$’000 689,175 16,737 232,086 27,437 442
									965,877

									1,379,521 6,042 231,066 27,437
									1,644,066

Note: Variable-rate borrowings carry interest at HIBOR plus a spread or Hong Kong Prime Rate. The prevailing market rate at the balance sheet date is used in the maturity analysis.

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table details the Group’s expected maturity for its financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the Group anticipates that the cash flow will occur in a different period. The difference between the “Total undiscounted cash flows” column and the “Carrying amount at balance sheet date” column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the financial asset on the consolidated balance sheet.

Weighted average effective interest rate % At 31 December 2008 Investments held for trading N/A Amounts receivable on disposal of subsidiaries Hong Kong Prime Rate (Note 2) Deposits paid for acquisition of fellow subsidiaries N/A (Note 4) Accounts receivable Hong Kong Prime Rate plus spread (Note 2) Loan to an associate N/A (Note 1) Loans receivable Hong Kong Prime Rate plus spread (Note 2) Other receivables N/A Amount due from an associate N/A Amounts due from fellow subsidiaries N/A Deposits with brokers 0.5% Bank balances with fixed interest rate 0.01%-1% Bank balance with variable interest rate 0.01%-1% Bank balance without interest-bearing N/A	Repayable on demand HK$’000 – – – 97,858 – – – – – – – – 464,272 562,130	Less than 1 month HK$’000 79,155 – – 206,869 – – 1,299 260 341 2,731 49,461 64,096 – 404,212	Between 1 to 3 months HK$’000 – – – – – 10,083 – – – – 82,041 – – 92,124	Between 3 months to 1 year HK$’000 – 175,071 – – – 3,743 – – – – 92,869 – – 271,683	Between 1 to 2 years HK$’000 – – – – – 201 – – – – – – – 201	Over 2 years HK$’000 – – – – – – – – – – – – – –	Undated HK$’000 – – 60,000 – 10,296 – – – – – – – – 70,296	Total undiscounted cash flows HK$’000 79,155 175,071 60,000 304,727 10,296 14,027 1,299 260 341 2,731 224,371 64,096 464,272 1,400,646	Carrying amount at balance sheet date HK$’000 79,155 171,498 60,000 304,042 10,296 13,821 1,299 260 341 2,730 224,161 64,027 464,272
									1,395,902

– 84 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Weighted average effective interest rate % At 31 December 2007 Investments held for trading N/A Amounts receivable on disposal of subsidiaries Hong Kong Prime Rate (Note 2) Accounts receivable Hong Kong Prime Rate plus spread (Note 2) Loans receivable (Note 3) Loan to an associate N/A (Note 1) Other receivables N/A Amount due from an associate N/A Amounts due from fellow subsidiaries N/A Deposits with brokers 1.5% Bank balances with fixed interest rate 1.5%-3.5% Bank balance with variable interest rate 1.5%-3.5% Bank balance without interest-bearing N/A	Repayable on demand HK$’000 – – 452,624 – – – – – – – – 481,251 933,875	Less than 1 month HK$’000 59,271 – 482,486 28,931 – 8,820 260 447 69,274 301,376 62,830 – 1,013,695	Between 1 to 3 months HK$’000 – – – – – – – – – 346,854 – – 346,854	Between 3 months to 1 year HK$’000 – – – 161 – – – – – 28,759 – – 28,920	Between 1 to 2 years HK$’000 – 179,204 – 130 – – – – – – – – 179,334	Over 2 years HK$’000 – – – 69 – – – – – – – – 69	Undated HK$’000 – – – – 10,296 – – – – – – – 10,296	Total undiscounted cash flows HK$’000 59,271 179,204 935,110 29,291 10,296 8,820 260 447 69,274 676,989 62,830 481,251 2,513,043	Carrying amount at balance sheet date HK$’000 59,271 162,703 931,595 29,043 10,296 8,820 260 447 69,188 670,364 62,255 481,251
									2,485,493

Notes:

(1) The loan to the associate has no fixed repayment terms and is expected to be recovered after 1 year.
(2) The prevailing market rate at the balance sheet date is used in the maturity analysis.
(3) For the fixed rate instrument, the interest rate ranged from 5% to 32.6%, and for those variable rate instrument, the interest rate is Hong Kong Prime Rate plus spread. The prevailing market rate at the balance sheet date in used in the maturity analysis.
(4) The deposits were paid for the acquisition of fellow subsidiaries and may be refundable if the transaction is not approved by the independent shareholders of the Company.

Fair values

The fair values of financial assets and financial liabilities are determined as follows:

the fair values of financial assets with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices;
the fair values of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis, using prices or rates from observable current market transactions as input; and
the fair values of derivative instruments are determined based on valuation techniques that incorporate market observable data such as share market price, risk-free rate and dividend yield.

The directors of the Company consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values.

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. Revenue

Continuing operations: Fees and commission income Interest income Discontinued operations: Online game income Sales of online game auxiliary products Licensing income	2008 HK$’000 278,464 46,187 324,651 – – – –	2007 HK$’000 511,881 154,497
		666,378

		23,309 9,738 2,064
		35,111

8. Business and geographical segments

Business segments

For management purposes, the Group is currently organised into three main operating divisions, namely, broking, financing and corporate finance. These divisions are the basis on which the Group reports its primary segment information.

Principal activities for the year are as follows:

– Broking Broking of securities, options, futures and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products – Financing Provision of margin financing and money lending services – Corporate finance Provision of corporate finance services

The Group was also involved in the provision of online game services, sales of online game auxiliary products and licensing services up to 31 May 2007. This online game division was disposed of and discontinued on 1 June 2007 as mentioned in notes 14 and 37.

– 86 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group’s operation by business segment is as follows:

Consolidated income statement for the year ended 31 December 2008

	Continuing	operations	Consolidated HK$’000 324,651
Broking HK$’000 270,878 47,513	Financing HK$’000 46,187 14,729	Corporate finance HK$’000 7,586 79

			62,321 5,260 39,096 (25,218) (172,117) 8,734
			(81,924) (4,294)
			(86,218)

Consolidated balance sheet as at 31 December 2008

	Continuing	operations	Consolidated HK$’000 1,234,314 111,684 381,260
Broking HK$’000 976,755 696,605	Financing HK$’000 246,287 212,386	Corporate finance HK$’000 11,272 551
			1,727,258

			909,542 111,661
			1,021,203

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Other information for the year ended 31 December 2008

Additions to property and equipment Allowance for bad and doubtful debts Depreciation of property and equipment		Continuing operations	Continuing operations	Continuing operations	Total HK$’000 98,799 900 15,655	Discontinued operations Online game services HK$’000 – – –	Consolidated HK$’000 98,799 900 15,655
	Broking HK$’000 71,921 – 5,904	Financing HK$’000 – 900 –	Corporate finance HK$’000 – – –	Unallocated HK$’000 26,878 – 9,751

Consolidated income statement for the year ended 31 December 2007

	Continuing	operations	Consolidated HK$’000 701,489
Broking HK$’000 502,039 164,639	Financing HK$’000 154,497 36,227	Corporate finance HK$’000 9,842 (1,861)

			191,477 20,334 2,195 41,701 (3,370) (16,822)
			235,515 (28,825)
			206,690

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated balance sheet as at 31 December 2007

	Continuing	operations	Consolidated HK$’000 2,288,423 65,778 272,716
Broking HK$’000 1,495,624 1,164,302	Financing HK$’000 780,602 489,678	Corporate finance HK$’000 12,197 409
			2,626,917

			1,654,389 73,162
			1,727,551

Other information for the year ended 31 December 2007

Additions to property and equipment Allowance for bad and doubtful debts Depreciation of property and equipment Amortisation of intangible assets	Continuing operations Broking Financing Corporate finance Unallocated Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 39 – – 5,006 5,045 1,041 298 – – 1,339 59 – – 7,344 7,403 – – – – –	Discontinued operations Online game services Consolidated HK$’000 HK$’000 5,683 10,728 – 1,339 2,406 9,809 1,731 1,731

Geographical segments

The Group’s operations are located in Hong Kong and the People’s Republic of China (“PRC”). For the activities of broking, financing and corporate finance, they are based in Hong Kong and PRC and the revenue of these activities for the year ended 31 December 2008 and 31 December 2007 are derived from Hong Kong. The online game services were mainly based in the PRC and Taiwan and the relevant revenue for the year ended 31 December 2007 were derived mainly from the PRC and Taiwan.

– 89 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group’s segment revenue from external customers cannot be allocated based on geographic location of its customers. The following table provides an analysis of the Group’s revenue by geographical market based on location of operations:

Continuing operations: Hong Kong Discontinued operations: PRC Taiwan	2008 HK$’000 324,651 – – – 324,651	2007 HK$’000 666,378
		27,781 7,330
		35,111
		701,489

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

Carrying amount of segment assets

Continuing operations: Hong Kong PRC Discontinued operations: PRC Taiwan	2008 HK$’000 1,165,853 68,461 1,234,314 – –	2007 HK$’000 2,288,423 –
		2,288,423
		– –

Additions to property and equipment Continuing operations: Hong Kong PRC Discontinued operations PRC Taiwan	– – 2008 HK$’000 26,878 71,921 98,799 – – – 98,799	–
		2,288,423

		2007 HK$’000 5,045 –
		5,045
		1,824 3,859
		5,683
		10,728

Additions to property and equipment

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. Salaries, commission and related benefits

Salaries, allowances and commission represent the amounts paid and payable to the directors of the Company and employees and account executives and comprise: Continuing operations: Salaries, allowances and commission Contributions to retirement benefits schemes Discontinued operations: Salaries, allowances and commission Contributions to retirement benefits schemes Finance costs Continuing operations: Interest on: Bank overdrafts and borrowings: – repayable within five years – repayable more than five years Finance leases Discontinued operations: Interest on bank overdrafts and borrowings wholly repayable within five years	2008 HK$’000 147,682 3,428 151,110 – – – 2008 HK$’000 19,494 631 9 20,134 –	2007 HK$’000 245,220 2,760
		247,980

		10,027 638
		10,665

		2007 HK$’000 91,839 – 5
		91,844

		84

10. Finance costs

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Directors’ remuneration

The remuneration paid or payable to each of the directors during the year were as follows:

Kwan Pak Hoo Bankee HK$’000 Fees: Executive directors – Independent non- executive directors – Other remuneration paid to executive directors: Salaries, allowances and benefits in kind 1,260 Contributions to retirement benefit scheme 63 Total remuneration 1,323 Fees: Executive directors Independent non-executive directors Other remuneration paid to executive directors: Salaries, allowances and benefits in kind Discretionary bonus (Note) Contributions to retirement benefit scheme Total remuneration	Chan Chi Ming Benson Law Ping Wah Bernard Cheng Man Pan Ben Yuen Pak Lau Raymond Wong Kin Yick Kenneth Cheng Shu Shing Raymond Lo Kwok Hung John Lo Ming Chi Charles HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – – – – – – – – – – – 100 100 25 1,920 920 1,262 55 1,156 – – – 98 46 63 3 58 – – – 2,018 966 1,325 58 1,214 100 100 25 Kwan Pak Hoo Bankee Chan Chi Ming Benson Law Ping Wah Bernard Cheng Man Pan Ben Wong Kin Yick Kenneth Cheng Shu Shing Raymond Lo Kwok Hung John HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 – – – – – – – – – – – – 100 100 420 431 990 958 1,850 – – – – – 430 – – – 17 21 44 47 77 – – 437 452 1,034 1,435 1,927 100 100	Lo Ming Chi Charles HK$’000 – 25 – –		Hui Ka Wah Ronnie HK$’000 – 84 – – 84 Hui Ka Wah Ronnie HK$’000 – 100 – – – 100	2008 Total HK$’000 – 309 6,573 331 7,213 2007 Total HK$’000 – 300 4,649 430 206
		25


					5,585

Note: The discretionary bonus is determined by reference to the individual performance of directors and approved by Remuneration Committee Meeting.

During the year ended 31 December 2008, Mr Wong Kin Yick Kenneth resigned as an executive director and Mr Yuen Pak Lau Raymond was appointed as an executive director. In addition, Dr Hui Ka Wah Ronnie resigned as an independent non-executive director and Mr Lo Ming Chi Charles was appointed as an independent non-executive director.

During the year ended 31 December 2007, Mr Chan Chi Ming Benson was appointed as an executive director.

During the year, no remuneration was paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any remuneration during the year.

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Employees’ remuneration

Three (2007: one) of the five individuals with the highest emoluments in the Group were directors of the Company for the year ended 31 December 2008. Details of these directors’ emolument are included in the disclosures in note 11 above.

The emoluments of the remaining two (2007: four) individuals were as follows:

Salaries, allowances and benefits in kind Contributions to retirement benefit scheme Performance related incentive payments Discretionary bonus	2008 HK$’000 2,040 75 463 – 2,578	2007 HK$’000 3,325 176 14,144 902
		18,547

Their remuneration of the five highest paid individuals (other than directors) were within the following bands:

		Number of employees
		2008	2007
HK$1,000,001	to HK$1,500,000	2	–
HK$1,500,001	to HK$2,000,000	–	1
HK$2,000,001	to HK$2,500,000	–	1
HK$6,500,001	to HK$7,000,000	–	1
HK$7,500,001	to HK$8,000,000	–	1

During the year, no remuneration was paid by the Group to the five individuals with the highest emoluments in the Group as an inducement to join or upon joining the Group or as compensation for loss of office.

13. Taxation charge

Continuing operations: Current tax: – Hong Kong Overprovision in prior years Deferred taxation	2008 HK$’000 (2,154) 202 (2,342) (4,294)	2007 HK$’000 (27,635 385 (1,575
		(28,825

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 16.5% (2007: 17.5%) of the estimated assessable profits for the year.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

Certain subsidiaries of the Company operated in the PRC and Taiwan and were disposed of by the Group in 2007, as disclosed in note 14, were subject to tax with rate of 15% because they were registered in 張江高科技園區 (translated as Shanghai Zhang Jiang High Technological Zone). No provision for the PRC income tax has been made as they had incurred tax losses in 2007. Also, no provision for taxation had been made for subsidiary located in Taiwan as no assessable profit is arisen in 2007.

– 93 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (“New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulation of the New Law. The relevant tax rate for the Group’s remaining subsidiaries in the PRC is 25%.

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

(Loss) profit before taxation: Continuing operations Discontinued operations Taxation at income tax rate of 16.5% (2007: 17.5%) Tax effect of share of gain (loss) of associate Overprovision in respect of prior years Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of utilisation of estimated tax losses previously not recognised Tax effect of estimated tax losses not recognised Effect of different tax rate of subsidiaries operating in other jurisdictions Overprovision of deferred tax assets Other differences Taxation for the year	2008 HK$’000 (81,924) – (81,924) 13,517 6,451 202 (2,738) 3,409 6,184 (32,610) 1,100 – 191 (4,294)	2007 HK$’000 204,611 30,904
		235,515

		(41,215) (590) 385 (2,775) 9,300 10,736 (2,707) (230) (1,575) (154)
		(28,825)

The following are the major deferred liabilities recognised and the movements thereon during the current and the prior reporting years:

At 1 January 2007 Eliminated on disposal of subsidiaries (note 37) Credit (charge) to consolidated income statement At 31 December 2007 Charge to consolidated income statement At 31 December 2008	Accelerated tax depreciation HK$’000 (771) – 771 – (2,342) (2,342)	Estimated tax losses HK$’000 2,346 – (2,346) – – –	Intangible asset HK$’000 (1,844) 1,844 – – – –	Total HK$’000 (269) 1,844 (1,575)
				– (2,342)
				(2,342)

As at 31 December 2008, the Group had unused estimated tax losses of HK$415,830,000 (2007: HK$262,333,000) available for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams. The unused tax losses can be carried forward indefinitely. For certain subsidiaries operated in the PRC, unused estimated tax loss of HK$12,948,000 (2007: nil) can be carried forward until 2013.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Discontinued operations

On 9 January 2007, the Group entered into a sale and purchase agreement with CASH to dispose of Netfield Technology Limited and its subsidiaries (“Netfield Group”), which carried out the Group’s online game services operations. The disposal was effected in order to generate cash flows for the expansion of the Group’s other businesses. The disposal was approved by independent shareholders of the Company at a special general meeting held on 23 April 2007 and was completed on 1 June 2007, on which date control of the Netfield Group has been passed to CASH.

The profit (loss) for the year ended 31 December 2007 from the discontinued operations is analysed as follows:

Gain on disposal of the Netfield Group Loss for the year on online game services operations	HK$’000 41,701 (10,797)
	30,904

The results of the Netfield Group for the period from 1 January 2007 to 31 May 2007, which have been included in the consolidated income statement for the year ended 31 December 2007, were as follows:

Revenue Other operating income Salaries, commission and related benefits Depreciation and amortisation Other operating and administrative expenses Finance costs Loss before taxation and loss for the period Attributable to: The Group Minority interests	HK$’000 35,111 336 (10,665) (4,137) (31,358) (84)
	(10,797)

	(10,325) (472)
	(10,797)

The cash flows of the Netfield Group for the period from 1 January 2007 to 31 May 2007 are as follows:

	HK$’000
Net cash from operating activities	33,375
Net cash used in investing activities	(5,683)
Net cash from financing activities	48,367

The carrying amounts of the assets and liabilities of the Netfield Group at the date of disposal are disclosed in

note 37.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. (Loss) profit for the year

(Loss) profit for the year has been arrived at after charging (crediting): Continuing operations: Auditor’s remuneration Depreciation of property and equipment Owned assets Leased assets Advertising and promotion expenses Operating lease rentals in respect of land and buildings Gain on disposal of property and equipment Loss (gain) on disposal of intangible asset Fair value change on investment property Net foreign exchange gain Dividends from investments held for trading Allowance for bad and doubtful accounts receivable (note) Bad debt on accounts receivable and loans receivable recovered (note) Allowance for bad and doubtful loans receivable (note) Bad debt on accounts and loans receivable written off directly (note) Impairment loss on amount due from an associate (note)	2008 HK$’000 1,770 15,610 45 15,655 8,704 25,647 (35) 830 (823) (182) (3,261) – (3,476) 900 177 –	2007 HK$’000 1,770
		7,310 93
		7,403
		10,198 12,407 – (9) – (2,498) (704) 1,041 – 298 227 4,075

Note: All these impairment losses or reversal of impairment losses are included in “other operating and administrative expenses” of the consolidated income statement.

	2008	2007
	HK$’000	HK$’000
Discontinued operations:
Auditor’s remuneration	–	223
Amortisation of intangible assets	–	1,731
Depreciation of property and equipment
Owned assets	–	2,406
Advertising and promotion expenses	–	22,429
Operating lease rentals in respect of land and buildings	–	1,330

– 96 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

16. (Loss) Earnings Per Share

The calculation of basic and diluted (loss) earnings per share attributable to the ordinary equity holders of the Company for the year is based on the following data:

From continuing and discontinued operations (Loss) profit for the purpose of basic and diluted (loss) earnings per share From continuing operations (Loss) profit for the purpose of basic and diluted (loss) earnings per share From discontinued operations Profit for the purpose of basic and diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic (loss) earnings per share Effect of dilutive potential ordinary shares assumed exercise of share options Weighted average number of ordinary shares for the purpose of diluted (loss) earnings per share	2008 HK$’000 (99,595) (99,595) 2008 HK$’000 – 2008 413,600,313 – 413,600,313	2007 HK$’000 207,779

		176,403

		2007 HK$’000 31,376

		2007 (restated) 339,047,794 4,061,310
		343,109,104

The weighted average number of ordinary shares for the purpose of basic and diluted (loss) earnings per share has been adjusted for the consolidation of shares on 2 May 2008.

For the year ended 31 December 2008, the computation of diluted loss per share does not assume the exercise of the Company’s outstanding share options since their exercise would result in a decrease in loss per share.

– 97 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

17. Property and Equipment

COST At 1 January 2007 Additions Arising on disposal of subsidiaries (see note 37) Arising on acquisition of subsidiaries (see note 36(b)) Disposal/written off At 31 December 2007 Additions Arising on acquisition of subsidiaries (see note 36(a)) Disposal/written off At 31 December 2008 ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2007 Provided for the year Eliminated on disposals of subsidiaries (see note 37) Eliminated on disposal/written off At 31 December 2007 Provided for the year Eliminated on disposal/written off At 31 December 2008 CARRYING VALUES At 31 December 2008 At 31 December 2007	Leasehold improvements HK$’000 50,421 1,465 (3,783) 137 – 48,240 50,779 – (13,438) 85,581 31,639 5,375 (1,141) – 35,873 6,410 (13,438) 28,845 56,736 12,367	Furniture and fixtures HK$’000 21,440 558 (497) 110 (6,628) 14,983 16,004 233 (9,590) 21,630 20,800 322 (80) (6,628) 14,414 1,696 (9,590) 6,520 15,110 569	Computer and equipment HK$’000 46,873 8,705 (21,115) – – 34,463 31,471 – (8,156) 57,778 21,038 4,008 (2,232) – 22,814 7,411 (8,156) 22,069 35,709 11,649	Motor vehicles HK$’000 2,009 – (170) – – 1,839 545 – (657) 1,727 1,546 104 (13) – 1,637 138 (657) 1,118 609 202	Total HK$’000 120,743 10,728 (25,565) 247 (6,628)
					99,525 98,799 233 (31,841)
					166,716
					75,023 9,809 (3,466) (6,628)
					74,738 15,655 (31,841)
					58,552
					108,164

					24,787

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The carrying value of motor vehicles included amounts of HK$500,000 was held under finance leases (2007: nil).

The above property and equipment are depreciated on a straight-line basis at the following rates per annum:

Leasehold improvements The shorter of the lease terms and 5 years Furniture and fixtures 5 years Computer and equipment 3 to 5 years Motor vehicles 3 years

18. Investment Property

FAIR VALUE At 1 January 2007 and 31 December 2007 Increase in fair value recognised in the consolidated income statement Disposal At 31 December 2008	HK$’000 5,000 823 (5,823)
	–

The fair value of the Group’s investment property at 31 December 2007 was arrived at on the basis of a valuation carried out at that date by Knight Frank Petty Limited, independent qualified professional valuer not connected with the Group. Knight Frank Petty Limited has appropriate qualifications and recent experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to Hong Kong Institute of Surveyors Valuation Standards on Properties, was arrived at by reference to market evidence of transaction prices for similar properties.

The Group’s property interest held under operating lease to earn rentals or for capital appreciation purpose is measured using the fair value model and is classified and accounted for as investment property.

The investment property shown above represents land in Hong Kong with medium-term lease.

19. Goodwill

COST AND CARRYING VALUES At 1 January 2007 Reversal on disposal of subsidiaries (see note 37) At 31 December 2007 and 31 December 2008	HK$’000 114,878 (109,945)
	4,933

Particulars regarding impairment testing on goodwill are disclosed in note 21.

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. Intangible Assets

COST At 1 January 2007 Disposals Arising on disposal of subsidiaries (see note 37) At 31 December 2007 Disposals At 31 December 2008 AMORTISATION At 1 January 2007 Charge for the year Elimination on disposal of subsidiaries (see note 37) At 31 December 2007 and 31 December 2008 CARRYING VALUES At 31 December 2008 At 31 December 2007	Trading rights HK$’000 9,092 – – 9,092 – 9,092 – – – 9,092 9,092 9,092	Club memberships HK$’000 5,060 (1,760) – 3,300 (1,330) 1,970 – – – 1,970 1,970 3,300	Online game and related intellectual property HK$’000 16,561 – (16,561) – – – 4,131 1,731 (5,862) – – –	Domain name HK$’000 5,460 – (5,460) – – – – – – – – –	Total HK$’000 36,173 (1,760 (22,021
					12,392 (1,330
					11,062
					4,131 1,731 (5,862
					11,062
					11,062

					12,392

At 31 December 2008, intangible assets amounting to HK$9,092,000 (2007: HK$9,092,000) represent trading rights that confer eligibility of the Group to trade on the Stock Exchange and the Hong Kong Futures Exchange. Particulars regarding impairment testing on the trading rights are disclosed in note 21.

At 31 December 2008, intangible assets amounting to HK$1,970,000 (2007: HK$3,300,000) represent club memberships. For the purpose of impairment testing on club memberships, the recoverable amount has been determined based on fair value less costs to sell. The fair value less costs to sell is the second-hand market price less cost of disposal. During the year ended 31 December 2008, management of the Group determines that there was no impairment of the club memberships since the recoverable amount of the club memberships exceeds its carrying amount.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. Impairment testing on goodwill and trading rights

As explained in note 8, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill and trading rights set out in notes 19 and 20 respectively have been allocated to three individual cash generating units (CGUs) respectively, including two subsidiaries in broking and one subsidiary in corporate finance. The carrying amounts of goodwill and trading rights at the balance sheet date allocated to these units are as follows:

Broking – Broking of securities Broking – Mutual funds and insurance-linked investment products Corporate finance	Goodwill 2008 and 2007 HK$’000 – 2,272 2,661 4,933	Trading rights 2008 and 2007 HK$’000 9,092 – –
		9,092

During the year ended 31 December 2008, management of the Group determines that there is no impairment of any of its CGUs containing goodwill or trading rights.

The recoverable amounts of the CGUs of broking and corporate finance have been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a one-year period, and discount rate of 8% (2007: three-year period, and discount rate of 6%). The cash flows beyond the one-year period are extrapolated for two years using a zero growth rate. The zero growth rate is determined based on management’s expectations for the market development and is not expected to exceed the average long-term growth rate for the relevant industry. Management believes that any reasonably possible change in any of the assumption would not cause the aggregate carrying amount of the above CGUs to exceed the aggregate recoverable amount of the above CGUs.

22. Other assets

Statutory and other deposits Deposits paid to residential property developers Deposits paid for acquisition of fellow subsidiaries	2008 HK$’000 9,447 63,271 60,000 132,718	2007 HK$’000 9,136 – –
		9,136

Statutory and other deposits represent deposits with various exchanges and clearing houses.

Deposits paid to residential property developers represent deposits for purchase of residential properties in Shanghai. The properties are currently under construction and deliveries are expected in late 2009.

On 19 December 2008, the Group entered into a sale and purchase agreement with CASH Group Limited (“CGL”) (a wholly-owned subsidiary of CASH) to acquire 60% of the equity interests in CASH Retail Management (HK) Limited and its subsidiaries (collectively known as “Retail Group”) and the loan due from the Retail Group to CGL, at an aggregate consideration of approximately HK$184 million (subject to adjustment) and the Group will be granted a purchaser call option to acquire the remaining 40% of the equity interests in the Retail Group at the consideration of approximately HK$116 million (subject to adjustment) at any time from the date of the first completion date up to 31 December 2011. The total consideration of approximately HK$300 million (subject to adjustment) was based on price-to-earning ratio (“PE ratio”) of 10 times of the estimated net profits of the Retail Group for the year ended 31 December 2008. The final consideration could be adjusted upward or downward based on the audited net profit of the Retails Group for the year ended 31 December 2008. The PE ratio was determined by reference to prospective PE ratio for year 2008 of various companies listed in Hong Kong engaging in the retail business. This transaction is still subject to, inter alias, the approval by independent shareholders of the Company at a special general meeting to be convened.

– 101 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at 31 December 2008, the Group has paid part of the consideration of HK$60 million to CGL as non-interest bearing deposit for the acquisition of 60% equity interests in the Retail Group. The remaining consideration for this 60% equity interest and the 40% interest upon the Group exercising the purchaser call option as mentioned above will be settled by the convertible note which shall be issued by the Company at principal value of approximately HK$240 million (subject to adjustment) with conversion price of HK$1.15 per conversion share. The conversion price will be adjusted to HK$1.482 per conversion share with retrospective effect from 19 March 2009 subject to completion of the 2-for-1 rights issue of the Company as set out in the prospectus of the Company dated 19 March 2009.

All the above deposits are non-interest bearing.

23. Loans receivable

Variable-rate loans receivable denominated in Hong Kong dollar Fixed-rate loans receivable denominated in Hong Kong dollar Less: Allowance for bad and doubtful debts Carrying amount analysed for reporting purposes: Current assets (receivable within 12 months from the balance sheet date) Non-current assets (receivable after 12 months from the balance sheet date)	2008 HK$’000 17,554 – (3,733) 13,821 13,629 192 13,821	2007 HK$’000 33,399 1,361 (5,717)
		29,043

		28,867 176
		29,043

Interest rates underlying the variable-rate loans receivable are Hong Kong Prime Rate plus a spread for both years. Interest rates underlying the fixed-rate loans receivable for 2007 are ranged from 5% to 32.6%.

The Group has policy for allowance of bad and doubtful debts which is based on the evaluation of collectability and aging analysis of accounts and on management’s judgment, including the current creditworthiness, collaterals and the past collection history of each client.

Movement in the allowance for bad and doubtful debts is as follows:

Balance at the beginning of the year Amounts written off during the year Increase (decrease) during the year Charge for the year Reversal for the year Amounts recovered during the year Balance at the end of the year	2008 HK$’000 5,717 – 900 – (2,884) 3,733	2007 HK$’000 26,570 (21,151) 1,997 (1,699) –
		5,717

In determining the recoverability of the loans receivable, the Group considers any change in the credit quality of the loans receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further impairment required in excess of the allowance for doubtful debts.

– 102 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

At 31 December 2007, debtors with a carrying amount of HK$28,720,000 are past due at the reporting date for which the directors of the Company considered them as recoverable since the amounts are either fully secured by marketable securities pledged by the debtors or subsequently settled. Accordingly, no further impairment is considered necessary.

In respect of loans receivable which are past due but not impaired at the respective balance sheet date, the aged analysis (from due date) is as follows:

0–30 days 31–60 days 61–90 days Over 90 days	2008 HK$’000 – – – – –	2007 HK$’000 4,267 23,312 – 1,141
		28,720

The loans receivable with a carrying amount of HK$13,821,000 (2007: HK$323,000) which are neither past due nor impaired at the reporting date for which the Group believes that the amounts are considered recoverable.

Loans receivable with an aggregate carrying value of approximately HK$13,821,000 (2007: HK$4,267,000) are secured by pledged marketable securities at fair values of HK$3,357,000 (2007: HK$11,934,000) and convertible instrument with nominal value of HK$13,000,000 (2007: nil).

The variable-rate loans receivable have contractual maturity dates as follows:

Within one year In more than one year but not more than two years In more than two years but not more than three years In more than three years but not more than four years	2008 HK$’000 13,629 192 – – 13,821	2007 HK$’000 27,602 25 27 28
		27,682

The fixed-rate loans receivable have contractual maturity dates as follows:

Within one year In more than one year but not more than two years	2008 HK$’000 – – –	2007 HK$’000 1,265 96
		1,361

The effective interest rates (which are equal to contractual interest rate) on the Group’s loans receivable are Hong Kong Prime Rate plus a spread.

– 103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. Interests in associates

Cost of investments in an associate Unlisted shares Share of post-acquisition reserve Share of post-acquisition profit (loss) Loan to an associate (Note)	2008 HK$’000 67,833 8,125 35,726 111,684 10,296	2007 HK$’000 67,833 1,315 (3,370)
		65,778

		10,296

Note: Pursuant to the shareholder agreement entered into between a subsidiary, Marvel Champ Investments Limited, and other shareholders of the associate on 27 June 2007, the loan to an associate is unsecured, non-interest bearing and has no fixed repayment terms. In the opinion of the directors, the loan will not be repaid within the next twelve months from 31 December 2008.

As at 31 December 2008 and 2007, the Group had interests in the following associates:

		Country of			Proportion of	Proportion of
	Form of	incorporation/	Principal		nominal value of		Proportion
	business	date of	place of	Class of	issued capital held		of voting	Principal
Name of entity	structure	incorporation	operation	share held	by the Group		power held	activity
					Directly	Indirectly
					%	%	%
China Able Limited	Incorporated	British Virgin	PRC	Ordinary	33.33	–	33.33	Investment
		Islands (“BVI”)						holding
		23 May 2007
Shanghai Property (No. 1)	Incorporated	Barbados	PRC	Ordinary	–	33.33	33.33	Investment
Holding SRL		11 August 2006						holding
昌裕（上海）房地產經營	Incorporated	PRC	PRC	Ordinary	–	33.33	33.33	Property
有限公司		11 December 2006						investment

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

Total assets Total liabilities Net assets Group’s share of net assets of associates Revenue Profit (loss) for the year Group’s share of profit (loss) of associates for the year	2008 HK$’000 704,248 (369,197) 335,051 111,684 22,231 117,288 39,096	2007 HK$’000 327,781 (130,446)
		197,335

		65,778

		–

		(10,111)

		(3,370)

– 104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the shareholder agreement entered into between a subsidiary, Marvel Champ Investments Limited, and the other shareholders of the associate on 27 June 2007, the Group is required to make capital contribution to the associate amounting to HK$153,200,000. During the year ended 31 December 2007, the associate has obtained banking facilities to finance its operations. Accordingly, the outstanding capital contribution from the Group and other shareholders were reduced. The outstanding capital contribution of the Group commitment was reduced from HK$153,200,000 to HK$84,388,000. In 2007, the Group has made payments of HK$67,833,000 and HK$10,296,000 in the form of capital injection and shareholders’ loan respectively to the associate. During the year, the Group has not made any further contributions to the associate. At 31 December 2008, the remaining capital contribution to be made by the Group amounted to HK$6,259,000 (2007: HK$6,259,000).

25. Other financial assets and liabilities

Amounts receivable on disposal of subsidiaries

The amount represents partial consideration receivable from the purchaser with respect to the disposal of subsidiaries and the amount due from the Netfield Group on 31 May 2007, and related interest receivables.

Pursuant to the sale and purchase agreement entered into between the subsidiary of the Company, Vantage Giant Limited and CIGL, immediate holding company of the Company, on 9 January 2007, the amount is repayable on 1 June 2009, the principal amount of HK$162,703,000 carries interest at Hong Kong Prime Rate and unsecured. CIGL has the right to repay early part or all of the amount at any time prior to 1 June 2009.

Amounts due from an associate and fellow subsidiaries

The amounts are non-interest bearing, unsecured and are repayable on demand.

Deposits with brokers

The amount represents deposits with brokers for trading in securities. The amount is unsecured, repayable on demand and bears interest at 0.5% (2007: 3.2%) per annum.

Bank balances – trust and segregated accounts

The Group receives and holds money deposited by clients and other institutions in the course of the conduct of the regulated activities of its ordinary business. These clients’ monies are maintained in one or more segregated bank accounts. The Group has recognised the corresponding accounts payable to respective clients and other institutions. However, the Group does not have a currently enforceable right to offset those payables with the deposits placed.

Bank balances (general accounts) and cash

The amounts comprise cash held by the Group and short-term bank deposits at market interest rates with an original maturity of three months or less.

Loan from a minority shareholder

The amount is non-interest bearing, unsecured and is repayable on demand.

– 105 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

26. Accounts receivable

Accounts receivable arising from the business of dealing in securities: Clearing houses, brokers and dealers Cash clients Margin clients Accounts receivable arising from the business of dealing in futures and options: Clients Clearing houses, brokers and dealers Commission receivable from brokerage of mutual funds and insurance-linked investment products Accounts receivable arising from the business of provision of corporate finance services	2008 HK$’000 72,199 36,425 97,185 65 94,719 2,349 1,100 304,042	2007 HK$’000 216,343 166,310 449,162 68 93,032 5,238 1,442
		931,595

The settlement terms of accounts receivable arising from the business of dealing in securities are two days after trade date, and accounts receivable arising from the business of dealing in futures and options are one day after trade date.

In respect of the commission receivables from brokerage of mutual funds and insurance-linked investment products as well as accounts receivable arising from the business of corporate finance services, the Group allows a credit period of 30 days. The aged analysis is as follows:

0–30 days 31–60 days 61–90 days Over 90 days	2008 HK$’000 2,034 458 323 634 3,449	2007 HK$’000 4,173 619 697 1,191
		6,680

Loans to margin clients are secured by clients’ pledged securities at fair values of HK$442,488,000 (2007: HK$1,827,557,000) which can be sold at the Group’s discretion to settle any margin call requirements imposed by their respective securities transactions. The Group is able to use client’s pledged securities up to the amount of 140% of the loans to margin clients as collateral of the Group’s borrowing (with client’s consent). The loans are repayable on demand and bear interest at commercial rates. No aged analysis is disclosed as in the opinion of directors of the Company, the aged analysis does not give additional value in view of the nature of business of share margin financing.

Accounts receivable are netted off by allowance for bad and doubtful debts of HK$7,524,000 (2007: HK$9,330,000).

The Group has policy for allowance of bad and doubtful debts which is based on the evaluation of collectability and age analysis of accounts and on management’s judgement including the current creditworthiness, collaterals and the past collection history of each client.

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Movement in the allowance for bad and doubtful debts:

Balance at the beginning of the year Amounts written off during the year Charge for the year Amounts recovered during the year Balance at the end of the year	2008 HK$’000 9,330 (1,214) – (592) 7,524	2007 HK$’000 20,086 (11,797) 1,041 –
		9,330

In addition to the individually assessed allowance for bad and doubtful debt, the Group has also provided, on a collective basis, loan impairment allowance for accounts receivable arising from the business of dealing in securities and equity options with margin client that are individually insignificant or accounts receivable where no impairment has been identified individually. Objective evidence of collective impairment could include Group’s past experience of collecting payments and observable changes in national or local economic conditions that correlate with default on receivables.

In determining the recoverability of the accounts receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further impairment required in excess of the allowance for bad and doubtful debts.

Included in the Group’s accounts receivable are debtors, with a carrying amount of HK$8,332,000 (2007: HK$24,278,000) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality. The Group believes that the amounts are still considered recoverable given the substantial subsequent settlement after the reporting date.

In respect of accounts receivable which are past due but not impaired at the respective balance sheet date, the aged analysis (from due date) is as follows:

0–30 days 31–60 days 61–90 days Over 90 days	2008 HK$’000 6,549 826 323 634 8,332	2007 HK$’000 21,771 619 697 1,191
		24,278

The accounts receivable with a carrying amount of HK$295,710,000 (2007: HK$907,317,000) are neither past due nor impaired at the reporting date for which the Group believes that the amounts are considered recoverable.

– 107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in accounts receivable from margin clients arising from the business of dealing in securities are amounts due from certain related parties, the details of which are as follows:

Name Directors of both the Company and CASH Mr Wong Kin Yick Kenneth (Note 2) and associates (Note 1) 2007 2008 Mr Law Ping Wah Bernard and associates 2007 2008 Directors of the Company Mr Cheng Man Pan Ben and associates 2007 2008 Mr Yuen Pak Lau Raymond and associates 2007 2008 Director of CASH Mr Lin Che Chu George and associates 2007 2008 Subsidiaries of CASH Kawoo Finance Limited (Note 3) 2007 2008 Libra Capital Management (HK) Limited (formerly known as E-Tailer Holding Limited) 2007 2008 Substantial shareholders of CASH Cash Guardian Limited 2007 2008 Mr Kwan Pak Hoo Bankee and associates 2007 2008 Substantial shareholder of the Company Abdulrahman Saad Al-Rashid & Sons Company Limited (“ARTAR”) and associates 2007 2008	Balance at 1 January HK$’000 648 1,678 – – – – – – – – – – – – – – – – – –	Balance at 31 December HK$’000 1,678 222 – – – 29 – – – – – – – – – – – – – –	Maximum amount outstanding during the year HK$’000 28,842 16,031 29,489 15,401 23,349 16,412 – 996 29,703 – 29,146 29,900 – 29,182 – – 29,021 1,792 2,060,400 –	Market value of pledged securities at fair value at 31 December HK$’000 3,941 1,096

				19,914 6,049

				1,945 433

				– 748

				12,900 6,372

				978 2,566

				– –

				930 8,895

				10,161 1,363

				218,735 5,387

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(1) Associates are defined in accordance with the Rules Governing the Listing of Securities on the Stock Exchange.
(2) During the year, Mr Wong Kin Yick Kenneth resigned as directors of both the Company and CASH.
(3) On 31 July 2008, Kawoo Finance Limited was acquired by the Group and became a wholly-owned subsidiary of the Company.

The above balances are repayable on demand and bear interest at commercial rates which are similar to the rates offered to other margin clients.

27. Investments held for trading

Equity securities listed in Hong Kong Investment funds	2008 HK$’000 78,419 736 79,155	2007 HK$’000 57,613 1,658
		59,271

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

The fair value of the investment funds is determined based on the price quoted in an active market.

28. Bank deposits subject to conditions

Other bank deposits (Note (a)) Pledged bank deposits (Notes (b), (c) and (d))	2008 HK$’000 17,142 18,038 35,180	2007 HK$’000 17,105 11,570
		28,675

The bank deposits subject to conditions carry average floating interest rate at prevailing market rate per annum. The effective interest rates on the Group’s bank deposits subject to conditions are also equal to contracted interest rates.

Notes:

(a) Pursuant to a letter of undertaking given by the Group to a bank, the Group undertakes to maintain deposits of not less than HK$15,000,000 (2007: HK$15,000,000) with a bank as a condition precedent to an overdraft facility granted by the bank. The bank deposits will mature within one year or at an earlier date when the overdraft facility is expired.
(b) The Group’s bank deposits of HK$10,744,000 (2007: HK$10,574,000) were pledged to secure the general banking facilities granted by a bank. At 31 December 2008, bank loan of HK$10,000,000 was drawdown (2007: nil).
(c) The Group’s bank deposits of HK$223,000 (2007: HK$996,000) were pledged to facilitate a bank guarantee for rental deposit. The bank deposits will be released when the bank guarantee is expired.
(d) The Group’s bank deposits of HK$7,071,000 (2007: nil) were pledged to secure a standby letter of credit facility granted by a bank. The bank deposits will be released on clearance of the facility.

– 109 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. Accounts payable

Accounts payable arising from the business of dealing in securities: Cash clients Margin clients Accounts payable to clients arising from the business of dealing in futures and options Accounts payable to clients arising from the business of dealing in leveraged foreign exchange contracts	2008 HK$’000 400,345 120,928 167,545 357 689,175	2007 HK$’000 963,379 255,425 151,097 9,620
		1,379,521

The settlement terms of accounts payable arising from the business of dealing in securities are two days after trade date. Except for the amounts payable to margin clients, the age of these balances is within 30 days.

Amounts due to margin clients are repayable on demand. No aged analysis is disclosed as in the opinion of directors, the aged analysis does not give additional value in view of the nature of business of share margin financing.

Accounts payable to clients arising from the business of dealing in futures and options and leveraged foreign exchange contracts are margin deposits received from clients for their trading of these contracts. The required margin deposits are repayable upon the closure of the corresponding futures and options and leveraged foreign contracts position. The excess of the outstanding amounts over the required margin deposits stipulated are repayable to clients on demand. No aged analysis is disclosed as in the opinion of directors of the Company, the aged analysis does not give additional value in view of the nature of these businesses.

The accounts payable amounting to HK$542,079,000 (2007: HK$928,527,000) were payable to clients and other institutions in respect of the trust and segregated bank balances received and held for clients and other institutions in the course of the conduct of regulated activities. However, the Group does not have a currently enforceable right to offset these payables with the deposits placed.

30. Obligations under finance leases

It is the Group’s policy to lease certain of its motor vehicles under finance leases. The average lease term is 3 to 4 years. Interest rates underlying all obligations under finance leases are fixed at respective contract dates at 6%. No arrangements have been entered into for contingent rental payments.

Amount payable under finance leases Within one year In more than one year but not more than two years Less: future finance charges Present value of lease obligations Less: Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months	Minimum lease payments 2008 2007 HK$’000 HK$’000 150 – 338 – 488 – (46) – 442 –	Present value of minimum lease payments 2008 2007 HK$’000 HK$’000 127 – 315 – 442 – – 442 – (127) – 315 –	Present value of minimum lease payments 2008 2007 HK$’000 HK$’000 127 – 315 – 442 – – 442 – (127) – 315 –
			–
			– –
			–

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

– 110 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. Bank borrowings

Bank overdrafts, secured Bank loans, secured The maturity profile of the above loans and overdrafts is as follows: On demand or within one year More than one year, but not exceeding two years More than two years, but not more than five years More than five years Less: Amount due within one year shown under current liabilities Amount due after one year under non-current liabilities	2008 HK$’000 15,023 217,063 232,086 2008 HK$’000 195,253 1,278 4,136 31,419 232,086 (195,253) 36,833	2007 HK$’000 2,066 229,000
		231,066

		2007 HK$’000 231,066 – – –
		231,066 (231,066)
		–

The Group’s bank borrowings of HK$232,086,000 (2007: HK$231,066,000) used to finance the financing business of the Group were secured by:

(a) corporate guarantees from the Company for both years;
(b) marketable securities of the Group’s clients of carrying value of HK$175,432,000 (2007: HK$502,840,000) (with client’s consent);
(c) a charge over the properties to be delivered by the residential property developers (2007: nil); and
(d) pledged deposit of HK$10,744,000 (2007: nil).

In addition, pursuant to a letter of undertaking given by the Group to a bank, the Group covenant to maintain deposits of not less than HK$15,000,000 (2007: HK$15,000,000) with a bank as a condition precedent to an overdraft facility granted by the bank (see note 28).

Bank overdrafts amounting to HK$15,023,000 (2007: HK$2,066,000) carried interest at HIBOR plus a spread. Bank borrowings amounting to HK$217,063,000 (2007: HK$229,000,000) were at variable-rate borrowings which carry interest at HIBOR plus a spread or Hong Kong Prime Rate.

The effective interest rates on the Group’s borrowings are also equal to contracted interest rates.

The Group had undrawn borrowing facility amounting to HK$1,280,000,000 (2007: HK$1,050,936,000) with floating rate and expiring within one year.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. Share capital

Notes Authorised: Ordinary shares of HK$0.10 each at 31 December 2007 and 31 December 2008 Issued and fully paid: At 1 January 2007 Exercise of share options (a) Issue of shares due to rights issue (b) At 31 December 2007 and 1 January 2008 Exercise of share options (a) Share consolidation (c) Ordinary shares of HK$0.50 each Capital reduction (c) Ordinary shares of HK$0.10 each Share repurchases (d) Ordinary shares of HK$0.10 each at 31 December 2008	Number of shares ’000 3,000,000 1,382,051 101,500 593,421 2,076,972 1,203 (1,662,378) 415,797 – 415,797 (4,392) 411,405	Amount HK$’000 300,000

		138,205 10,150 59,342
		207,697 120 –
		207,817 (166,238)
		41,579 (439)
		41,140

Notes:

(a) Exercise of share options

The particulars of options exercised during the year ended 31 December 2008 and 31 December 2007 are set out below:

Date of issue of shares 2008 24 April 2008 15 July 2008 2007 23 April 2007 3 July 2007 4 July 2007 9 July 2007 27 July 2007 7 August 2007 13 August 2007	Number of options exercised and resulting number of shares in issue Exercise price per share HK$ 1,000,000 0.262 203,000 1.310 1,203,000 1,000,000 0.296 8,600,000 0.296 40,100,000 0.296 5,000,000 0.296 9,000,000 0.296 2,600,000 0.296 35,200,000 0.296 101,500,000	Total consideration (before expenses) HK$ 262,000 265,930
		527,930

		296,000 2,545,600 11,869,600 1,480,000 2,664,000 769,600 10,419,200
		30,044,000

All the above shares rank pari passu in all respects with the other shares in issue.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Rights issue

On 21 November 2007, 593,420,579 shares of HK$0.10 each were issued by way of rights issue at a subscription price of HK$0.40 per share. The gross proceeds of approximately HK$237,368,000 were used to support its expanding share margin financing portfolio and to facilitate corresponding growth in its securities brokerage business in line with market development and for general working capital purposes. These shares rank pari passu in all respects with other shares in issue.

Pursuant to a special resolution passed by the shareholders at the annual general meeting of the Company held on 30 April 2008, the Company, with effect from 2 May 2008:

(i) consolidated every 5 issued shares of HK$0.10 each in the issued share capital of the Company to 1 share of HK$0.50 each (“Consolidated Shares”) (“Share Consolidation”);
(ii) reduced the issued share capital by cancelling paid up capital to the extent of HK$0.40 on each of the Consolidated Share in issue (“Capital Reduction”); and
(iii) transferred the amount of paid up capital cancelled arising from the Capital Reduction of approximately HK$166,238,000 to the contributed surplus account.
(d) Repurchase of shares

During the year ended 31 December 2008, the Company repurchased a total of 4,392,000 shares of HK$0.10 each in its own issued share capital on the Stock Exchange for an aggregate consideration of HK$10,904,000 (before expenses). Accordingly, such shares were cancelled and the issued share capital of the Company was reduced by the nominal value of these shares. Further details of the share repurchases are set out in the section headed “Purchase, redemption or sale of listed securities” in the Directors’ report.

33. Derivative financial instruments

The Group through the acquisition of the subsidiaries (see note 36(a)), acquired a number of equity-linked derivative contracts (trading as accumulators) during the year. Under the equity-linked derivative contracts, the Group receives predetermined equity securities at stipulated strike prices on a weekly basis. When the market price of equity securities moves favorable to the Group (i.e. market price above strike price), the Group gets to buy the agreed amount of equity securities at the strike price. However, when the market price moves unfavorable to the Group (i.e. dropped below the strike price), the Group gets to buy 2 times the pre-determined equity securities at strike price. When the market price is above the knock out price, the derivative contract would be terminated (i.e. the profit is capped at the knock out price).

The fair value of derivative financial instruments is determined based on valuation techniques that incorporate market observable data. Such equity-linked derivative contracts are not accounted for using hedge accounting mechanism. They are measured at fair value at each balance sheet date with any gains or losses arising from changes in fair value being recognised in the profit and loss immediately. As at 31 December 2008, there were 5 outstanding equity linked derivative contracts with fair value of HK$3,067,000. All the 5 equity-linked derivative contracts were expired subsequent to the balance sheet date and resulted in a loss of HK$2,982,000, calculated with reference to the equity securities taken up and the difference between the strike price and market price as at the date of taking up.

34. Equity-linked structured deposits

During the year, the Group through the acquisition of the subsidiaries (see note 36(a)), acquired a number of equitylinked structured deposits with contract term of one year from inception date. It is a hybrid instrument which comprises a debt instrument with coupon payments and a put option with the underlying basket of equity securities. The coupon payments were determined based on the market price of the underlying basket of equity securities during the relevant period. According to the terms of the instruments, at maturity, if the market price of the underlying basket of equity securities is above a pre-determined level, the Group would receive par value of the bond and coupon interest. If the market price of the underlying basket of equity securities is below a pre-determined level, the Group would receive the underlying basket of equity securities at the strike price as set out in the instrument. All these equity-linked structured deposits were early redeemed by the Group during the year and there were no outstanding equity-linked structured deposits as at 31 December 2008.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. Major non-cash transactions

In addition to the deferred consideration on disposal of subsidiaries as disclosed in note 37, the Company had the following non-cash transaction:

Pursuant to the agreement entered into between CASH and a third party, the third party agreed to procure its group companies to provide advertising and telecommunication services to CASH and its subsidiaries and associate, including the Group. The fee for these services will be used to offset the prepayments for advertising and telecommunication services which the Group paid. During the year, no advertising and telecommunication services were utilised by the Group (2007: HK$2,233,000).

36. Acquisition of subsidiaries

(a) Subsidiaries of CASH

On 31 July 2008, through the acquisitions of the entire equity interests of two subsidiaries of CASH, Kawoo Finance Limited and Think Right Investments Limited, the Group had, in substance, acquired the following assets and related liabilities, at a total consideration of approximately HK$8,000.

Furniture and fixtures Amounts due from fellow subsidiaries Equity-linked structured deposits Deposits paid to residential property developers Bank balance Bank overdraft Deposits with brokers Derivative financial liabilities Secured bank loans Loan payable Net assets acquired Cash consideration Net cash outflow arising on acquisition: Cash consideration Bank balance acquired Bank overdraft acquired Net cash outflow arising on acquisition of assets and related liabilities	HK$’000 233 334 58,412 63,271 647 (744) (1,556) (20,060) (64,676) (35,853)
	8
	8

	(8) 647 (744)
	(105)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) RACCA Capital Inc. and its subsidiary

On 31 October 2007, the Group, through the acquisition of the remaining equity interests of 66.67% in RACCA Capital Inc. from the other shareholders of RACCA Capital Inc., had in substance, acquired the following assets and related liabilities, at a total consideration of US$2.

Property and equipment Deposits Payable to the Group Bank balance Bank overdraft Net liabilities assumed Impairment loss on amount due from an associate Cash consideration (US$2) Net cash outflow arising on acquisition: Cash consideration (US$2) Bank balance acquired Bank overdraft acquired Net cash inflow arising on acquisition of assets and related liabilities	HK$’000 247 273 (4,632) 38 (1)
	(4,075) 4,075
	–

	– 38 (1)
	37

Net cash inflow arising on acquisition of assets and related liabilities

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. Disposal of subsidiaries

As referred to in note 14, on 1 June 2007, the Group discontinued its online game services operations at the time of disposal of the Netfield Group. At the same time, the Group disposed of the debt due from the Netfield Group to CASH at its carrying amount of HK$102,558,000, details of these disposals were as follows:

Net liabilities disposed of: Property and equipment Intangible assets in relation to online game related intellectual property Domain name Inventories Prepayments, deposits and other receivables Bank balances and cash Accrued liabilities and other payables Amount due to the Company Deferred revenue Bank borrowings Deferred tax liabilities Minority interest Attributable goodwill Release of translation reserve Gain on disposal Debt from the Netfield Group disposed Total consideration Satisfied by: Cash consideration received Deferred consideration Related costs of disposal Net cash outflow arising on disposal: Cash consideration, net of related costs Bank balances and cash disposed of	At 31 May 2007 HK$’000 22,099 10,699 5,460 1,350 28,231 84,939 (59,306) (102,558) (17,969) (1,941) (1,844)
	(30,840) (2,131) 109,945 288
	77,262 41,701 102,558
	221,521

	50,000 172,558 (1,037)
	221,521

	48,963 (84,939)
	(35,976)

The deferred consideration will be settled in cash by the purchaser on or before 1 June 2009.

The impact of the Netfield Group on the Group’s results and cash flows in the prior periods is disclosed in note 14.

– 116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. Share option schemes

(A) Share option schemes of the Company
- (a) New Option Scheme

The Company’s share option scheme (“New Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of the Company held on 22 February 2008, which took effect on 3 March 2008. The New Option Scheme replaces the Option Scheme (to be defined in 38(A)(b) below) with effect from 3 March 2008. During the year, no option has been granted under the New Option Scheme.

The major terms of the New Option Scheme are summarised as follows:

(i) The purpose was to provide incentives to:
award and retain the participants who have made contributions to CASH and its subsidiaries and associates, including the Group (“CASH Group”); or
attract potential candidates to serve the CASH Group for the benefit of the development of the CASH Group.
(ii) The participants included any employees (whether full time or part time), executives and officers (including executive and non-executive directors) and business consultants, agents and legal and financial advisers of the CASH Group.
(iii) The maximum number of shares in respect of which options might be granted under the New Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of the New Option Scheme and such limit might be refreshed by shareholders in general meeting. The maximum number of shares was 41,140,540 shares (as adjusted due to the Share Consolidation and repurchase of shares in 2008), representing 10% of the issued share capital of the Company as at the date of this Annual Report. However, the total maximum number of shares which might be issued upon exercise of all outstanding options granted and yet to be exercised under the New Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time.
(iv) The maximum number of shares in respect of which options might be granted to a participant, when aggregated with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any option granted to the same participant under the New Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.
(v) There was no requirement for a grantee to hold the option for a certain period before exercising the option save as determined by the board of directors of the Company and provided in the offer of grant of option.
(vi) The exercise period should be any period fixed by the board of directors of the Company upon grant of the option but in any event the option period should not go beyond 10 years from the date of offer for grant.
(vii) The acceptance of an option, if accepted, must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee to the Company.
(viii) The exercise price of an option must be the highest of:
the closing price of the shares on the date of grant which day must be a trading day;
the average closing price of the shares for the 5 trading days immediately preceding the date of grant; and
the nominal value of the share.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ix) The life of the New Option Scheme is effective for 10 years from the date of adoption until 21 February 2018.

(b) Option Scheme

Prior to 3 March 2008, the Company’s share option scheme (“Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of the Company held on 19 February 2002. The Option Scheme was replaced by the New Option Scheme with effect from 3 March 2008. The major terms of the Option Scheme are summarised as follows:

(i) The purpose was to provide incentives to:
award and retain the participants who have made contributions to CASH Group; or
attract potential candidates to serve the CASH Group for the benefit of the development of the CASH Group.
(ii) The participants included any employee, director, consultant, adviser or agent of any member of the CASH Group.
(iii) The maximum number of shares in respect of which options might be granted under the Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of the Option Scheme and such limit might be refreshed by shareholders in general meeting. However, the total maximum number of shares which might be issued upon exercise of all outstanding options granted and yet to be exercised under the Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time.
(iv) The maximum number of shares in respect of which options might be granted to a participant, when aggregated with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any option granted to the same participant under the Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.
(v) There was no requirement for a grantee to hold the option for a certain period before exercising the option save as determined by the board of directors of the Company and provided in the offer of grant of option.
(vi) The exercise period should be any period fixed by the board of directors of the Company upon grant of the option but in any event the option period should not go beyond 10 years from the date of offer for grant.
(vii) The acceptance of an option, if accepted, must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee to the Company.
(viii) The exercise price of an option must be the highest of:
the closing price of the shares on the date of grant which day must be a trading day;
the average closing price of the shares for the 5 trading days immediately preceding the date of grant; and
the nominal value of the share.
(ix) The life of the Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

– 118 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table discloses details of the Company’s share options granted under the Option Scheme held by the directors and the employees of the Group and movements in such holdings:

==> picture [342 x 223] intentionally omitted <==

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

Number of options
outstanding
as at
outstanding 31.12.2007 outstanding
Date of Exercise price Exercise as at exercised adjusted on and exercised on lapsed on adjusted on exercised on lapsed on as at
Name of scheme grant per share period Notes 1.1.2007 in 2007 30.10.2007 1.1.2008 24.4.2008 1.5.2008 1.5.2008 15.7.2008 14.11.2008 31.12.2008
HK$ (Note 2) (Note 3) (Note 2) (Note 4) (Note 5) (Note 2) (Note 4)
Directors
Option Scheme 7.7.2006 0.296 7.7.2006– 27,000,000 (27,000,000) – – – – – – – –
31.7.2008
27,000,000 (27,000,000) – – – – – – – –
Employees
Option Scheme 7.7.2006 0.296 7.7.2006– 73,300,000 (73,300,000) – – – – – – – –
31.7.2008
7.7.2006 0.262 7.7.2006– (1), (3) & (5) 6,000,000 (1,200,000) 624,341 5,424,341 (1,000,000) (1,582,100) (2,274,241) (203,000) (252,000) 113,000
(before 4:00 pm 31.7.2010
on 1.5.2008)
1.310
(after 4:00 pm
on 1.5.2008)
79,300,000 (74,500,000) 624,341 5,424,341 (1,000,000) (1,582,100) (2,274,241) (203,000) (252,000) 113,000
106,300,000 (101,500,000) 624,341 5,424,341 (1,000,000) (1,582,100) (2,274,241) (203,000) (252,000) 113,000
----- End of picture text -----

Notes:

(1) The options are vested in 4 tranches as to (i) 25% exercisable from the commencement of the exercise period; (ii) 25% exercisable from the expiry of 12 months from the commencement of the exercise period; (iii) 25% exercisable from the expiry of 24 months from the commencement of the exercise period; and (iv) 25% exercisable from the expiry of 36 months from the commencement of the exercise period.
(2) The number of options exercised during the year together with the exercise price and the weighted average preceding closing price are set out as follows:

			Weighted
	Number of		average
	options	Exercise price	preceding
Date of exercise	exercised	per share	closing price
		HK$	HK$
			(Note)
23 April 2007	1,000,000	0.296	0.355
3 July 2007	8,600,000	0.296	0.690
4 July 2007	40,100,000	0.296	0.640
9 July 2007	5,000,000	0.296	0.690
17 July 2007	9,000,000	0.296	0.770
7 August 2007	2,600,000	0.296	0.670
13 August 2007	35,200,000	0.296	0.720
24 April 2008	1,000,000	0.262	3.034
15 July 2008	203,000	1.310	2.993

Note:

This represents the weighted average closing price of the Company’s shares immediately before the date of exercise.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(3) The number and the exercise price of options which remained outstanding have been adjusted due to rights issue of shares in the Company with effect from 30 October 2007. The exercise prices per share were adjusted from HK$0.296 to HK$0.262.
(4) The lapsed options were due to expiry or cessation of employment of participants with the Group.
(5) The number and the exercise price of options which remained outstanding have been adjusted due to share consolidation of the Company with effect from 4:00 pm on 1 May 2008. The exercise price was adjusted from HK$0.262 to HK$1.310.

There were no options granted for the years ended 31 December 2008 and 2007. No such related expense was charged to consolidated income statement for both years ended 31 December 2008 and 2007.

(B) Share option scheme of CASH

Pursuant to an ordinary resolution passed at the special general meeting of CASH held on 19 February 2002, CASH adopted a share option scheme (“CASH Option Scheme”). The major terms of the CASH Option Scheme are summarised as follows:

(i) The purpose was to provide incentives to:
award and retain the participants who have made contributions to the CASH Group; or
attract potential candidates to serve the CASH Group for the benefit of the development of the CASH Group.
(ii) The participants included any employee, director, consultant, adviser or agent of any member of the CASH Group.
(iii) The maximum number of shares in respect of which options might be granted under the CASH Option Scheme must not exceeded 10% of the issued share capital of CASH as at the date of approval of the CASH Option Scheme and such limit might be refreshed by shareholders in general meeting. However, the total maximum number of shares which might be issued upon exercise of all outstanding options granted and yet to be exercised under the CASH Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time.
(iv) The maximum number of shares in respect of which options might be granted to a participant, when aggregated with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any option granted to the same participant under the CASH Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.
(v) There was no requirement for a grantee to hold the option for a certain period before exercising the option save as determined by the board of directors of CASH and provided in the offer of grant of option.
(vi) The exercise period should be any period fixed by the board of directors of CASH upon grant of the option but in any event the option period should not go beyond 10 years from the date of offer for grant.
(vii) The acceptance of an option, if accepted, must be made within 28 days from the date of grant with a nonrefundable payment of HK$1.00 from the grantee to CASH.
(viii) The exercise price of an option must be the highest of:
the closing price of the shares on the date of grant which day must be a trading day;
the average closing price of the shares for the 5 trading days immediately preceding the date of grant; and
the nominal value of the share.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ix) The life of the CASH Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

The following table discloses details of the share options granted by CASH and held by the directors and employees of the Group and movements in such holdings:

			Number of options	Number of options
outstanding as at 1.1.2007 12,000,000 – 12,000,000 20,000,000 – – 20,000,000 32,000,000	granted in 2007 – 14,000,000 14,000,000 – 11,700,000 28,300,000 40,000,000 54,000,000	exercised in 2007 – – – (12,000,000) (4,000,000) – (16,000,000) (16,000,000)	outstanding as at 31.12.2007 12,000,000 14,000,000 26,000,000 8,000,000 7,700,000 28,300,000 44,000,000 70,000,000	adjusted on 6.6.2008 (Note 1) (9,600,000) (11,200,000) (20,800,000) (6,400,000) (6,160,000) (22,640,000) (35,200,000) (56,000,000)	lapsed in 2008 (2,400,000) – (2,400,000) (1,600,000) – – (1,600,000) (4,000,000)	outstanding as at 31.12.2008 – 2,800,000
						2,800,000
						– 1,540,000 5,660,000
						7,200,000
						10,000,000

Notes:

(1) The number and the exercise price of options which remained outstanding have been adjusted due to share consolidation of CASH with effect from 6 June 2008.
(2) No equity-settled share-based payments were recognised by the Group as the options were granted by CASH to these directors and employees of the Group for their services rendered to CASH.

39. Retirement benefits schemes

The Group operates a Mandatory Provident Fund Scheme (“MPF Scheme”) under the rules and regulations of Mandatory Provident Fund Schemes Ordinance for all its employees in Hong Kong and terminated the defined contribution pension scheme (“Old Scheme”) on 1 December 2000. All the employees of the Group in Hong Kong are required to join the MPF Scheme. In respect of those employees who leave the Group prior to completion of qualifying service period for the employer’s voluntary contributions (represents contributions in excess of the mandatory requirements under the Mandatory Provident Fund Schemes Ordinance plus all the assets transferred from the Old Scheme) become fully vested, the relevant portion of the voluntary contributions forfeited will be reverted to the Group. Contributions are made based on a percentage of the employees’ salaries and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administrated fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

For the years ended 31 December 2008 and 2007, no forfeited voluntary contributions to the retirement benefits scheme was credited to the consolidated income statement.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group operates various benefits schemes for its full-time employees in the PRC in accordance with the relevant the PRC regulations and rules, including provision of housing provident fund, medical insurance, retirement insurance, unemployment insurance, labour injury insurance and pregnancy insurance. Pursuant to the existing schemes, the Group contributes 7%, 5%, 17%, 2%, 0.5% and 0.5% of the basic salary of its employees to the housing provident fund, medical insurance, retirement insurance, unemployment insurance, labour injury and pregnancy insurance respectively.

40. Related party transactions

Other than as disclosed in notes 22, 26, 36(a) and 37, where the Group acquired Kawoo Finance Limited and Think Right Investments Limited from CASH and disposed of its subsidiaries, Netfield Group, to CASH respectively, the Group had the following transactions with related parties:

Notes Commission and interest income received from the following wholly-owned subsidiaries of CASH Kawoo Finance Limited (a) Libra Capital Management (HK) Limited (formerly known as E-Tailer Holding Limited) (b) Commission and interest income received from the following substantial shareholders of CASH (c) Cash Guardian Limited Mr Kwan Pak Hoo Bankee and associates Commission and interest income received from substantial shareholder (d) Commission and interest income received from the following directors of the Company (e) Mr Law Ping Wah Bernard and associates Mr Cheng Man Pan Ben and associates Mr Chan Chi Ming Benson and associates Mr Yuen Pak Lau Raymond and associates Mr Wong Kin Yick Kenneth and associates (l) Commission and interest income received from director of CASH (f) Mr Lin Che Chu George and associates Placing agent commission received from CASH (g) Financial advisory service fee received from CASH (h) Interest income received from CASH for amounts receivable on disposal of subsidiaries (i) Proceeds received from CASH on disposal of membership (j) Deposit paid to CASH for the acquisition of fellow subsidiaries (k) Rental expense paid to an associate (m)	2008 HK$’000 1,607 29 1,636 3 67 70 86 36 33 – 13 104 186 8 – – 8,795 500 60,000 4,749	2007 HK$’000 2,473 –
		2,473
		263 421
		684
		16,570
		477 222 3 – 542
		1,244
		386 2,632 300 7,567 – – –

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) The Group received commission and interest from margin financing of approximately HK$1,607,000 (2007: HK$2,473,000) from Kawoo Finance Limited before the acquisition of it on 31 July 2008. Details are disclosed in note 36(a).
(b) During the year ended 31 December 2008, the Group received commission and interest from margin financing of approximately HK$29,000 (2007: nil) from Libra Capital Management (HK) Limited (formerly known as E-Tailer Holding Limited), a wholly-owned subsidiary of CASH.
(c) During the year ended 31 December 2008, the Group received commission and interest income from margin financing of approximately HK$70,000 (2007: HK$684,000) from substantial shareholders of CASH.
(d) During the year ended 31 December 2008, the Group received commission and interest from margin financing of approximately HK$86,000 (2007: HK$16,570,000) from a substantial shareholder of the Company.
(e) During the year ended 31 December 2008, the Group received commission and interest from margin financing of approximately HK$186,000 (2007: HK$1,244,000) from certain directors of the Company.
(f) During the year ended 31 December 2008, the Group received commission and interest from margin financing of approximately HK$8,000 (2007: HK$386,000) from a director of CASH.
(g) During the year ended 31 December 2007, the Group received placing agent commission fee of approximately HK$2,632,000 from CASH. The fee was calculated at 1% on the total proceeds from the placement received by CASH.
(h) During the year ended 31 December 2007, the Group received financial advisory service fee of approximately HK$300,000 from CASH.
(i) During the year ended 31 December 2008, the Group received interest income of HK$8,795,000 (2007: HK$7,567,000) from CASH for the amounts receivable on disposal of subsidiaries. The interest was calculated at Hong Kong Prime Rate.
(j) During the year ended 31 December 2008, the Group received HK$500,000 from CASH for the disposal of membership and recorded a loss of HK$830,000.
(k) During the year ended 31 December 2008, the Group placed a deposit of HK$60,000,000 at CASH for the acquisition of fellow subsidiaries (see note 22).
(l) During the year ended 31 December 2008, Mr Wong Kin Yick Kenneth resigned as executive directors of both the Company and CASH.
(m) During the year ended 31 December 2008, the Group paid rental expense of approximately HK$4,749,000 (2007: HK$nil) to an associate.

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APPENDIX I

Compensation of key management personnel

The compensation of key management personal represents the director’s remuneration as follows:

Short-term employee benefits Post-employment benefits	2008 HK$’000 6,882 331 7,213	2007 HK$’000 5,379 206
		5,585

The remuneration of directors is determined by the performance of individuals and market trends.

41. Capital commitment

	2008	2007
	HK$’000	HK$’000
Capital expenditure contracted for but not provided
in the financial statements in respect of the acquisition of
property and equipment	–	11,560

42. Operating lease commitments

At each of the balance sheet dates, the Group had commitments for future minimum lease payments under noncancellable operating leases in respect of land and buildings which fall due as follows:

Within one year In the second to fifth year inclusive	2008 HK$’000 30,754 26,021 56,775	2007 HK$’000 23,620 21,029
		44,649

Operating lease payments represent rentals payable by the Group for its office premises. Leases are mainly negotiated for an average term of three years and rentals are fixed for an average of three years.

43. Post balance sheet events

(a) Pursuant to the announcement dated 18 February 2009, the Group entered into an agreement to purchase the remaining equity interests of 30% of in CASH Frederick Taylor Limited (“CFT”) from the minority shareholders at total consideration of HK$1,400,000. Upon completion on 20 February 2009, CFT has been changed from a 70% non-wholly-owned subsidiary to a wholly-owned subsidiary of the Group.
(b) Pursuant to the announcement dated 20 February 2009, the Company proposed a rights issue on the basis of 1 rights share for every 2 shares at a subscription price HK$0.45. Under the proposal, there will be no more than 205,702,702 new shares to be issued for raising approximately HK$92.6 million (before expenses). The rights issue is expected to be completed on 17 April 2009.
(c) Pursuant to the announcement dated 19 December 2008, a special general meeting will be convened to consider the approval of the proposed acquisition of the Retail Group from CASH by the Company (see note 22 for details).

– 124 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

44. Particulars of principal subsidiaries of the company

			Proportion of
			nominal value of
	Place of	Paid up issued	issued share capital
Name	incorporation	share capital	held by the Company		Principal activities
			2008	2007
			%	%
CASH Asset Management Limited	Hong Kong	Ordinary	100	100	Provision of asset
		HK$200,000			management services
CASH E-Trade Limited	Hong Kong	Ordinary	100	100	Provision of management
		HK$4,000,000			services for group
					companies
CASH Frederick Taylor Limited	Hong Kong	Ordinary	70	70	Financial advisory
		HK$1,000,000			consultancy
CASH Payment Services Limited	Hong Kong	Ordinary	100	100	Provision of payment
		HK$2			gateway services
Celestial Capital Limited	Hong Kong	Ordinary	100	100	Provision of corporate
		HK$27,000,000			finance, investment
					and financial advisory
					services
Celestial Commodities Limited	Hong Kong	Ordinary	100	100	Futures and options broking
		HK$10,000,000			and trading
Celestial Investments (HK) Limited	Hong Kong	Ordinary	100	100	Money lending
		HK$10,000,000
Celestial Securities Limited	Hong Kong	Ordinary	100	100	Securities, equity options
		HK$140,000,000			broking and trading,
					leveraged foreign
					exchange contracts
icoupon Limited	British Virgin	Ordinary	100	100	Investment holding and
	Islands	US$1			trading
Linkup Assets Management Limited	British Virgin	Ordinary	100	100	Investment holding and
	Islands	US$1			trading
Kawoo Finance Limited	British Virgin	Ordinary	100	–	Investment holding and
	Islands	US$2			trading
Think Right Investments Limited	British Virgin	Ordinary	100	–	Properties holding
	Islands	US$1

CASH E-Trade Limited is directly held by the Company. All other subsidiaries shown above are indirectly held by the Company.

The above table lists the subsidiaries of the Group which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, resulted in particulars of excessive length.

– 125 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

45. Summarised balance sheet of the company

Assets Investments in subsidiaries Amounts receivable on disposal of subsidiaries Amounts due from subsidiaries Bank balances (general accounts) Deposit and other receivables Liabilities Accrued liabilities and other payables Amounts due to subsidiaries Net asset Capital and reserves Share capital Reserves Total equity	2008 HK$’000 477,108 171,498 132,065 121 60,043 840,835 6,265 323,273 329,538 511,297 41,140 470,157 511,297	2007 HK$’000 472,277 162,703 300,203 543 –
		935,726
		6,483 323,273
		329,756
		605,970 207,697 398,273
		605,970

– 126 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 31 March 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had the following indebtedness:

Borrowings

As at 31 March 2009, the Enlarged Group had total outstanding borrowings of approximately HK$356.9 million, comprising bank loans of HK$187.0 million, trust receipt loans of HK$78.0 million, mortgage loans of HK$37.8 million, an unsecured bank overdraft of HK$26.7 million and an unsecured loan of HK$27.4 million from a minority shareholder of one of its subsidiaries. Bank loans in aggregate of HK$52.0 million were collateralised by its margin clients’ securities pledged to the Enlarged Group. Trust receipt loans in aggregate of HK$78.0 million were secured by pledged deposits of HK$53.5 million and the Enlarged Group’s building and prepaid lease payment with a total carrying amount of approximately HK$43.7 million. Mortgage loans in aggregate of HK$37.8 million were secured by the Enlarged Group’s deposits paid for purchase of property and equipment with a total carrying amount of approximately HK$63.3 million. The Enlarged Group had an unsecured syndicated bank loan of HK$105.0 million (which is unguaranteed on the Enlarged Group basis) as well as unsecured bank loans of HK$30.0 million.

As at 31 March 2009, bank deposits with an aggregate amount of approximately HK$54.3 million were pledged as collateral for a bank loan and trust receipt loan facilities granted by banks to the Enlarged Group. Another deposit of HK$0.2 million was pledged to facilitate a bank guarantee for a rental deposit. A further deposit of HK$9.1 million was pledged to facilitate a standby letter of credit facility granted by a bank to an associate of the Company. In addition, pursuant to a letter of undertaking provided by the Enlarged Group to a bank, the Enlarged Group undertakes to maintain deposits of not less than HK$15.0 million with the bank as a pre-condition for an overdraft facility of HK$15.0 million granted by this bank. Accordingly, a bank deposit of approximately HK$17.1 million was held for this purpose. Therefore, total bank deposits subject to conditions were approximately HK$80.7 million as at 31 March 2009.

In addition, the Enlarged Group had an outstanding obligation under a finance lease of approximately HK$0.4 million as at 31 March 2009.

Contingent liabilities

As at 31 March 2009, the Enlarged Group had litigations/claims as disclosed in the paragraph “Litigation” in Appendix IV to this circular.

Save as aforesaid, the Enlarged Group had no other material contingent liabilities as at 31 March 2009.

– 127 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Disclaimers

Save as aforesaid, and apart from intra-group liabilities, the Enlarged Group did not have any outstanding debt securities issued and outstanding, and authorised or otherwise created but unissued, term loans, bank overdrafts and loans, other loans or other similar indebtedness, liabilities under acceptance or acceptable credits, debentures, mortgages, charges, hire purchases commitments, guarantee or other material contingent liabilities, at the close of business on 31 March 2009.

The Board has confirmed that, save as disclosed above, there has not been any material change in the indebtedness or contingent liabilities of the Enlarged Group since 31 March 2009.

3. LIQUIDITY, FOREIGN CURRENCY AND CAPITAL COMMITMENTS

Liquidity ratio

As at 31 December 2008, the Group’s cash and bank balances were HK$752.5 million. Our liquidity ratio was 1.4 times on 31 December 2008. Our gearing ratio, which was calculated based on the total borrowings of the Group divided by the total Shareholders’ equity, was approximately 0.38 time on 31 December 2008.

Capital commitments

Save as the balance of the final Consideration of HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group as at the date of the First Completion) to be settled by the issue of the Convertible Note(s) by the Company, the Group did not have any material capital commitment as at 31 March 2009.

Foreign exchange risk

All of the Group’s borrowings and cash and cash equivalents held are mainly in HK dollar, with the interest rates priced at close to banks’ funding costs, as a result, our exposure to both foreign currency and interest rate fluctuation was insignificant. As at 31 March 2009, the Group did not have any material un-hedged foreign exchange or interest rate exposure.

4. WORKING CAPITAL

The Directors are of the opinion that taking into account the financial resources and banking facilities available to the Enlarged Group and its internally generated funds, the Enlarged Group has sufficient working capital for its present requirements for the next twelve months from the date of this circular.

5. MATERIAL ADVERSE CHANGES

The Directors has confirmed that, at the Latest Practicable Date, there is no material adverse change in the financial or trading position of the Group since 31 December 2008, the date to which the latest published audited financial statements of the Group were made up.

– 128 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

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

==> picture [75 x 58] intentionally omitted <==

==> picture [80 x 38] intentionally omitted <==

26 May 2009

The Directors CASH Financial Services Group Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding CASH Retail Management (HK) Limited (“CRM(HK)”) and its subsidiaries (hereinafter collectively referred to as the “Retail Group”) for each of the three years ended 31 December 2008 (“Relevant Periods”) for inclusion in a circular issued by CASH Financial Services Group Limited (“Company” together with its subsidiaries, “Group”) dated 26 May 2009 (“Circular”) in connection with the very substantial acquisition and connected transaction in respect of the proposed acquisition of the Retail Group.

CRM(HK) was incorporated in the British Virgin Islands (“BVI”) on 11 May 2005 and acts as an investment holding company.

As at the date of this report, CRM(HK) has direct and indirect interest in the subsidiaries as follows.

			Proportion of	Proportion of
	Place		nominal	value of
	and date of	Registered	registered capital
	incorporation/	and fully	held by CRM(HK)
Name of subsidiary	establishment	paid capital	Directly	Indirectly	Principal activities
3C Electrical Appliances Limited	Hong Kong	HK$1	100%	–	Retailing of electrical
(note a)	17 June 2005				appliances
Celestial IT Investments Limited	BVI	US$2	100%	–	Inactive
(note b)	6 January 2000
Pricerite.com.hk Limited (note a)	Hong Kong	HK$2	100%	–	Retailing of furniture and
	10 May 1988				household goods through
					corporate sales

– 129 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

			Proportion of	Proportion of
	Place		nominal value of
	and date of	Registered	registered capital
	incorporation/	and fully	held by CRM(HK)
Name of subsidiary	establishment	paid capital	Directly	Indirectly	Principal activities
Pricerite Development Limited	Hong Kong	HK$2	100%	–	Inactive
(note a)	27 June 2001
Pricerite Marketing Limited (note a)	Hong Kong	HK$2	100%	–	Holding of equipment
	19 May 2000
Pricerite SA (HK) Limited (note a)	Hong Kong	HK$2	–	100%	Inactive
	26 August 1988
Pricerite Stores Limited (note a)	Hong Kong	HK$200,000,000	100%	–	Retailing of furniture
	10 October 1986				and household goods
Richwell Target Limited (note a)	Hong Kong	HK$2	100%	–	Property holding
	27 July 1995
深圳市品致生活家居用品有限公司	The People’s	RMB3,500,000	–	–	Sourcing services company
(note c, d and e)	Republic of China		(note e)
	(the “PRC”)
	28 November 2003

Notes:

(a) We have acted as auditor of these companies for each of the Relevant Periods. Audited financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).
(b) No audited financial statements have been prepared for the Company, which was incorporated in a country where there was no statutory audit requirement.
(c) The statutory financial statements for each of the Relevant Periods were audited by 深圳誠華會計師事務所 (Shenzhen ChengHua Certified Public Accountants).
(d) Audited financial statements of this company were prepared in accordance with the relevant accounting principles and financial regulations applicable in the PRC.
(e) The Retail Group controls this entity under a trust arrangement which is legally enforceable in the PRC. The Retail Group is able to control the voting power at all general meeting of this company. Accordingly, 深圳市品致生活家居用品有限公司was accounted for as a subsidiary of CRM(HK).

– 130 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

We audited the consolidated financial statements of the Retail Group (“Underlying Financial Statements”) for the Relevant Periods, which were prepared in accordance with HKFRSs.

We have examined the Underlying Financial Statements for the Relevant Periods in accordance with the Auditing Guideline 3.340 “Prospectus and the Reporting Accountant” as recommended by HKICPA.

The Financial Information of the Retail Group for the Relevant Periods set out in this report has been prepared based on the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustments were considered necessary to adjust the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The directors of CRM(HK) are responsible for the Underlying Financial Statements and the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of the Retail Group as at 31 December 2006, 2007 and 2008 and of the consolidated results and cash flows of the Retail Group for the Relevant Periods.

– 131 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

(A) FINANCIAL INFORMATION

Consolidated income statements

NOTES Continuing operations Revenue 6 Cost of sales Gross profit Other income Selling and distribution costs Administrative expenses Finance costs 8 Profit before taxation Taxation charge 11 Profit for the year from continuing operations Discontinued operations Loss for the year from discontinued operations 12 (Loss) profit for the year 13	Year 2006 HK$’000 763,233 (478,011) 285,222 5,343 (228,735) (52,678) (4,108) 5,044 – 5,044 (79,737) (74,693)	ended 31 December 2007 2008 HK$’000 HK$’000 773,264 863,997 (437,508) (491,172 335,756 372,825 5,763 7,621 (241,415) (277,624 (65,223) (63,662 (4,775) (3,226 30,106 35,934 – (4,900 30,106 31,034 (61,810) – (31,704) 31,034	ended 31 December 2007 2008 HK$’000 HK$’000 773,264 863,997 (437,508) (491,172 335,756 372,825 5,763 7,621 (241,415) (277,624 (65,223) (63,662 (4,775) (3,226 30,106 35,934 – (4,900 30,106 31,034 (61,810) – (31,704) 31,034
			372,825 7,621 (277,624 (63,662 (3,226
			35,934 (4,900
			31,034 –
			31,034

– 132 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Consolidated balance sheets

NOTES Non-current assets Property and equipment 14 Prepaid lease payments 15 Deferred tax assets 11 Current assets Inventories 16 Accounts receivable 17 Prepayments, deposits and other receivables 18 Amounts due from fellow subsidiaries 18 Pledged bank deposits 18 Bank balances and cash 18 Current liabilities Accounts payable 19 Accrued liabilities and other payables Taxation payable Amounts due to fellow subsidiaries 19 Borrowings – amount due within one year 20 Net current liabilities Net assets (liabilities) Capital and reserves Share capital 21 Reserves Non-current liability Borrowings – amount due after one year 20	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 58,520 55,641 45,928 16,378 15,963 15,548 – – 2,000 74,898 71,604 63,476 48,950 39,693 38,407 460 408 – 30,289 36,204 34,479 52,526 103,186 51,006 50,262 51,816 54,030 75,606 36,674 37,786 258,093 267,981 215,708 139,965 125,775 97,528 40,334 44,893 28,489 200 200 2,031 12,506 92,365 34,618 105,460 77,634 79,066 298,465 340,867 241,732 (40,372) (72,886) (26,024 34,526 (1,282) 37,452 – – – 29,896 (1,282) 37,452 29,896 (1,282) 37,452 4,630 – – 34,526 (1,282) 37,452	As at 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 58,520 55,641 45,928 16,378 15,963 15,548 – – 2,000 74,898 71,604 63,476 48,950 39,693 38,407 460 408 – 30,289 36,204 34,479 52,526 103,186 51,006 50,262 51,816 54,030 75,606 36,674 37,786 258,093 267,981 215,708 139,965 125,775 97,528 40,334 44,893 28,489 200 200 2,031 12,506 92,365 34,618 105,460 77,634 79,066 298,465 340,867 241,732 (40,372) (72,886) (26,024 34,526 (1,282) 37,452 – – – 29,896 (1,282) 37,452 29,896 (1,282) 37,452 4,630 – – 34,526 (1,282) 37,452
		63,476
		38,407 – 34,479 51,006 54,030 37,786
		215,708
		97,528 28,489 2,031 34,618 79,066
		241,732
		(26,024
		37,452

		– 37,452
		37,452 –
		37,452

– 133 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Consolidated statements of changes in equity

At 1 January 2006 Deemed contribution from the former immediate holding company (Note (b)) Loss for the year At 31 December 2006 and 1 January 2007 Exchange difference arising from translation Loss for the year At 31 December 2007 and 1 January 2008 Exchange difference arising from translation Profit for the year Deemed contribution arising on disposal of subsidiaries (see note 22(ii)) At 31 December 2008	Share capital HK$’000 – – – – – – – – – – –	Other reserve HK$’000 (Note (a)) 6,601 – – 6,601 – – 6,601 – – – 6,601	Translation reserve HK$’000 – – – – 526 – 526 122 – – 648	Shareholder contribution Accumulated losses HK$’000 HK$’000 36,113 (285,620) 347,495 – – (74,693) 383,608 (360,313) – – – (31,704) 383,608 (392,017) – – – 31,034 7,578 – 391,186 (360,983)	Total HK$’000 (242,906)
					347,495 (74,693)
					29,896
					526 (31,704)
					(1,282)
					122 31,034 7,578
					37,452

Notes:

(a) Other reserve is arisen from the reorganisation on 30 November 2005.

(b) The deemed contribution represents the waiver of CRM(HK)’s amount due to Oriental Ginza Holdings Limited, the former immediate holding company of CRM(HK).

– 134 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Consolidated cash flow statements

Operating activities (Loss) profit before taxation Adjustments for: Amortisation of prepaid lease payments Depreciation of property and equipment Allowance for inventory obsolescence and write-off of inventories Impairment loss recognised in respect of property and equipment Interest expense Interest income (Gain) loss on disposal of property and equipment Revaluation deficit on buildings Operating cashflow before movements in working capital (Increase) decrease in inventories Decrease (increase) in accounts receivable Decrease (increase) in prepayments, deposits and other receivables Decrease in held-for-trading investments Decrease in accounts payable Increase (decrease) in accrued liabilities and other payables Net cash (used in) from operations Income taxes paid Net cash (used in) from operating activities	Year 2006 HK$’000 (74,693) 207 28,810 4,860 5,951 4,168 (2,721) (4,402) – (37,820) (5,947) 778 36,327 4,106 (11,459) 4,781 (9,234) – (9,234)	ended 31 December 2007 2008 HK$’000 HK$’000 (31,704) 35,934 415 415 23,971 16,362 8,281 2,044 1,472 – 5,333 3,226 (2,641) (942 (15) 187 – 1,388 5,112 58,614 976 (5,976 52 (52 (5,915) (7,110 – – (14,190) (2,399 4,559 (10,511 (9,406) 32,566 – (5,069 (9,406) 27,497	ended 31 December 2007 2008 HK$’000 HK$’000 (31,704) 35,934 415 415 23,971 16,362 8,281 2,044 1,472 – 5,333 3,226 (2,641) (942 (15) 187 – 1,388 5,112 58,614 976 (5,976 52 (52 (5,915) (7,110 – – (14,190) (2,399 4,559 (10,511 (9,406) 32,566 – (5,069 (9,406) 27,497
			58,614 (5,976 (52 (7,110 – (2,399 (10,511
			32,566 (5,069
			27,497

– 135 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Investing activities Interest income Addition in prepaid lease payments Purchase of club membership Disposal of subsidiaries 22 Proceeds from disposal of property and equipment Purchase of property and equipment Increase in pledged bank deposits (Advance to) repayment from fellow subsidiaries Repayment from ultimate holding company Net cash used in investing activities Financing activities New loans raised Repayment of borrowings Advance from (repayment to) fellow subsidiaries Interest paid on bank and other loans Net cash from (used in) financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes Cash and cash equivalents at end of year Being: Bank balances and cash NOTE	2,721 (17,000) (1,330) 736 9,802 (48,381) (11,362) (50,826) 49,242 (66,398) 239,712 (191,719) 11,491 (4,168) 55,316 (20,316) 95,922 – 75,606 75,606 Year 2006 HK$’000	2,641 942 – – – – – (6,663 15 – (22,491) (13,586 (1,554) (2,214 (50,660) 1,014 – – (72,049) (20,507 265,508 286,845 (297,964) (283,733 79,859 (5,803 (5,333) (3,226 42,070 (5,917 (39,385) 1,073 75,606 36,674 453 39 36,674 37,786 36,674 37,786 ended 31 December 2007 2008 HK$’000 HK$’000	2,641 942 – – – – – (6,663 15 – (22,491) (13,586 (1,554) (2,214 (50,660) 1,014 – – (72,049) (20,507 265,508 286,845 (297,964) (283,733 79,859 (5,803 (5,333) (3,226 42,070 (5,917 (39,385) 1,073 75,606 36,674 453 39 36,674 37,786 36,674 37,786 ended 31 December 2007 2008 HK$’000 HK$’000
			(20,507
			286,845 (283,733 (5,803 (3,226
			(5,917
			1,073 36,674 39
			37,786

			37,786

– 136 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Notes to financial information

1. General

CRM(HK) is incorporated in the BVI on 11 May 2005. The address of the registered office is PO Box 957, offshore Incorporations Centre, Road Town, Tortola, the BVI and principal place of business of CRM(HK) is 28/F Manhanttan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong.

The Financial Information is presented in Hong Kong dollars, which is the same as the functional currency of CRM(HK).

CRM(HK)’s ultimate holding company is Celestial Asia Securities Holdings Limited (“CASH”), a company incorporated in Bermuda as an exempted company with limited liability under the Companies Act 1981 of Bermuda (as amended) and its shares are listed on The Stock Exchange of Hong Kong Limited.

2. Application of Hong Kong Financial Reporting Standards (“HKFRSs”)

For the purpose of preparing and presenting the Financial Information for the Relevant Periods, the Retail Group has consistently applied HKFRSs, Hong Kong Accounting Standards (“HKAS(s)”) amendments and interpretations (“INT”) issued by the HKICPA that are effective for annual accounting periods beginning on 1 January 2008.

The Retail Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments)	Improvements to HKFRSs1
HKFRSs (Amendments)	Improvements to HKFRSs 20092
HKAS 1 (Revised)	Presentation of financial statements3
HKAS 23 (Revised)	Borrowing costs3
HKAS 27 (Revised)	Consolidated and separate financial statements4
HKAS 32 & 1 (Amendments)	Puttable financial instruments and obligations arising on liquidation3
HKAS 39 (Amendment)	Eligible hedged items4
HKFRS 1	First-time adoption of financial reporting standards4
HKFRS 1 & HKAS 27 (Amendments)	Cost of an investment in a subsidiary, jointly controlled entity or
	associate3
HKFRS 2 (Amendment)	Vesting conditions and cancellations3
HKFRS 3 (Revised)	Business combinations4
HKFRS 7 (Amendment)	Improving disclosures about financial instruments3
HKFRS 8	Operating segments3
HK(IFRIC) – INT 9 & HKAS 39	Embedded derivatives5
(Amendments)
HK(IFRIC) – INT 13	Customer loyalty programmes6
HK(IFRIC) – INT 15	Agreements for the construction of real estate3
HK(IFRIC) – INT 16	Hedges of a net investment in a foreign operation7
HK(IFRIC) – INT 17	Distribution of non-cash assets to owners4
HK(IFRIC) – INT 18	Transfer of assets from customers8

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009.

2 Effective for annual periods beginning on or after 1 January 2009, 1 July 2009 and 1 January 2010, as appropriate.

3 Effective for annual periods beginning on or after 1 January 2009.

4 Effective for annual periods beginning on or after 1 July 2009.

5 Effective for annual periods ending on or after 30 June 2009.

6 Effective for annual periods beginning on or after 1 July 2008.

7 Effective for annual periods beginning on or after 1 October 2008.

8 Effective for transfers on or after 1 July 2009.

The application of HKFRS 3 (Revised) may affect the Retail Group’s accounting for business combination for which the acquisition date is on or after 1 January 2010. HKAS 27 (Revised) will affect the accounting treatment on changes in the Retail Group’s ownership interest in a subsidiary. The Directors of CRM(HK) anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Retail Group.

– 137 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

3. Significant accounting policies

The Financial Information has been prepared on the historical cost basis except for certain properties, which are measured at fair value, as explained in the accounting policies set out below.

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

Basis of consolidation

The Financial Information incorporates the financial statements of CRM(HK) and entities controlled by CRM(HK) (its subsidiaries). Control is achieved where CRM(HK) has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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

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

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and sales related taxes.

Sales of goods are recognised when goods are delivered and title has passed.

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

Property and equipment

Property and equipment are stated at cost or revaluation less subsequent accumulated depreciation and accumulated impairment losses.

Buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the consolidated balance sheet at their revalued amounts, being the fair value at the date of revaluation less any subsequent accumulated depreciation and any subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet dates.

Any revaluation increase arising on revaluation of buildings is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the consolidated income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of an asset is dealt with as an expense to the extent that exceeds the balance, if any, on the revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to accumulated losses.

Depreciation is provided to write off the cost or revaluation of items of property and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Leasing

The Retail Group as lessee

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis. Contingent rents is determined with reference to the turnover generated by respective shops using the predetermined formulae and is recognized in the consolidated income statement when relevant turnover is recognised.

Foreign currencies

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

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

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

Retirement benefit costs

Payments to defined contribution retirement benefit plan/state-managed retirement benefit schemes the Mandatory Provident Fund Scheme are charged as an expenses when employees have rendered service entitling them to the contributions.

Borrowing costs

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

Taxation

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

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

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the Financial Information and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

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

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

Inventories

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

Impairment losses

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

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

Financial instruments

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

Financial assets

The Retail Group’s financial assets are classified into loans and receivables. The accounting policies adopted is set out below.

Effective interest method

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including accounts receivable, deposits and other receivables, amounts due from fellow subsidiaries, pledged bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at each balance sheet date. Loans and receivables are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the loans and receivables have been impacted. Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as accounts receivable, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include Group’s past experience of collecting payments and observable changes in national or local economic conditions that correlate with default on receivables.

An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the loans and receivables is reduced by the impairment loss directly for all financial assets with the exception of accounts receivable, other receivables and amounts due from fellow subsidiaries where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When the accounts receivable, other receivables and amounts due from fellow subsidiaries are considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

If in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

An equity instrument is any contract that evidences a residual interest in the assets of the Retail Group after deducting all of its liabilities.

Effective interest method

Financial liabilities

Financial liabilities including accounts payable, other payables, amounts due to fellow subsidiaries and borrowings are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by CRM(HK) are recorded at the proceeds received, net of direct issue costs.

Derecognition

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

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

4. Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Income taxes

No deferred tax asset was recognised in the Retail Group’s consolidated balance sheet in relation to the unused tax losses of approximately HK$209,611,000, HK$214,822,000 and HK$25,252,000 and deductible temporary difference in respect of accelerated accounting depreciation of HK$11,618,000, HK$20,908,000 and HK$1,408,000 as at 31 December 2006, 2007 and 2008 respectively available to offset against future profits. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In case where the actual future profits generated are more than expected, further recognition of deferred tax asset in relation to unutilised tax losses may arise, which would be recognised in the consolidated income statement for the period in which such a recognition takes place.

Impairment of property and equipment

Determining whether property and equipment are impaired requires an estimation of the value in use of the items of respective retail shops. The value in use calculation requires the Retail Group to estimate the future cash flows expected to arise from the items of respective retail shops, a suitable discount rate in order to calculate the present value. The discount rate represents rate that reflects current market assessments of time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. When the actual future cash flows and less than expected, a material impairment loss may arise. At 31 December 2006, 2007 and 2008, the carrying amounts of property and equipment was approximately HK$58,520,000, HK$55,641,000 and HK$45,928,000 respectively. Impairment loss on property and equipment of HK$5,951,000 and HK$1,472,000 have been recognised during each of the years ended 31 December 2006 and 2007 respectively. No impairment loss on property and equipment was recognised for the year ended 31 December 2008.

5. Financial instruments

Capital risk management

The Retail Group manages its capital to ensure that entities in the Retail Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Retail Group consists of debt, which includes the borrowings disclosed in note 20, and equity attributable to equity holders of CRM(HK), comprising issued share capital disclosed in note 21, reserves and accumulated losses as disclosed in consolidated statements of changes in equity. The management reviews the capital structure by considering the cost of capital and the risks associated with each class of capital. In view of this, the Retail Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt. The Retail Group’s overall strategy remains unchanged throughout the Relevant Periods.

Categories of financial instruments

Categories of financial instruments
		As at 31 December
	2006	2007	2008
	HK$’000	HK$’000	HK$’000
Financial assets
Loans and receivables (including cash and
cash equivalents)	188,057	201,483	151,643
Financial liabilities
Amortised cost	262,998	299,756	215,598

Financial risk management objectives and policies

The Retail Group’s major financial instruments include accounts receivable, deposits and other receivables, amounts due from/to fellow subsidiaries, accounts payable, other payables, borrowings, pledged bank deposits and bank balances and cash. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Market risk

Interest rate risk

The management considered that the Retail Group’s exposure to future cash flow risk on variable-rate bank balances as a result of the change of market interest rate is insignificant.

The Retail Group is mainly exposed to cash flow interest rate risk in relation to variable-rate bank borrowings and bank balances.

The Retail Group currently does not have a cash flow interest rate hedging policy. However, management closely monitors its exposure to future cash flow risk as a result of change on market interest rate and will consider hedging changes in market interest rates should the need arise. A 100 basis point change is used when reporting cash flow interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

The Retail Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The Retail Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of Hong Kong Prime Rate and Hong Kong Inter Bank Offering Rate (“HIBOR”) arising from the Retail Group’s variable interest rate borrowings.

The sensitivity analysis is prepared assuming the financial instruments outstanding at the balance sheet date were outstanding for the whole year. If the interest rate of borrowings had been 100 basis point higher/lower, the Retail Group’s loss for each of the years ended 31 December 2006 and 2007 would increase/decrease by HK$1,101,000 and HK$776,000 respectively and the Retail Group’s profit for the year ended 31 December 2008 would decrease/increase by HK$791,000. This is mainly attributable to the bank interest expenses under finance costs.

Foreign currency risk

More than 99% of financial assets and financial liabilities of the Retail Group are denominated in the group entity’s functional currency. No foreign currency sensitivity is disclosed as in the opinion of Directors of CRM(HK), the foreign currency sensitivity does not give additional value in view of insignificant exposure of other foreign currencies as at the balance sheet date.

Credit risk

The Retail Group’s maximum exposure to credit risk which will cause a financial loss to the Retail Group in the event of the counterparties failure to perform their obligations as at the balance sheet dates in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet.

In order to minimise the credit risk on accounts receivable, other receivables and amounts due from fellow subsidiaries, the Retail Group reviews the recoverable amount of each individual debtors at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the Directors of CRM(HK) consider that the Retail Group’s credit risk is significantly reduced.

The Retail Group has concentration of credit risk on three, two and one fellow subsidiaries as at 31 December 2006, 2007 and 2008 respectively, and 71%, 51% and 100% of the total amounts due from fellow subsidiaries was due from one of the Retail Group’s fellow subsidiaries as at 31 December 2006, 2007 and 2008 respectively. The management closely monitors the subsequent settlement of the counterparties. There is no significant concentration of credit risk in accounts receivable under current business model of the Retail Group. In this regard, the Directors of CRM(HK) consider that the credit risk is significantly reduced.

Bank balances and deposits are placed in various authorised institutions and the Directors of CRM(HK) consider the credit risk of such authorised institutions is low.

Liquidity risk

The Retail Group has net current liabilities of approximately HK$40,372,000, HK$72,886,000 and HK$26,024,000 as at 31 December 2006, 2007 and 2008 respectively. The Financial Information has been prepared on a going concern basis because the directors of CRM(HK) believe that the Retail Group has sufficient funds to finance its current working capital requirements taking into account of the existing banking facilities and cashflows from operations.

In the management of liquidity risk, the Retail Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of borrowings and ensures compliance with loan covenants.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Liquidity tables

The following tables detail the Retail Group’s contractual maturity for its financial liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Retail Group can be required to pay. The tables include both interest and principal cash flows. The difference between the “Total undiscounted cash flows” column and the “Carrying amount at balance sheet date” column represents the possible future cash flows attributable to the instrument included in the maturity analysis which are not included in the carrying amount of the financial liability on the consolidated balance sheets.

Weighted average effective interest rate % At 31 December 2006 Accounts payable N/A Other payables N/A Amounts due to fellow subsidiaries N/A Borrowings Note At 31 December 2007 Accounts payable N/A Other payables N/A Amounts due to fellow subsidiaries N/A Borrowings Note At 31 December 2008 Accounts payable N/A Other payables N/A Amounts due to fellow subsidiaries N/A Borrowings Note	Repayable on demand HK$’000 – – 12,506 – 12,506 – – 92,365 – 92,365 – – 34,618 – 34,618	Less than 1 month HK$’000 5,347 – – 42,179 47,526 16,193 – – 22,084 38,277 24,849 – – 23,023 47,872	Between 1 to 3 months HK$’000 115,643 – – 27,297 142,940 98,602 – – 50,737 149,339 28,797 – – 55,763 84,560	Between 3 months to 1 year HK$’000 18,975 437 – 37,468 56,880 10,980 3,982 – 6,000 20,962 43,882 4,386 – 971 49,239	Over 1 year Total undiscounted cash flows HK$’000 HK$’000 – 139,965 – 437 – 12,506 4,719 111,663 4,719 264,571 – 125,775 – 3,982 – 92,365 – 78,821 – 300,943 – 97,528 – 4,386 – 34,618 – 79,757 – 216,289	Carrying amount at balance sheet date HK$’000 139,965 437 12,506 110,090
						262,998

						125,775 3,982 92,365 77,634
						299,756

						97,528 4,386 34,618 79,066
						215,598

Note: Variable-rate borrowings carry interest at HIBOR plus a spread or Hong Kong Prime Rate. The prevailing market rate at the balance sheet date is used in the maturity analysis.

Fair values

The fair values of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions as input.

The Directors of CRM(HK) consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

6. Revenue

Revenue represents the invoiced value of sales of furniture and household goods, electrical appliances and trendy digital products, net of discounts and returns.

Continuing operations Sales of popular furniture, household and electrical appliances products, net of discounts and returns Discontinued operations Sales of trendy digital and audio visual products, net of discounts and returns Sales of elegant, stylish furniture and household products, net of discounts and returns	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 763,233 773,264 863,997 80,623 32,042 – 14,553 19,044 – 858,409 824,350 863,997	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 763,233 773,264 863,997 80,623 32,042 – 14,553 19,044 – 858,409 824,350 863,997
		863,997

7. Segment information

Business segments

The Retail Group is engaged in the retailing of sales of furniture, household goods and trendy digital products which can be divided into three product segments: (i) popular furniture, household and electrical appliance products; (ii) trendy digital and audio visual products; and (iii) elegant, stylish furniture and household products. The product segments for trendy digital and audio products and elegant, stylish furniture and household products were discontinued on 1 January 2008 (see note 12) through the disposal of subsidiaries. An analysis of the Retail Group’s results of operations and the Retail Group’s financial position by product segments are as follows:

Segment information about these businesses is presented below.

Consolidated income statement for the year ended 31 December 2006

Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 80,623 14,553 95,176 (30,637) (42,005) (72,642)	Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 80,623 14,553 95,176 (30,637) (42,005) (72,642)	Consolidated HK$’000 858,409
Trendy digital and audio visual products HK$’000 80,623 (30,637)	Elegant, stylish furniture and household products HK$’000 14,553 (42,005)

		(69,563) 10,151 (11,113) (4,168)
		(74,693) –
		(74,693)

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Consolidated balance sheet as at 31 December 2006

Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 13,887 9,744 23,631 30,074 7,365 37,439	Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 13,887 9,744 23,631 30,074 7,365 37,439	Consolidated HK$’000 105,367 227,624
Trendy digital and audio visual products HK$’000 13,887 30,074	Elegant, stylish furniture and household products HK$’000 9,744 7,365
		332,991

		178,042 125,053
		303,095

Other information for the year ended 31 December 2006

Additions to property and equipment Depreciation of property and equipment Impairment loss on property and equipment Loss (gain) on disposal of equipment Amortisation of prepaid lease payment Allowance for inventory and write-off of inventories	Continuing operations Popular furniture, household and electrical appliance products HK$’000 12,986 16,906 – 32 – 2,388	Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Unallocated Consolidated HK$’000 HK$’000 HK$’000 HK$’000 1,416 2,979 31,000 48,381 1,906 3,698 6,300 28,810 2,659 3,292 – 5,951 826 1,588 (6,848) (4,402) – – 207 207 475 1,997 – 4,860

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Consolidated income statement for the year ended 31 December 2007

Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 32,042 19,044 51,086 (19,679) (33,347) (53,026)	Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 32,042 19,044 51,086 (19,679) (33,347) (53,026)	Consolidated HK$’000 824,350
Trendy digital and audio visual products HK$’000 32,042 (19,679)	Elegant, stylish furniture and household products HK$’000 19,044 (33,347)

		(20,602) 2,641 (8,410) (5,333)
		(31,704) –
		(31,704)

Consolidated balance sheet as at 31 December 2007

Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 5,613 10,724 16,337 21,694 7,835 29,529	Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Total HK$’000 HK$’000 HK$’000 5,613 10,724 16,337 21,694 7,835 29,529	Consolidated HK$’000 100,275 239,310
Trendy digital and audio visual products HK$’000 5,613 21,694	Elegant, stylish furniture and household products HK$’000 10,724 7,835
		339,585

		168,449 172,418
		340,867

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Other information for the year ended 31 December 2007

Additions to property and equipment Depreciation of property and equipment Impairment loss on property and equipment Amortisation of prepaid lease payment Allowance for inventory and write-off of inventories	Continuing operations Popular furniture, household and electrical appliance products HK$’000 17,291 19,435 – – 2,263	Discontinued operations Trendy digital and audio visual products Elegant, stylish furniture and household products Unallocated Consolidated HK$’000 HK$’000 HK$’000 HK$’000 5 4,982 213 22,491 1 1,341 3,194 23,971 – 1,472 – 1,472 – – 415 415 1,235 4,783 – 8,281

Consolidated income statement for the year ended 31 December 2008

Revenue Segment result Unallocated other income Unallocated corporate expenses Finance costs Profit before taxation Taxation Profit for the year	Continuing operations
	Popular furniture, household and electrical appliance products HK$’000 863,997

	48,167 2,256 (11,263) (3,226)
	35,934 (4,900)
	31,034

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

Consolidated balance sheet as at 31 December 2008

ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Continuing operations
	Popular furniture, household and electrical appliance products HK$’000 91,863 187,321
	279,184

	125,999 115,733
	241,732

Other information for the year ended 31 December 2008

	Popular
	furniture,
	household
	and electrical
	appliance
	products	Unallocated	Consolidated
	HK$’000	HK$’000	HK$’000
Additions to property and equipment	11,899	1,687	13,586
Depreciation of property and equipment	14,951	1,411	16,362
Loss on disposal of equipment	187	–	187
Amortisation of prepaid lease payment	–	415	415
Allowance for inventory and write-off of
inventories	2,044	–	2,044

Geographical segments

The Retail Group’s operations are located in Hong Kong and the PRC. For the retailing of popular furniture, household and electrical appliance products, they are mainly based in Hong Kong and the revenue is substantially derived from Hong Kong. The retailing of trendy digital, audio visual products and elegant, stylish furniture and house products are mainly based in Hong Kong and the PRC and the revenue of the Relevant Periods are derived mainly from Hong Kong and the PRC.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

The following table provides an analysis of the Retail Group’s revenue by geographical location of its customers:

Continuing operations Hong Kong Discontinued operations Hong Kong PRC (Note)	2006 HK$’000 763,233 93,803 1,373 858,409	2007 HK$’000 773,264 43,156 7,930 824,350	2008 HK$’000 863,997 – –
			863,997

Note: The revenue derived from PRC was contributed by the subsidiaries disposed of on 31 December 2008. Details of the disposal of subsidiaries are disclosed in note 22(ii).

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

Carrying amount of segment assets

Continuing operations Hong Kong PRC Discontinued operations Hong Kong PRC Additions to property and equipment Continuing operations Hong Kong PRC Discontinued operations Hong Kong PRC	2006 HK$’000 80,766 970 17,184 6,447 105,367 2006 HK$’000 43,986 – 2,657 1,738 48,381	2007 HK$’000 82,883 1,055 6,977 9,360 100,275 2007 HK$’000 16,620 884 61 4,926 22,491	2008 HK$’000 90,716 1,147 – –
			91,863

			2008 HK$’000 13,380 206 – –
			13,586

Additions to property and equipment

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

8. Finance costs

Continuing operations Interest on: Borrowings wholly repayable within five years Discontinuing operations Interest on: Borrowings wholly repayable within five years	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 4,108 4,775 3,226 60 558 –	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 4,108 4,775 3,226 60 558 –

		–

9. Directors’ remuneration

The remuneration paid or payable to the Directors was as follows:

2006 Fee Salaries, allowances and benefits in kind Performance related incentive payments Employee share option benefits Contributions to retirement benefit scheme Total remuneration	Kwan Pak Hoo Bankee HK$’000 – 630 – – 32 662	Lin Che Chu George HK$’000 – – – – – –	Law Ping Wah Bernard HK$’000 – – – – – –	Kwok Lai Ling Elaine HK$’000 – – – – – –	Leung Siu Pong James HK$’000 – – – – – –	Wong Kin Yick Kenneth HK$’000 – – – – – –	Li Yuen Cheuk Thomas HK$’000 – – – – – –	Law Tang Fai James HK$’000 – – – – – –	Ng Kung Chit Raymond HK$’000 – – – – – –	Kwok Oi Kuen Joan Elmond HK$’000 – – – – – –	Total HK$’000 – 630 – – 32
											662

2007 Fee Salaries, allowances and benefits in kind Performance related incentive payments Employee share option benefits Contributions to retirement benefit scheme Total remuneration	Kwan Pak Hoo Bankee HK$’000 – – – – – –	Lin Che Chu George HK$’000 – – – – – –	Law Ping Wah Bernard HK$’000 – – – – – –	Wong Kin Yick Kenneth HK$’000 – – – – – –	Total HK$’000 – – – – –
					–

– 151 –

APPENDIX II

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

2008 Fee Salaries, allowances and benefits in kind Performance related incentive payments Employee share option benefits Contributions to retirement benefit scheme Total remuneration	Kwan Pak Hoo Bankee HK$’000 – – – – – –	Lin Che Chu George HK$’000 – – – – – –	Law Ping Wah Bernard HK$’000 – – – – – –	Wong Kin Yick Kenneth HK$’000 – – – – – –	Total HK$’000 – – – – –
					–

During the year ended 31 December 2006, Ms Kwok Lai Ling Elaine, Mr Leung Siu Pong James, Mr Law Tang Fai James, Mr Li Yuen Cheuk Thomas, Mr Ng Kung Chit Raymond and Ms Kwok Oi Kuen Joan Elmond resigned as directors of CRM(HK).

During the year ended 31 December 2008, Mr Wong Kin Yick Kenneth resigned as director of CRM(HK).

During the Relevant Periods, no remuneration was paid by the Retail Group to the directors of CRM(HK) as an inducement to join or upon joining the Retail Group or as compensation for loss of office. None of the directors of CRM(HK) has waived any remuneration during the Relevant Periods.

10. Employees’ remuneration

Of the five individuals with the highest emoluments in the Retail Group one was Director of CRM(HK) for the year ended 31 December 2006. The emoluments of the remaining individuals for the Relevant Periods were as follows:

Salaries, allowances and benefits in kind Contributions to retirement benefit scheme Performance related incentive payments	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,552 2,441 2,556 77 147 144 117 619 435 1,746 3,207 3,135	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 1,552 2,441 2,556 77 147 144 117 619 435 1,746 3,207 3,135
		3,135

Their remunerations were all below HK$1,000,000 during the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

11. Taxation charge

Continuing operations: The charge (credit) comprises: Current tax: – Hong Kong Deferred taxation credit	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 – – 6,900 – – (2,000) – – 4,900	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 – – 6,900 – – (2,000) – – 4,900
		4,900

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulation of the New Law. Under the New Law and Implementation Regulation, the Enterprise Income Tax rate of the Retail Group’s subsidiary in the PRC was reduced from 33% to 25% from 1 January 2008 onwards. The relevant tax rates for the Retail Group’s subsidiary in the PRC is 33%, 33% and 25% for the years ended 31 December 2006, 2007 and 2008 respectively.

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 17.5%, 17.5% and 16.5% of the estimated assessable profit for the years ended 31 December 2006, 2007 and 2008 respectively.

No provision for PRC Enterprise Income Tax has been made as the Retail Group has no assessable profits arising in the PRC during the Relevant Periods.

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

Profit (loss) before taxation Continuing operations Discontinued operations Taxation (credit) charge at income tax rate (2006: 17.5%, 2007: 17.5%, 2008: 16.5%) Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Tax effect of estimated tax losses not recognised Tax effect of utilisation of estimated tax losses previously not recognised Utilization of deductible temporary difference previously not recognised Tax effect of deductible temporary difference not recognised Others Taxation charge	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 5,044 30,106 35,934 (79,737) (61,810) – (74,693) (31,704) 35,934 (13,071) (5,548) 5,929 1,731 3,279 704 (450) (173) (33) 13,825 8,525 196 (3,787) (7,613) (651) – – (1,218) 1,270 1,626 – 482 (96) (27) – – 4,900	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 5,044 30,106 35,934 (79,737) (61,810) – (74,693) (31,704) 35,934 (13,071) (5,548) 5,929 1,731 3,279 704 (450) (173) (33) 13,825 8,525 196 (3,787) (7,613) (651) – – (1,218) 1,270 1,626 – 482 (96) (27) – – 4,900
		35,934

		5,929 704 (33) 196 (651) (1,218) – (27)
		4,900

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

The following are the major deferred tax asset recognised and the movements thereon during the Relevant Periods:

At 1 January 2006, 31 December 2006 and 31 December 2007 Credit to consolidated income statement At 31 December 2008	Accelerated tax depreciation HK$’000 – 2,000
	2,000

The Retail Group had estimated unused tax losses of HK$209,611,000, HK$214,822,000 and HK$25,252,000 and deductible temporary difference in respect of accelerated accounting depreciation of HK$11,618,000, HK$20,908,000 and HK$13,528,000 as at 31 December 2006, 2007 and 2008 respectively available to offset against future profits. No deferred tax asset has been recognised as at 31 December 2006 and 2007, while HK$12,120,000 of such deductible temporary differences has been recognised as deferred tax asset for the year ended 31 December 2008. No deferred tax asset has been recognised in respect of the estimated unused tax losses due to the unpredictability of future profit streams. The estimated unused tax losses may be carried forward indefinitely.

12. Discontinued operations

The Retail Group conducted a reorganisation in early 2008 and the Retail Group disposed of certain subsidiaries, which product segments of trendy digital and audio visual products and elegant, stylish furniture and household products, to a fellow subsidiary of CRM(HK) with effect from 1 January 2008.

The results of the discontinued operations which represented segments of trendy digital and audio visual products and elegant, stylish furniture and household products for each of the two years ended 31 December 2007 and which have been included in the consolidated income statements, were as follows:

Revenue Cost of sales Gross profit Other income Selling and distribution costs Administrative expenses Finance costs Impairment loss recognised in respect of property and equipment Loss before taxation Taxation Loss for the year	2006 HK$’000 95,176 (87,227) 7,949 8,020 (64,999) (24,696) (60) (5,951) (79,737) – (79,737)	2007 HK$’000 51,086 (50,388)
		698 297 (42,883) (17,892) (558) (1,472)
		(61,810) –
		(61,810)

The cash flows of the discontinued operations for each of the two years ended 31 December 2007 are as follows:

	2006	2007
	HK$’000	HK$’000
Net cash used in operating activities	(59,471)	(56,954)
Net cash from (used in) investing activities	16,129	(4,412)
Net cash from financing activities	60,720	27,240

– 154 –

ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

13. (Loss) profit for the year

Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 23,897 14,169 15,139 2,388 2,263 2,044 207 415 415 800 800 650 478,011 437,508 491,172 17,855 21,005 16,362	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 23,897 14,169 15,139 2,388 2,263 2,044 207 415 415 800 800 650 478,011 437,508 491,172 17,855 21,005 16,362	Year ended 31 December 2006 2007 2008 HK$’000 HK$’000 HK$’000 23,897 14,169 15,139 2,388 2,263 2,044 207 415 415 800 800 650 478,011 437,508 491,172 17,855 21,005 16,362
630 80,967 4,037 85,634		– 96,339 4,867 101,206
		187
81,271 4,530 85,801		115,487 5,429 120,916
		(942) 327 – – – – – – –
– 22,300 1,009 23,309		– – – –

17,655 2,006 19,661	15,066 8 15,074	– – –
(463) (10)	(184) (55)	– –

Note: The contingent rents are determined based on certain percentage of the gross sales of the relevant shops when the sales meet certain specified level.

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APPENDIX II

14. Property and equipment

COST OR VALUATION At 1 January 2006 Additions Disposals/written off Deficit on revaluation At 31 December 2006 Additions Disposals/written off Exchange differences Deficit on revaluation At 31 December 2007 Additions Disposals/written off Arising on disposal of subsidiaries Exchange differences Deficit on revaluation At 31 December 2008 ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2006 Provided for the year Impairment loss recognised Eliminated on disposals/written off Eliminated on revaluation At 31 December 2006 Provided for the year Impairment loss recognised Eliminated on disposals/written off Exchange differences Eliminated on revaluation At 31 December 2007 Provided for the year Eliminated on disposals/written off Exchange differences Eliminated on disposal of subsidiaries Eliminated on revaluation At 31 December 2008 NET BOOK VALUES At 31 December 2006 At 31 December 2007 At 31 December 2008	Buildings HK$’000 – 31,000 – (700) 30,300 – – – (1,400) 28,900 1,688 – – – (2,788) 27,800 – 700 – – (700) – 1,400 – – – (1,400) – 1,400 – – – (1,400) – 30,300 28,900 27,800	Leasehold improvements HK$’000 81,450 14,012 (15,117) – 80,345 17,987 (5,220) 60 – 93,172 9,463 (4,226) (7,650) – – 90,759 57,975 16,419 4,654 (11,643) – 67,405 14,513 1,456 (5,220) 3 – 78,157 10,525 (4,226) – (4,868) – 79,588 12,940 15,015 11,171	Furniture, fixtures and equipment HK$’000 135,946 3,369 (16,102) – 123,213 4,504 (797) 37 – 126,957 2,435 (1,079) (10,792) 104 – 117,625 109,629 11,403 1,297 (14,176) – 108,153 7,850 16 (797) 21 – 115,243 4,437 (892) 21 (8,141) – 110,668 15,060 11,714 6,957	Motor vehicles HK$’000 3,331 – – – 3,331 – – – – 3,331 – – (1,696) – – 1,635 2,823 288 – – – 3,111 208 – – – – 3,319 – – – (1,684) – 1,635 220 12 –	Total HK$’000 220,727 48,381 (31,219) (700)
					237,189 22,491 (6,017) 97 (1,400)
					252,360 13,586 (5,305) (20,138) 104 (2,788)
					237,819
					170,427 28,810 5,951 (25,819) (700)
					178,669 23,971 1,472 (6,017) 24 (1,400)
					196,719 16,362 (5,118) 21 (14,693) (1,400)
					191,891
					58,520

					55,641

					45,928

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APPENDIX II

The above property and equipment are depreciated on a straight-line basis at the following rates per annum:

Buildings 20 years Leasehold improvements The shorter of the lease terms and 5 years Furniture, fixtures and equipment 3 to 7 years Motor vehicles 3 to 5 years

The buildings of the Retail Group are situated on the land of Hong Kong under medium-term lease and measured at fair value. The gross carrying amount of remaining items of property and equipment are measured at cost.

The buildings of the Retail Group were valued by Knight Frank Petty Limited as at 31 December 2006, 2007 and 2008, a firm of independent professional property valuers, on a market value basis. Knight Frank Petty Limited is not connected with the Retail Group. A revaluation deficit on buildings HK$1,388,000 has been charged to consolidated income statement for the year ended 31 December 2008 (2006 and 2007: Nil).

If the buildings had not been revalued, they would have been included in Financial Information at historical cost less accumulated depreciation of HK$30,300,000, HK$28,900,000 and HK$27,500,000 as at 31 December 2006, 2007 and 2008 respectively.

The directors of CRM(HK) reassessed the recoverable amount of the property and equipment of certain shops of which continuous losses incurred and recognised an impairment loss of approximately HK$5,951,000 and HK$1,472,000 for each of the years ended 31 December 2006 and 2007 respectively. The recoverable amounts of the relevant assets have been determined on the basis of their value in use. The discount rates in measuring the amounts of value in use were 16.4%, 12% and 10% as at 31 December 2006, 2007 and 2008 respectively.

15. Prepaid lease payments

The Retail Group’s prepaid lease payments comprise: Leasehold land in Hong Kong under medium-term lease Analysed for reporting purposes as: Current asset (included in prepayments, deposits and other receivables) Non-current asset	2006 HK$’000 16,793 415 16,378 16,793	As at 31 December 2007 HK$’000 16,378 415 15,963 16,378	2008 HK$’000 15,963

			415 15,548
			15,963

The leasehold land is amortised on a straight-line basis over the remaining term of leases.

16. Inventories

		31 December
	2006	2007	2008
	HK$’000	HK$’000	HK$’000
Finished goods held for sale	48,950	39,693	38,407

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

17. Accounts receivable

The Retail Group allows a credit period of 30 days on accounts receivable. The aged analysis is as follows:

0 – 30 days	2006 HK$’000 460	As at 31 December 2007 HK$’000 408	2008 HK$’000 –

The Retail Group has policy for allowance of bad and doubtful debts which is based on the evaluation of collectability and age analysis of accounts and on management’s judgement including the credit creditworthness, collaterals and the past collection history of each client.

In determining the recoverability of the accounts receivable, the Retail Group considers any change in the credit quality of the accounts receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors of CRM(HK) believe that there is no credit provision required.

All the accounts receivable are neither past due nor impaired at the reporting date for which the Retail Group believes that the amounts are considered recoverable.

18. Other financial assets

Amounts due from fellow subsidiaries are non-trade nature, unsecured, interest free and repayable on demand.

The Retail Group’s bank deposits of HK$50,262,000, HK$51,816,000 and HK$54,030,000 as at 31 December 2006, 2007 and 2008 respectively were pledged to secure the general banking facilities granted by banks.

Bank balances and cash comprise cash held by the Retail Group and short-term bank deposits at market interest rates with an original maturity of three months or less.

19. Other financial liabilities

Accounts payable principally comprise amounts outstanding for trade purchases costs. The average credit period taken for trade purchase is 30 to 90 days.

The aged analysis of accounts payable is stated as follows:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	2006 HK$’000 57,431 37,468 32,880 12,186 139,965	As at 31 December 2007 HK$’000 54,553 32,771 22,897 15,554 125,775	2008 HK$’000 43,882 28,797 10,728 14,121
			97,528

Amounts due to fellow subsidiaries are non-trade nature, unsecured, interest free and repayable on demand.

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APPENDIX II

20. Borrowings

Secured bank borrowings: Bank loans Trust receipt loans Unsecured other borrowings	2006 HK$’000 10,501 74,989 85,490 24,600 110,090	As at 31 December 2007 HK$’000 6,307 71,327 77,634 – 77,634	2008 HK$’000 – 79,066
			79,066 –
			79,066

The maturity profile of the above borrowings is as follows: 2006 HK$’000 On demand or within one year 105,460 More than one year but not exceeding two years 4,630 110,090 Less: Amount due within one year shown under current liabilities (105,460) Amount due after one year 4,630	As at 31 December 2007 HK$’000 77,634 – 77,634 (77,634) –	2008 HK$’000 79,066 –
		79,066 (79,066)
		–

At 31 December 2006, 2007 and 2008, bank borrowings of HK$85,490,000, HK$77,634,000 and HK$79,066,000 respectively of the Retail Group were secured by:

(a) a corporate guarantee from its ultimate holding company;
(b) pledged bank deposits as disclosed in note 18; and
(c) all the building and prepaid lease payments as disclosed in notes 14 and 15.

Bank loans amounting to HK$10,501,000, HK$6,307,000 are at variable-rate borrowings which carried interest at HIBOR plus a spread as at 31 December 2006 and 2007 respectively. Trust receipt loans amounting to HK$74,989,000, HK$71,327,000 and HK$79,066,000 carried interest at Hong Kong Prime Rate plus a spread as at 31 December 2006, 2007 and 2008 respectively.

As at 31 December 2006, unsecured other borrowings of HK$24,600,000 carried interest at Hong Kong Prime Rate plus 3% per annum.

The effective interest rates on the Retail Group’s borrowings are also equal to contracted interest rates as at 31 December 2006, 2007 and 2008.

As at 31 December 2006, 2007 and 2008, the Retail Group had undrawn borrowing facilities amounting to HK$26,511,000, HK$56,673,000 and HK$60,935,000 with floating rate respectively and expiring within one year from the respective balance sheet dates.

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APPENDIX II

21. Share capital

Ordinary shares of US$1 each Authorised: At 1 January 2006, 31 December 2006, 31 December 2007 and 31 December 2008 Issued and fully paid: At 1 January 2006, 31 December 2006, 31 December 2007 and 31 December 2008	Number of shares 105,460 50,000 1	Amount US$ HK$’000 77,634 79,066 50,000 390 1 –	Amount US$ HK$’000 77,634 79,066 50,000 390 1 –

			–

22. Disposal of subsidiaries

(i) During the year ended 31 December 2006, through the disposal of equity interest of certain subsidiaries, engaged in investment of club memberships and investment property, to a subsidiary of the Company, the Retail Group has, in substance, disposed of the following assets and related liabilities at a total consideration of HK$852,000.

The net assets of subsidiaries at the date of disposal were as follows:

NET ASSETS DISPOSAL OF: Club memberships Investment property Prepayments Bank balances and cash Amount due to ultimate holding company Net assets disposed of Cash consideration NET CASH INFLOW ARISING ON DISPOSAL Total cash consideration Bank balances and cash Net cash inflow arising on disposal of assets and related liabilities	HK$’000 3,090 5,000 1,589 116 (8,943)
	852

	852

	852 (116)
	736

The subsidiaries contributed approximately HK$638,000 to the Retail Group’s revenue, and HK$1,107,000 loss to the Retail Group’s loss for the year end 31 December 2006.

(ii) On 1 January 2008, the Retail Group disposed of 100% equity interest in certain subsidiaries to CASH Retail Management Group Limited, a fellow subsidiary of CRM(HK), at a consideration of HK$827. The subsidiaries were engaged in retailing of sales of trendy digital and audio products and elegant, stylish furniture and household products, which has been classified as discontinued operations in the Financial Information.

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APPENDIX II

The net liabilities of subsidiaries at the date of disposal were as follows:

NET LIABILITIES DISPOSAL OF: Property and equipment Inventories Accounts receivable Prepayments, deposits and other receivables Amounts due from fellow subsidiaries Bank balances and cash Accounts payable Accrued liabilities and other payables Amounts due to fellow subsidiaries Borrowings Contribution from equity participants credited to equity CASH OUTFLOW ARISING ON DISPOSAL Bank balances and cash disposal of	As at 1 January 2008 HK$’000 5,445 5,218 460 8,835 51,166 6,663 (25,848) (5,893) (51,944) (1,680)
	(7,578) 7,578
	–

	(6,663)

23. Contingent liabilities

On 11 May 2006, Hallmark Cards, Incorporated (“Petitioner”) filed a petition for a winding-up order against Cosmos Global Limited (“Cosmos”), a subsidiary of CRM(HK), under which the Petitioner claimed that Cosmos was indebted to the Petitioner for a sum of approximately US$42,000 (equivalent to approximately HK$324,000) and interest accrued thereon. A winding-up order was made by a master of the High Court on 2 August 2006. Provisional liquidator has been appointed by the court to manage the affairs of Cosmos on the same date and Cosmos is now in the process of liquidation. Cosmos is a dormant company and the winding up of Cosmos will not have any material financial impact to the operation of the Retail Group.

24. Operating lease commitments

At each balance sheet date, the Retail Group had commitments for future minimum lease payments under noncancellable operating leases in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	2006 HK$’000 97,877 98,574 196,451	As at 31 December 2007 HK$’000 98,989 93,576 192,565	2008 HK$’000 90,554 67,606
			158,160

Operating lease payments represent rentals payable by the Retail Group for office premises and retail shops. Leases are mainly negotiated for lease term of two to three years and rentals are fixed for lease term of two to three years. In addition to the fixed rentals, pursuant to the terms of certain rental agreements, the Retail Group has to pay a rental based on certain percent of the gross sales of the relevant shop when the sales meets certain specified level.

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APPENDIX II

25. Retirement benefits schemes

The Retail Group operates Mandatory Provident Fund Schemes (“MPF Schemes”) under the rules and regulations of Mandatory Provident Fund Schemes Ordinance for all its employees in Hong Kong and terminated the defined contribution pension scheme (“Old Scheme”) on 1 December 2000. All the employees of the Retail Group in Hong Kong are required to join the MPF Scheme. In respect of those employees who leave the Retail Group prior to completion of qualifying service period for the employer’s voluntary contributions (represents contributions in excess of the mandatory requirements under the Mandatory Provident Fund Schemes Ordinance plus all the assets transferred from the Old Scheme) become fully vested, the relevant portion of the voluntary contributions forfeited will be reverted to the Retail Group. Contributions are made based on a percentage of the employees’ salaries and are charged to income statement as they become payable in accordance with the rules of the MPF Schemes. The assets of the MPF Scheme are held separately from those of the Retail Group in an independently administrated fund. The Retail Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

For members of MPF Schemes, the Retail Group contributes 5% relevant payroll costs with a maximum contribution of HK$1,000 per person for the MPF Schemes, which contribution is matched by the employees.

The employer’s contributions to the MPF Schemes charged to the income statement amounted to approximately HK$4,594,000, HK$3,885,000 and HK$4,270,000 for each of the years ended 31 December 2006, 2007 and 2008 respectively.

The Retail Group operates various benefits schemes for its full-time employees in the PRC in accordance with the relevant PRC regulations and rules, including provision of housing provident fund, medical insurance, retirement insurance, unemployment insurance, labour injury insurance and pregnancy insurance. Pursuant to the existing schemes, the Retail Group contributes 7%, 5%, 17%, 2%, 0.5% and 0.5% of the basic salary of its employees to the housing provident fund, medical insurance, retirement insurance, unemployment insurance, labour injury and pregnancy insurance respectively. The Retail Group recognised contribution to the aforesaid benefits schemes of HK$452,000, HK$890,000 and HK$597,000 for each of the years ended 31 December 2006, 2007 and 2008 respectively.

26. Share option schemes

(A) Share option scheme of CASH, the ultimate holding company of CRM(HK)

CASH share option scheme (“Share Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of CASH held on 19 February 2002. The major terms of the Share Option Scheme are summarised as follows:

(i) The purpose was to provide incentives to:
award and retain the participants who have made contributions to CASH and its subsidiaries (“CASH Group”); or
attract potential candidates to serve the CASH Group for the benefit of the development of the CASH Group.
(ii) The participants included any employee, director, consultant, adviser or agent of any member of the CASH Group.
(iii) The maximum number of shares in respect of which share options might be granted under the Share Option Scheme must not exceeded 10% of the issued share capital of CASH as at the date of approval of the Share Option Scheme and such limit might be refreshed by shareholders in general meeting. The total maximum number of shares which might be issued upon exercise of all outstanding share options granted and yet to be exercised under the Share Option Scheme and any other share option scheme must not exceed 30% of the shares in issue of CASH from time to time.

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APPENDIX II

(iv) The maximum number of shares in respect of which share options might be granted to a participant, when aggregated with shares issued and issuable (including exercised and outstanding options and the share options cancelled) under any share option granted to the same participant under the Share Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue of CASH from time to time.
(v) There was no requirement for a grantee to hold the share option for a certain period before exercising the share option save as determined by the Board of Directors of CASH and provided in the offer of grant of share option.
(vi) The exercise period should be any period fixed by the Board of Directors of CASH upon grant of the option but in any event the share option period should not go beyond 10 years from the date of offer for grant.
(vii) The acceptance of a share option, if accepted, must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee to CASH.
(viii) The exercise price of a share option must be the highest of:
the closing price of CASH’s shares on the date of grant which day must be a trading day;
the average closing price of the CASH’s shares for the 5 trading days immediately preceding the date of grant; and
the nominal value of CASH’s share.
(ix) The life of the Share Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

The following table discloses details of CASH’s share options held by the Directors of CRM(HK) and movements in such holdings:

Name of scheme Date of grant Exercise price per share Exercise period (Note (3)) Before After 6.6.2008 4:00 p.m. 6.6.2008 4:00 p.m. HK$ HK$ Directors of the Retail Group Share Option Scheme 13.11.2006 0.323 1.615 13.11.2006 – 12.11.2008 6.6.2007 0.490 2.450 6.6.2007 – 31.5.2009				Num	ber of share options	ber of share options
	outstanding as at 1.1.2006 – – –	granted in 2006 (Notes (1)&(2)) 16,000,000 – 16,000,000	outstanding as at 31.12.2006 and 1.1.2007 16,000,000 – 16,000,000	granted in 2007 (Notes (1)&(2)) – 10,000,000 10,000,000	outstanding as at 31.12.2007 and 1.1.2008 16,000,000 10,000,000 26,000,000	adjusted on 6.6.2008 (Note (3)) (12,800,000) (8,000,000) (20,800,000)	lapsed in 2008 (3,200,000) – (3,200,000)	reallocated change in directorate – (500,000) (500,000)	outstanding as at 31.12.2008 – 1,500,000
									1,500,000

Notes:

(1) These options were granted to the directors of CRM(HK) for their services to the Retail Group and other fellow subsidiaries. The directors of CRM(HK) considered the financial impact of share options granted by CASH to the directors of the Retail Group was insignificant. No expense was charged to the consolidated income statements of the Retail Group for each of the years ended 31 December 2006 and 2007 accordingly.
(2) The closing price of the share immediately before the date of grant on 13 November 2006 and 6 June 2007 was HK$0.330 and HK0.480 respectively. The share options are fully vested on the grant date.

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APPENDIX II

(3) The number and the exercise price of options which remained outstanding have been adjusted due to share consolidation of CASH with effect from 4:00 pm on 6 June 2008.

During the year ended 31 December 2006, share options were granted on 13 November 2006 and are fully vested on the same date. The estimated fair value of the options granted on that date was HK$211,000.

During the year ended 31 December 2007, share options were granted on and 6 June 2007 are fully vested on the same date. The estimated fair value of the options granted on that date was HK$197,000.

These fair values are calculated using the Black-Scholes pricing model. The variables and assumptions used in computing the fair value of the share options are based on the Director’s best estimate. The value of an opinion varies with different variables of certain subjective assumptions. The inputs into the model were as follows:

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

follows:

	Share options grant date	Share options grant date
	13 November 2006	6 June 2007
Weighted average share price	HK$0.330	HK$0.360
Exercise price	HK$0.323	HK$0.490
Expected volatility	67%	76.85%
Expected life	2 years	2 years
Risk-free rate	4.59%	3.64%
Expected dividend yield	Nil	Nil

Expected volatility was determined by using the historical volatility of CASH’s share price over the previous 256 trading days.

There were no share options granted and no expense was charged to consolidated income statement for year ended 31 December 2008.

(B) Share option schemes of the Company

(a) New Option Scheme

The Company’s share option scheme (“New Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of the Company held on 22 February 2008, which took effect on 3 March 2008. During the year ended 31 December 2008, no option has been granted under New Option Scheme.

The major terms of New Option Scheme are summarised as follows:

(i) The purpose was to provide incentives to:
award and retain the participants who have made contributions to CASH and its subsidiaries (“CASH Group”), including the Retail Group and the Group; or
attract potential candidates to serve the CASH Group for the benefit of the development of the CASH Group.
(ii) The participants included any employees (whether full time or part time), executives and officers (including executive and non-executive directors) and business consultants, agents and legal and financial advisers of the CASH Group.

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APPENDIX II

(iii) The maximum number of shares in respect of which options might be granted under New Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of New Option Scheme and such limit might be refreshed by shareholders in general meeting. However, the total maximum number of shares which might be issued upon exercise of all outstanding options granted and yet to be exercised under New Option Scheme and any other share option scheme must not exceed 30% of the shares in issue of the Company from time to time.
(iv) The maximum number of shares in respect of which options might be granted to a participant, when aggregated with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any option granted to the same participant under New Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue of the Company from time to time.
(v) There was no requirement for a grantee to hold the option for a certain period before exercising the option save as determined by the Board of Directors of the Company and provided in the offer of grant of option.
(vi) The exercise period should be any period fixed by the Board of Directors of the Company upon grant of the option but in any event the option period should not go beyond 10 years from the date of offer for grant.
(vii) The acceptance of an option, if accepted, must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee to the Company.
(viii) The exercise price of an option must be the highest of:
- the closing price of the shares of the Company on the date of grant which day must be a trading day;
- the average closing price of the shares of the Company for the 5 trading days immediately preceding the date of grant; and
- the nominal value of the share.
(ix) The life of New Option Scheme is effective for 10 years from the date of adoption until 22 February 2018.
(b) Option Scheme

Prior to 3 March 2008, the Company’s share option scheme (“Share Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of the Company held on 19 February 2002. The major terms of Share Option Scheme are summarised as follows:

(i) The purpose was to provide incentives to:
award and retain the participants who have made contributions to the Group; or
attract potential candidates to serve the Group for the benefit of the development of the Group.
(ii) The participants included any employee, director, consultant, adviser or agent of any member of the Group.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

(iii) The maximum number of shares in respect of which share options might be granted under Share Option Scheme must not exceed 10% of the issued share capital of the Company as at the date of approval of Share Option Scheme and such limit might be refreshed by shareholders in general meeting. However, the total maximum number of shares which might be issued upon exercise of all outstanding share options granted and yet to be exercised under Share Option Scheme and any other share option scheme must not exceed 30% of the shares in issue from time to time.
(iv) The maximum number of shares in respect of which share options might be granted to a participant, when aggregated with shares issued and issuable (including exercised and outstanding options and the options cancelled) under any share option granted to the same participant under Share Option Scheme or any other share option scheme within any 12 month period, must not exceed 1% of the shares in issue from time to time.
(v) There was no requirement for a grantee to hold the share option for a certain period before exercising the share option save as determined by the board of directors of the Company and provided in the offer of grant of share option.
(vi) The exercise period should be any period fixed by the board of directors of the Company upon grant of the share option but in any event the share option period should not go beyond 10 years from the date of offer for grant.
(vii) The acceptance of a share option, if accepted, must be made within 28 days from the date of grant with a non-refundable payment of HK$1.00 from the grantee to the Company.
(viii) The exercise price of a share option must be the highest of:
the closing price of the shares of the Company on the date of grant which day must be a trading day;
the average closing price of the shares of the Company for the 5 trading days immediately preceding the date of grant; and
the nominal value of the share of the Company.
(ix) The life of Share Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

The following table discloses details of the Company’s share options held by the Directors of CRM(HK) and movements in such holdings:

Name of scheme Date of grant Exercise price per share Exercise period HK$ Directors of the Retail Group Share Option Scheme 6.10.2005 0.380 6.10.2005 – 31.10.2006 7.7.2006 0.296 7.7.2006 – 31.7.2008			Number of s	hare options
	outstanding as at 1.1.2006 38,700,000 – 38,700,000	granted in 2006 (Note (1)&(2)) – 31,800,000 31,800,000	lapsed in 2006 (Note (3)) (38,700,000) – (38,700,000)	outstanding as at 31.12.2006 and 1.1.2007 – 31,800,000 31,800,000	exercised in 2007 (Note (4)) – (31,800,000) (31,800,000)	outstanding as at 31.12.2007, 1.1.2008 and 31.12.2008 – –
						–

Notes:

(1) The option was granted to the directors of CRM(HK) for their service to the CASH Group. The Directors of the Company considered the financial impact of share options granted by the Company to Directors of CRM(HK) the Company was insignificant. No expense was charged to consolidated income statements for the year ended 31 December 2006.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

(2) The closing price of share of the Company immediately before the date of grant on 7 July 2006 was HK$0.290.
(3) The lapsed share options were due to expiry or cessation of employment of participants with the Company.
(4) The weighted closing price of the share of the Company immediately before the date of exercise was HK$0.640.

During the year ended 31 December 2006, share options were granted on 7 July 2006. The estimated fair values of the share options granted on that date are HK$478,000.

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

	Share options
	grant date
	7 July 2006
Weighted average share price	HK$0.29
Exercise price	HK$0.30
Expected volatility	74%
Expected life	2 years
Risk-free rate	4.59%
Expected dividend yield	3.125%

Expected volatility was determined by using the historical volatility of the Company’s share price over the previous 256 trading days. The expected life used in the model has been adjusted, based on the management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

27. Related party transactions

Apart from the amounts due from and to fellow subsidiaries and disposal of subsidiaries as set out in notes 18, 19, 20, 22 and 26 respectively, during the Relevant Periods, the Retail Group had entered the following related party transactions:

Service fee income received from fellow subsidiaries Purchase of property and equipment and prepaid lease payments from immediate holding company Consideration received for disposal of property and equipment	2006 HK$’000 – 48,000 9,801	2007 HK$’000 165 – –	2008 HK$’000 3,012

			–

			–

During the year ended 31 December 2006, 2007 and 2008, compensation of key management personnel represented Directors’ remuneration which is disclosed in note 9. The Director’s remuneration is determinated by the remuneration committee having regard to the performance, responsibilities and experience of individuals and market trends.

28. Loss (earnings) per share

Loss (earnings) per share is not presented herein as such information is not considered meaningful for the purpose of this report.

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ACCOUNTANTS’ REPORT OF THE RETAIL GROUP

APPENDIX II

(B) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Retail Group, CRM(HK) or any of the companies comprising the Retail Group in respect of any period subsequent to 31 December 2008.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

– 168 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

1. UNAUDITED PRO FORMA BALANCE SHEET OF THE ENLARGED GROUP

(a) Introduction

The unaudited pro forma balance sheet of the Enlarged Group has been prepared to illustrate the effect of the proposed acquisition of the equity interest in CASH Retail Management (HK) Limited (“CRM(HK)”) and its subsidiaries (“Acquisition”).

The unaudited pro forma balance sheet of the Enlarged Group has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Acquisition as if the acquisition took place on 31 December 2008.

The unaudited pro forma balance sheet of the Enlarged Group is based upon the audited consolidated balance sheet of the Group as at 31 December 2008, which has been extracted from the audited consolidated financial statements of the Group for the year ended 31 December 2008 set out in Appendix I to this circular and the audited consolidated balance sheet of CRM(HK) as at 31 December 2008 as extracted from the accountants’ report as set out in Appendix II to this circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the transaction, and (ii) factually supportable.

The unaudited pro forma balance sheet of the Enlarged Group is based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma balance sheet of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group that would have been attained had the Acquisition been completed on 31 December 2008. The unaudited pro forma balance sheet of the Enlarged Group does not purport to predict the future financial position of the Enlarged Group.

The unaudited pro forma balance sheet of the Enlarged Group should be read in conjunction with the historical information of the Group as set out in the audited consolidated financial statements of the Group for the year ended 31 December 2008 set out in Appendix I to this circular and other financial information included elsewhere in this circular.

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(b) Unaudited pro forma consolidated balance sheet

Non-current assets Property and equipment Prepaid lease payments Deferred tax assets Goodwill Intangile assets Other assets Loans receivable Interests in associates Loan to an associate Current assets Inventories Accounts receivable Amounts receivable on disposal of subsidiaries Loans receivable Prepayments, deposits and other receivables Amount due from an associate Amounts due from fellow subsidiaries Tax recoverable Investments held for trading Deposits with brokers Bank deposits subject to conditions Bank balances – trust and segregated accounts Bank balances (general accounts) and cash Current liabilities Accounts payable Accrued liabilities and other payables Derivative financial liabilities Amounts due to fellow subsidiaries Taxation payable Obligations under finance leases – amount due within one year Bank borrowings – amount due within one year Loan from a minority shareholder Other financial liabilities Net current assets (liabilities)	The Group as at 31 December 2008 HK$’000 Note (a) 108,164 – – 4,933 11,062 132,718 192 111,684 10,296 379,049 – 304,042 171,498 13,629 22,864 260 341 1,230 79,155 2,730 35,180 542,079 175,201 1,348,209 689,175 46,482 3,067 – 20,172 127 195,253 27,437 – 981,713 366,496 745,545	CRM(HK) as at 31 December 2008 HK$’000 Note (b) 45,928 15,548 2,000 – – – – – – 63,476 38,407 – – – 34,479 – 51,006 – – – 54,030 – 37,786 215,708 97,528 28,489 – 34,618 2,031 – 79,066 – – 241,732 (26,024) 37,452	Proforma adjustments Sub-total The completion of proposed transfer of 60% equity interest in CRM(HK) Notes Sub-total The completion of proposed transfer of remaining 40% equity interest in CRM(HK) Notes HK$’000 HK$’000 HK$’000 HK$’000 Note (c) Note (c) 154,092 154,092 15,548 15,548 2,000 2,000 4,933 87,155 d(v) 92,088 85,053 e(v) 11,062 11,062 132,718 (60,000) d(i) 72,718 192 192 111,684 111,684 10,296 10,296 442,525 469,680 38,407 38,407 304,042 304,042 171,498 171,498 13,629 13,629 57,343 57,343 260 260 51,347 51,347 1,230 1,230 79,155 79,155 2,730 2,730 89,210 89,210 542,079 542,079 212,987 212,987 1,563,917 1,563,917 786,703 786,703 74,971 74,971 3,067 3,067 34,618 34,618 22,203 22,203 127 127 274,319 274,319 27,437 27,437 – 58,754 d(iv) 58,754 (58,754) e(iii) 1,223,445 1,282,199 340,472 281,718 782,997 751,398	Pro Forma Enlarged Group HK$’000 154,092 15,548 2,000 177,141 11,062 72,718 192 111,684 10,296
				554,733
				38,407 304,042 171,498 13,629 57,343 260 51,347 1,230 79,155 2,730 89,210 542,079 212,987
				1,563,917
				786,703 74,971 3,067 34,618 22,203 127 274,319 27,437 –
				1,223,445
				340,472
				895,205

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Capital and reserves Share capital Convertible loan note equity reserve Reserves Equity attributable to equity holders of the Company Minority interests Other reserves Non-current liabilities Deferred tax liabilities Obligations under finance leases – amount due after one year Bank borrowings – amount due after one year Convertible loan note – amount due after one year	The Group as at 31 December 2008 HK$’000 Note (a) 41,140 – 648,153 689,293 16,762 – 706,055 2,342 315 36,833 – 39,490 745,545	CRM(HK) as at 31 December 2008 HK$’000 Note (b) – – 37,452 37,452 – – 37,452 – – – – – 37,452	Proforma adjustments Sub-total The completion of proposed transfer of 60% equity interest in CRM(HK) Notes Sub-total The completion of proposed transfer of remaining 40% equity interest in CRM(HK) Notes HK$’000 HK$’000 HK$’000 HK$’000 Note (c) Note (c) 41,140 41,140 – 4,100 d(i) 4,100 4,600 e(i) 685,605 (37,452) d(ii) 648,153 726,745 693,393 16,762 14,981 d(iii) 31,743 (14,981) e(i) – (79,394) d(vi) (79,394) 79,394 e(ii) 743,507 645,742 2,342 2,342 315 315 36,833 36,833 – 66,166 d(i) 66,166 74,794 e(i) 39,490 105,656 782,997 751,398	Pro Forma Enlarged Group HK$’000 41,140 8,700 648,153
				697,993 16,762 –
				714,755
				2,342 315 36,833 140,960
				180,450
				895,205

Notes:

(a) Figures extracted from 2008 annual report of the Company.
(b) Figures extracted from consolidated financial statements of CRM(HK) as set out in Appendix II to this circular after reclassification of certain accounts to align the presentation with that of the Group.
(c) The adjustments are made assuming: (1) the carrying amounts of the assets and liabilities of CRM(HK) as at 31 December 2008 approximate their then fair value; (2) no material intangible assets are identified in the business of CRM(HK) to be acquired ; and (3) the transaction costs involved are insignificant.
(d) The adjustments in connection with the acquisition of 60% equity interest in CRM(HK) represent:
(i) (1) HK$60,000,000 cash consideration which was paid by the Company during the year and recorded as other assets as at 31 December 2008; (2) the issuance of Convertible Notes of principal amount of HK$109,816,000 by the Company (After adjustment for the amount due from the Group to the subsidiaries of CRM(HK) as at 31 December 2008). Upon the application of Hong Kong Accounting Standard 32 Financial Instruments: Presentation (“HKAS 32”), the Convertible Notes is split between the liability and equity elements, amounting to HK$66,166,000 and HK$4,100,000 respectively. The liability and equity elements of the Convertible Notes are measured at fair value and the valuation is determined by an independent professional valuer in accordance with generally accepted pricing models;
(ii) elimination of pre-acquisition reserves of CRM(HK) and its subsidiaries as at 31 December 2008 amounting to HK$37,452,000;

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(iii) recognition of 40% miniority interest of CRM(HK) and its subsidiaries as at 31 December 2008 amounting to HK$14,981,000;
(iv) the net amount of the followings:
- (1) the value of the Purchaser Call Option (which comprises a purchaser call option and a vendor put option, the arrangement of which is in effect a forward) to acquire the remaining 40% equity interest in CRM(HK) at a fair value amounting to approximately HK$20,640,000. This amount is determined by an independent professional valuer in accordance with Black-Scholes option pricing model, assuming, inter alia, the business value of 40% interest of CRM(HK) and its subsidiaries is approximately HK$117.6 million while the estimated fair value of the Convertible Notes to be issued upon Second Completion is approximately HK$79.4 million; and
- (2) a gross liability amounting to HK$79,394,000 recognised as the Group now has an obligation under the vendor put option (embedded in the Purchaser Call Option as discussed above) to deliver the Convertible Notes with principal amount of HK$124,136,000 in connection with the acquisition of the remaining 40% equity interest in CRM(HK);
(v) The Group will apply the purchase method to account for the acquisition of CRM(HK). In applying the purchase method, the identifiable assets, liabilities and contingent liabilities of CRM(HK) and its subsidiaries will be recorded at fair values at the date of the completion. A goodwill of HK$87,155,000, representing the excess of the consideration for the acquisition of 60% interest in CRM(HK) amounting to HK$130,266,000 (see note (d) (i) for details) over 60% of net asset value of CRM(HK) and its subsidiaries amounting to HK$22,471,000 and the fair value of the Purchaser Call Option of HK$20,640,000 as discussed above in note (iv) (1), will be recognised. The Group will engage independent professional valuer to assess the fair value of the Convertible Notes to be issued by the Company and the Purchaser Call Option as well as the identifiable assets, liabilities and contingent liabilities of CRM(HK) and its subsidiaries at the date of completion for the purpose of the preparation of the consolidated financial statements of the Company; and
(vi) the recording of an equity element as a result of the vendor put option as discussed in note (d) (iv) (2) above.
(e) The adjustments in connection with the acquisition of the remaining 40% equity interest in CRM(HK) represent:
(i) the issuance of Convertible Notes of principal amount of HK$124,136,000 by the Company. Upon the application of HKAS32, the Convertible Notes is split between the liability and equity elements, amounting to HK$74,794,000 and HK$4,600,000 respectively. The liability and equity elements of the Convertible Notes are measured at fair value and the valuation is determined by an independent professional valuer in accordance with generally accepted pricing models.
(ii) reversal of 40% minority interest of CRM(HK) and its subsidiaries previously recognised in note (d) (iii) and reversal of the adjustment in (d) (vi) upon the acquisition of 40% remaining interest in CRM(HK);
(iii) reversal of the adjustments previously recognised in note (d) (iv) above upon exercise of the Purchaser Call Option for the acquisition of 40% remaining interest in CRM(HK); and
(iv) An additional goodwill of HK$85,053,000, representing the excess of the consideration for the acquisition of the remaining 40% interest in CRM(HK) amounting to HK$100,034,000 (including the issuance of Convertible Notes as detailed in note (e) (i) and the Purchaser Call Option as detailed in note (d) (iv) (1) above) over 40% of net asset value of CRM(HK) and its subsidiaries amounting to HK$14,981,000, will be recognised. The Group will engage independent professional valuer to assess the fair value of the Convertible Notes to be issued by the Company, as the identifiable assets, liabilities and contingent liabilities of CRM(HK) and its subsidiaries and the Purchaser Call Option at the date of completion for the purpose of the preparation of the consolidated financial statements of the Company.
(f) Upon the full conversion of the Convertible Notes by CASH, the share capital of the Company will be increased by approximately HK$15.8 million.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

2. UNAUDITED PRO FORMA INCOME STATEMENT AND UNAUDITED PRO FORMA CASH FLOW STATEMENT OF THE ENLARGED GROUP

(a) Introduction

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group have been prepared to illustrate the effect of the Acquisition. The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group have been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Acquisition as if the Acquisition had taken place at 1 January 2008.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group are based upon the audited consolidated income statement and audited consolidated cash flow statement of the Group for the year ended 31 December 2008, which have been extracted from the audited consolidated financial statements of the Group for year ended 31 December 2008 set out in Appendix I to this circular and the audited consolidated income statement and audited consolidated cash flow statement of CRM(HK) for the year ended 31 December 2008 as extracted from the accountants' report as set out in Appendix II to this circular, after making pro forma adjustments relating to the Acquisition that are (i) directly attributable to the transaction and (ii) factually supportable.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group are based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group do not purport to describe the actual results and cash flow of the Enlarged Group that would have been attained had the Acquisition been completed at 1 January 2008 or to predict the future results and cash flow of the Enlarged Group.

The unaudited pro forma income statement and unaudited pro forma cash flow statement of the Enlarged Group should be read in conjunction with the historical information of the Group as set out in the audited consolidated financial statements of the Group for the year ended 31 December 2008 set out in Appendix I to this circular and other financial information included elsewhere in this circular.

The statements have been prepared by the Directors for illustrative purposes only and because of their nature, they may not give a true picture of the results and the cash flow of the Enlarged Group had the Acquisition actually occurred at the beginning of the year ended 31 December 2008 or for any future period.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(b) Unaudited pro forma income statement

Revenue Cost of sales Gross profit Other operating income Salaries, allowances and commission Other operating and administrative expenses Depreciation Finance cost Net losses on financial assets at fair value through profit or loss Net increase in fair value on derivative financial instruments Share of results of an associate Loss (profit) before taxation Taxation charge Loss (profit) for the year Attributable to : Equity holders of the Company Minority interest	The Group for the year ended 31 December 2008 HK$’000 Note (a) 324,651 – 324,651 5,260 (151,110) (100,649) (15,655) (20,134) (172,117) 8,734 39,096 (81,924) (4,294) (86,218) (99,595) 13,377 (86,218)	CRM(HK) for the year ended 31 December 2008 HK$’000 Note (b) 863,997 (491,172) 372,825 7,621 (101,206) (223,718) (16,362) (3,226) – – – 35,934 (4,900) 31,034 31,034 – 31,034	Sub-total HK$’000 1,188,648 (491,172) 697,476 12,881 (252,316) (324,367) (32,017) (23,360) (172,117) 8,734 39,096 (45,990) (9,194) (55,184) (68,561) 13,377 (55,184)	The completion of proposed transfer of 60% equity interest in CRM(HK) Notes HK$’000 Note (c) (14,199) (c)(i) (14,199) (14,199) (26,613) (c)(iii) 12,414 (c)(ii) (14,199)	Sub-total HK$’000 1,188,648 (491,172) 697,476 12,881 (252,316) (324,367) (32,017) (37,559) (172,117) 8,734 39,096 (60,189) (9,194) (69,383) (95,174) 25,791 (69,383)	The completion of proposed transfer of remaining 40% equity interest in CRM(HK) Notes HK$’000 Note (d) (16,051) (d)(i) (16,051) (16,051) (3,637) (d)(iii) (12,414) (d)(ii) (16,051)	Pro Forma Enlarged Group HK$’000 1,188,648 (491,172)
							697,476 12,881 (252,316) (324,367) (32,017) (53,610) (172,117) 8,734 39,096
							(76,240) (9,194)
							(85,434)

							(98,811) 13,377
							(85,434)

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Notes:

(a) Figures extracted from 2008 annual report of the Company.
(b) Figures extracted from consolidated financial statements of CRM(HK) as set out in Appendix II to this circular after reclassification of certain accounts to align the presentation with that of the Group.
(c) The adjustments represent:
(i) the finance costs, representing the effective interest of Convertible Notes to be issued after the First Completion, assuming the fair value of the liability component of Convertible Notes as at 1 January 2008 approximately their fair values as at 31 December 2008;
(ii) the profit attributable to minority interests of CRM(HK) upon the completion of proposed transfer of 60% equity interest in CRM(HK) for the year ended 31 December 2008; and
(iii) the net amount of (i) and (ii) above.
(d) The adjustments represent:
(i) the finance costs, representing the effective interest of the Convertible Notes to be issued after the Second Completion, assuming the fair value of the liability component of the relevant Convertible Notes as at 1 January 2008 approximate their fair values as at 31 December 2008;
(ii) the elimination of minority interests of CRM(HK) after the completion of proposed transfer of remaining 40% equity interest in CRM(HK); and
(iii) the net amount of (i) and (ii) above.
(e) The adjustments in notes (c)(i) and (d)(i) will have a continuing effect to the Enlarged Group before the full conversion of the Convertible Notes. The other proforma adjustments have no continuing effect to the Enlarged Group.

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

(c) Unaudited pro forma consolidated cash flow statement

				Proforma	adjustments
							The
				The			completion
				completion			of proposed
	The Group	CRM(HK)		of proposed			transfer of
	for the	for the		transfer of			remaining
	year ended	year ended		60% equity			40% equity		Pro Forma
	31 December	31 December		interest in			interest in		Enlarged
	2008	2008	Sub-total	CRM(HK)		Sub-total	CRM(HK)	Notes	Group
	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000		HK$’000
	Note (a)	Note (b)		Note (c)	Notes		Note (d)
Operating activities
(Loss) profit before taxation	(81,924)	35,934	(45,990)	(14,199)	c(i)	(60,189)	(16,051)	d(i)	(76,240)
Adjustments for:
Allowance of bad and
doubtful debts	900	–	900			900			900
Bad debt on accounts
and loans receivable
written off directly	177	–	177			177			177
Amortisation of prepaid
lease payments	–	415	415			415			415
Depreciation of property
and equipment	15,655	16,362	32,017			32,017			32,017
Allowance of inventory
obsolescence	–	2,044	2,044			2,044			2,044
Interest income arising
from accounts
receivable on disposal
of subsidiaries	(8,795)	–	(8,795)			(8,795)			(8,795)
Interest expense	20,134	3,226	23,360	14,199	c(ii)	37,559	16,051	d(ii)	53,610
Interest income	–	(942)	(942)			(942)			(942)
Fair value change on
investment property	(823)	–	(823)			(823)			(823)
Loss on disposal of
intangible assets	830	–	830			830			830
Loss on disposal of
property and
equipment	–	187	187			187			187
Gain on disposal of
property and
equipment	(35)	–	(35)			(35)			(35)
Realised loss on equity-
linked structured
deposits	29,905	–	29,905			29,905			29,905
Share of profit of an
associate	(39,096)	–	(39,096)			(39,096)			(39,096)
Revaluation deficit on
buildings	–	1,388	1,388			1,388			1,388

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Operating cash (outflows) inflow before movements in working capital Increase in inventories Decrease (increase) in accounts receivable Decrease in loan receivables Decrease (increase) in prepayments, deposits and other receivables Decrease in amounts due from fellow subsidiaries Increase in investments held for trading Increase in derivative financial liabilities Decrease in deposits with brokers Decrease in bank balances – trust and segregated accounts Decrease in equity-linked structured deposits Decrease in accounts payable Decrease in accrued liabilities and other payables Net cash from operations Income taxes paid Net cash from operating activities	The Group for the year ended 31 December 2008 HK$’000 Note (a) (63,072) – 627,376 14,322 5,354 440 (28,143) (8,734) 64,902 386,448 28,507 (690,346) (22,052) 315,002 (4,003) 310,999	CRM(HK) for the year ended 31 December 2008 HK$’000 Note (b) 58,614 (5,976) (52) – (7,110) – – – – – – (2,399) (10,511) 32,566 (5,069) 27,497	Sub-total HK$’000 (4,458) (5,976) 627,324 14,322 (1,756) 440 (28,143) (8,734) 64,902 386,448 28,507 (692,745) (32,563) 347,568 (9,072) 338,496	Proforma adjustments The completion of proposed transfer of 60% equity interest in CRM(HK) Sub-total HK$’000 HK$’000 Note (c) Notes (4,458) (5,976) 627,324 14,322 (1,756) 440 (28,143) (8,734) 64,902 386,448 28,507 (692,745) (32,563) 347,568 (9,072) 338,496	The completion of proposed transfer of remaining 40% equity interest in CRM(HK) Notes HK$’000 Note (d)	Pro Forma Enlarged Group HK$’000 (4,458) (5,976) 627,324 14,322 (1,756) 440 (28,143) (8,734) 64,902 386,448 28,507 (692,745) (32,563)
						347,568 (9,072)
						338,496

– 177 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Investing activities Interest income Acquisition of subsidiaries Disposal of subsidiaries Increase in bank deposits subject to conditions Statutory and other deposits paid Purchase of property and equipment Proceeds on disposal of property and equipment Proceeds on disposal of intangible assets Proceeds on disposal of investment property Deposits paid for acquisition of fellow subsidiaries Repayment from fellow subsidiaries Net cash used in investing activities Financing activities Increase in bank overdrafts (Decrease) increase in bank loans New loans raised Repayment of borrowings Repayment of loan payable Payment of repurchase of shares Proceeds on issue of shares Share issue expenses Dividends paid Interests paid on bank borrowings Interests paid on obligations under finance leases Interests paid on convertible notes Repayment of obligations under finance leases Repayment to fellow subsidiaries Net used in financing activities	The Group for the year ended 31 December 2008 HK$’000 Note (a) – (105) – (6,505) (311) (98,254) 35 500 5,823 (60,000) – (158,817) 12,957 (76,613) – – (35,853) (10,904) 528 (40) (103,566) (20,125) (9) – (103) – (233,728)	CRM(HK) for the year ended 31 December 2008 HK$’000 Note (b) 942 (6,663) (2,214) – (13,586) – – – – 1,014 (20,507) – – 286,845 (283,733) – – – – – (3,226) – – – (5,803) (5,917)	Sub-total HK$’000 942 (105) (6,663) (8,719) (311) (111,840) 35 500 5,823 (60,000) 1,014 (179,324) 12,957 (76,613) 286,845 (283,733) (35,853) (10,904) 528 (40) (103,566) (23,351) (9) – (103) (5,803) (239,645)	Proforma adjustments The completion of proposed transfer of 60% equity interest in CRM(HK) Sub-total HK$’000 HK$’000 Note (c) Notes 942 (105) (6,663) (8,719) (311) (111,840) 35 500 5,823 36,674 c(iii) (23,326) 1,014 36,674 (142,650) 12,957 (76,613) 286,845 (283,733) (35,853) (10,904) 528 (40) (103,566) (23,351) (9) (2,196) c(iv) (2,196) (103) (5,803) (2,196) (241,841)	The completion of proposed transfer of remaining 40% equity interest in CRM(HK) Notes HK$’000 Note (d) (2,482) d(iii) (2,482)	Pro Forma Enlarged Group HK$’000 942 (105) (6,663) (8,719) (311) (111,840) 35 500 5,823 (23,326) 1,014
						(142,650)
						12,957 (76,613) 286,845 (283,733) (35,853) (10,904) 528 (40) (103,566) (23,351) (9) (4,678) (103) (5,803)
						(244,323)

– 178 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of change in foreign exchange rates Cash and cash equivalents at end of the year	The Group for the year ended 31 December 2008 HK$’000 Note (a) (81,546) 256,668 79 175,201	CRM(HK) for the year ended 31 December 2008 HK$’000 Note (b) 1,073 36,674 39 37,786	Sub-total HK$’000 (80,473) 293,342 118 212,987	Proforma adjustments The completion of proposed transfer of 60% equity interest in CRM(HK) Sub-total HK$’000 HK$’000 Note (c) Notes 34,478 (45,995) (36,674) c(ii) 256,668 118 (2,196) 210,791	The completion of proposed transfer of remaining 40% equity interest in CRM(HK) Notes HK$’000 Note (d) (2,482) (2,482)	Pro Forma Enlarged Group HK$’000 (48,477) 256,668 118
						208,309

Notes:

(a) Figures extracted from 2008 annual report of the Company.
(b) Figures extracted from consolidated financial statements of CRM(HK) as set out in Appendix II to this circular after reclassification of certain accounts to align the presentation with that of the Group.
(c) The adjustments represent:
(i) the interest expenses of the Convertible Notes for the transfer of 60% equity interest in CRM(HK) as of 1 January 2008;
(ii) the reversal of interest expenses of the Convertible Notes for the transfer of 60% equity interest in CRM(HK) as of 1 January 2008;
(iii) the true up of the net cash outflow from the acquisition of 60% interest in CRM(HK) and its subsidiaries of HK$23,326,000; and
(iv) interest payment on 2% coupon on the Convertible Notes for the transfer of 60% equity interest in CRM(HK) as of 1 January 2008 of HK$2,196,000.
(d) The adjustments represent:
(i) the interest expenses of the Convertible Notes for the transfer of remaining 40% equity interest in CRM(HK) as of 1 January 2008;
(ii) the reversal of interest expenses of the Convertible Notes for the transfer of remaining 40% equity interest in CRM(HK) as of 1 January 2008; and
(iii) interest payment on 2% coupon on the Convertible Notes for the transfer of remaining 40% equity interest in CRM(HK) as of 1 January 2008 of HK$2,482,000.
(e) Other then adjustment in note (c)(iii) above which does not have a continuing effect to the Enlarged Group before the full Conversion of Convertible Notes, the other adjustments have continuing effect to the Enlarged Group.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

B. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the full text of a report received from the reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular:

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ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

TO THE DIRECTORS OF CASH FINANCIAL SERVICES GROUP LIMITED

We report on the unaudited pro forma financial information of CASH Financial Services Group Limited (“Company”) and its subsidiaries (hereinafter collectively referred to as “Group”) and CASH Retail Management (HK) Limited and its subsidiaries, which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the Hong Kong retail business of Celestial Asia Securities Holdings Limited might have affected the financial information presented, for inclusion in Appendix III of the circular dated 26 May 2009 (“Circular”). The basis of preparation of the unaudited pro forma financial information is set out on page 169 to 179 of the Circular.

Respective responsibilities of directors of the Company and reporting accountants

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

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

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified

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APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

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

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

the financial position of the Group as at 31 December 2008 or any future date: or
the results and cash flows of the Group for the year ended 31 December 2008 or any future period.

Opinion

In our opinion:

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

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

26 May 2009

– 181 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DIRECTORS’ INTERESTS

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 or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or (b) were recorded in the register required to be kept under section 352 of the SFO, or (c) were otherwise notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

A. The Company

Long positions in the ordinary Shares

Name Capacity Kwan Pak Hoo Bankee Beneficial owner and founder of a discretionary trust Chan Chi Ming Benson Beneficial owner Law Ping Wah Bernard Beneficial owner Cheng Man Pan Ben Beneficial owner Yuen Pak Lau Raymond Beneficial owner and family interest Lo Kwok Hung John Beneficial owner		Number of Shares	Other interest 315,121,198* – – – – – 315,121,198	Shareholding (%) 52.39 1.62 2.23 0.86 0.81 0.03
	Personal 8,168,000 10,000,000 13,771,120 5,334,000 5,000,000 169,000 42,442,120	Family – – – – 10,000 – 10,000
				57.94

The Shares were held as to 298,156,558 Shares by CIGL, a wholly-owned subsidiary of Praise Joy Limited (which was 100% beneficially owned by CASH), and as to 16,964,640 Shares by Cash Guardian. Pursuant to the SFO, CASH was owned as to approximately 48.32% by Cash Guardian (which was 100% beneficially owned by Jeffnet Inc). Jeffnet Inc held these Shares as trustee of The Jeffnet Unit Trust, units of which were held by a discretionary trust established for the benefit of the family members of Mr Kwan Pak Hoo Bankee. Mr Kwan was deemed to be interested in all these Shares as a result of his interests in CASH through Cash Guardian as disclosed in the heading of “Substantial Shareholders” in this section below.

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GENERAL INFORMATION

APPENDIX IV

B. Associated corporation (within the meaning of the SFO)

CASH

(a) Long positions in the ordinary shares of HK$0.10 each

Name Capacity Kwan Pak Hoo Bankee Founder of a discretionary trust Law Ping Wah Bernard Beneficial owner Cheng Man Pan Ben Beneficial owner Yuen Pak Lau Raymond Beneficial owner	Number of shares Personal Other interest – 66,398,512* 6,784,060 – 12,700 – 650,000 – 7,446,760 66,398,512	Shareholding (%) 36.78 3.76 0.01 0.36
	Personal – 6,784,060 12,700 650,000 7,446,760
		40.91

The shares were held by Cash Guardian. Mr Kwan Pak Hoo Bankee was deemed to be interested in all these shares as a result of his interests in Cash Guardian as disclosed in the heading of “Substantial Shareholders” in this section below.
(b) Long positions in the underlying shares
(i) Options under share option scheme

Name Date of grant Exercise period Exercise price per share (HK$) Kwan Pak Hoo Bankee 6/6/2007 6/6/2007 – 31/5/2009 2.45 13/3/2009 13/3/2009 – 31/3/2011 1.13 Chan Chi Ming Benson 13/3/2009 13/3/2009 – 31/3/2011 1.13 Law Ping Wah Bernard 6/6/2007 6/6/2007 – 31/5/2009 2.45 13/3/2009 13/3/2009 – 31/3/2011 1.13 Cheng Man Pan Ben 6/6/2007 6/6/2007 – 31/5/2009 2.45 13/3/2009 13/3/2009 – 31/3/2011 1.13 Yuen Pak Lau Raymond 6/6/2007 6/6/2007 – 31/5/2009 2.45 13/3/2009 13/3/2009 – 31/3/2011 1.13	Number of options outstanding 500,000 1,800,000 1,500,000 500,000 1,800,000 1,300,000 1,000,000 500,000 1,000,000 9,900,000	Percentage to issued shares (%) 0.28 0.99 0.83 0.28 0.99 0.72 0.55 0.28 0.55
		5.47

– 183 –

GENERAL INFORMATION

APPENDIX IV

(ii) Convertible note

	Date of		Conversion	Number of
	convertible		price	underlying	Percentage to
Name	note	Exercise period	per share	shares	issued shares
			(HK$)		(%)
Kwan Pak Hoo Bankee	17/2/2009	17/8/2009 – 31/12/2011	1.00	43,243,000	23.96

Note: The convertible note in the outstanding amount of HK$43,243,000 was held by Cash Guardian. Mr Kwan Pak Hoo Bankee was deemed to be interested in all these shares as a result of his interests in Cash Guardian as disclosed in the heading of “Substantial Shareholders” in this section below.

Name Kwan Pak Hoo Bankee Chan Chi Ming Benson Law Ping Wah Bernard Cheng Man Pan Ben Yuen Pak Lau Raymond	Number of shares 66,398,512 – 6,784,060 12,700 650,000 73,845,272	Number of underlying shares 45,543,000 1,500,000 2,300,000 2,300,000 1,500,000 53,143,000	Aggregate in number 111,941,512 1,500,000 9,084,060 2,312,700 2,150,000 126,988,272	Percentage to issued shares (%) 62.01 0.83 5.03 1.28 1.19
				70.34

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executive or their Associates had any interests and short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or (b) were recorded in the register required to be kept under section 352 of the SFO, or (c) were otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

– 184 –

GENERAL INFORMATION

APPENDIX IV

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the persons/companies, other than a Director or chief executive of the Company, who had interests or short positions in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group and any options in respect of such capital, or were otherwise notified to the Company and recorded in the register required to be kept under section 336 of the SFO were as follows:

A. Long positions in the ordinary Shares

		Number of
Name	Capacity	Shares	Shareholding
			(%)
Jeffnet Inc (“Jeffnet”)	Trustee of a	315,121,198	51.06
(Note (1))	discretionary trust
Cash Guardian	Interest in a controlled	315,121,198	51.06
(Note (1))	corporation
CASH (Note (1))	Interest in a controlled	298,156,558	48.32
	corporation
Praise Joy Limited	Interest in a controlled	298,156,558	48.32
(Note (1))	corporation
CIGL (Note (1))	Beneficial owner	298,156,558	48.32
Mr Al-Rashid,	Interest in a controlled	64,372,480	10.43
Abdulrahman Saad	corporation
(“Mr Al-Rashid”)
(Note (2))
ARTAR (Note (2))	Beneficial owner	64,372,480	10.43

Notes:

(1) This refers to the same number of 315,121,198 Shares which were held as to 298,156,558 Shares by CIGL, a wholly-owned subsidiary of Praise Joy Limited (which was 100% beneficially owned by CASH) and as to 16,964,640 Shares by Cash Guardian (which was 100% beneficially owned by Jeffnet Inc). CASH owned as to approximately 48.32% by Cash Guardian. Jeffnet Inc held these Shares as trustee of The Jeffnet Unit Trust, units if which were held by a discretionary trust established for the benefit of the family members of Mr Kwan Pak Hoo Bankee. Pursuant to the SFO, Mr Kwan, Jeffnet Inc and Cash Guardian were deemed to be interested in all the Shares held by CIGL through CASH.
(2) This refers to the same number of 64,372,480 Shares held by ARTAR. ARTAR was a 45% owned controlled corporation of Mr Al-Rashid. Pursuant to the SFO, Mr Al-Rashid was deemed to be interested in the Shares held by ARTAR.

– 185 –

GENERAL INFORMATION

APPENDIX IV

(3) Mr Kwan (a Director whose interest is not shown in the above table) was interested and/or deemed to be interested in a total of 323,289,198 Shares (52.39%), which were held as to 298,156,558 Shares by CIGL, as to 16,964,640 Shares by Cash Guardian and as to 8,168,000 Shares in his personal name. Details of his interest are set out under the heading of “Directors’ Interests” in this section.

B. Long positions in the ordinary shares of subsidiary of the Enlarged Group

		Number of
Name of subsidiary	Name of shareholder	shares	Shareholding
			(%)
Marvel Champ	Smooth Joy Investments	35	35.00
Investments Limited	Limited

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, no other parties (other than a Director or chief executive of the Company) who had interests or short positions in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group and any options in respect of such capital, or were otherwise notified to the Company and recorded in the register required to be kept under section 336 of the SFO.

4. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or their respective Associates had any interest in a business which competes or may compete with the business of the Group.

5. SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors has any existing or proposed service contracts with any member of the Enlarged Group (excluding contracts expiring or terminable by the employer within one year without payment of compensation (other than statutory compensation)).

6. INTEREST OF DIRECTORS IN THE ENLARGED GROUP’S ASSETS

Since 31 December 2008, the date to which the latest published audited accounts of the Group have been made up, none of the Directors has, or has had, any direct or indirect interest in any assets which have been acquired, disposed of by or leased to or which are proposed to be acquired, disposed of by or leased to, any member of the Enlarged Group.

7. INTERESTS OF DIRECTORS IN CONTRACTS

The Directors confirm that there is no contract or arrangement subsisting as at the Latest Practicable Date in which a Director was materially interested which was significant in relation to the business of the Enlarged Group.

– 186 –

GENERAL INFORMATION

APPENDIX IV

8. LITIGATION OF THE ENLARGED GROUP

The following set out the outstanding litigation, arbitration or claims involved by the Enlarged Group of material importance:

(1) In 2003, Ka Chee Company Limited instituted a winding-up proceedings against Celestial (International) Securities & Investment Limited (“CISI”), a subsidiary of the Company, for an amount of HK$1,662,598. A winding-up order was made by the court on 13 July 2005, the liquidator has been appointed to wind-up CISI, and the windingup proceedings are still in progress.

Save as disclosed above, no member of the Enlarged Group is involved in any litigation or arbitration or claims of material importance and no litigation or arbitration or claim of material importance of the Company to be pending or threatened by or against any member of the Enlarged Group as at the Latest Practicable Date.

9. MATERIAL CONTRACTS

The following contracts are contracts that are or may be material, not being contracts entered into during the ordinary course of business, and have been entered into by the Enlarged Group within two years preceding the Latest Practicable Date:

(a) the shareholders’ agreement dated 27 June 2007 entered into between, among others, Marvel Champ Investments Limited (a 65%-owned subsidiary of the Company), Nanyang Industrial (China) Limited and Fit Team Holdings Limited (both are independent third parties) in relation to the formation of a joint venture associate with a total maximum capital commitment of RMB450 million (approximately HK$459.6 million) in equal share for the acquisition and management of a property developed in the PRC;
(b) the top up agreement dated 24 July 2007 entered into between CASH, Cash Guardian and Celestial Securities Limited (a wholly-owned subsidiary of the Company) as the placing agent in relation to (i) the placing of 130,300,000 issued shares in CASH held by Cash Guardian by Celestial Securities Limited to certain placees (independent third parties) at the placing price of HK$2.02 per share and (ii) the subscription by Cash Guardian for 130,300,000 new top up shares in CASH at the top up price of HK$2.02 per share;
(c) the agreement dated 24 July 2007 entered into among CASH, Celestial Securities Limited as the placing agent and Cash Guardian as the grantee in relation to the grant of unlisted green-shoe by CASH to Cash Guardian and certain placees to subscribe up to HK$364,206,000 in aggregate for shares in CASH at the exercise price of HK$2.02 per share;
(d) the underwriting agreement dated 27 September 2007 entered into between CASH and the Company in relation to the underwriting for a 5-for-2 rights issue of the Company at the subscription price of HK$0.40 per share;

– 187 –

GENERAL INFORMATION

APPENDIX IV

(e) the S&P Agreement (incorporating the proposed issue of the Convertible Note(s)) and the Agreements;
(f) the two letters of agreements dated 18 February 2009 entered into between Celestial Financial Services Limited (a wholly-owned subsidiary of the Company) as purchaser with Mr Wong Tat Tung Dennis and Ms Kam Chi Wan Sandy (connected persons of the Company) as vendors respectively in relation to, inter alia, the acquisition of 300,000 shares (30% of the equity interest) in CFT at a total consideration of HK$1.4 million; and
(g) the underwriting agreement dated 20 February 2009 entered into between the Company and Elrond Limited (as underwriter) in relation to the underwriting for a 2-for-1 rights issue of the Company at the subscription price of HK$0.45 per share.

10. EXPERTS, QUALIFICATIONS AND CONSENTS

The following are the qualification of the experts who have given opinion or advice which are contained in this circular:–

Name

Qualification

Grand Vinco Capital Limited, the A licensed corporation to carry out type 1 Independent Financial Adviser (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO Deloitte Touche Tohmatsu, Certified Public Accountants the Accountants

As at the Latest Practicable Date, the Independent Financial Adviser and the Accountants were not interested beneficially in the shares in any member of the Enlarged Group and did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for shares in any member of the Enlarged Group.

As at the Latest Practicable Date, the Independent Financial Adviser and the Accountants did not have any direct or indirect interest in any assets which have been acquired or disposed of by or leased to the Enlarged Group or are proposed to be acquired or disposed of by or leased to the Enlarged Group since 31 December 2008, being the date up to which the latest published audited consolidated accounts of the Company were made up.

As at the Latest Practicable Date, the Independent Financial Adviser and the Accountants have given and have not withdrawn their written consents to the issue of this circular with the inclusion of and reference to their name and statements in the form and context in which it appears.

– 188 –

GENERAL INFORMATION

APPENDIX IV

11. MISCELLANEOUS

(a) The secretary of the Company is Ms Luke Wing Sheung Suzanne, a fellow member of The Institute of Chartered Secretaries and Administrators.
(b) The head office and the principal place of business of the Company in Hong Kong are at 21/F Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(c) The principal share registrars and transfer office of the Company in Bermuda are The Bank of Bermuda Limited at The Bank of Bermuda Building, 6 Front Street, Hamilton HM 11, Bermuda. The branch share registrars and transfer office of the Company in Hong Kong are Tricor Standard Limited at 26/F Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(d) The English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at 28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong during normal business hours on any day up to the holding of the SGM:–

(a) the memorandum of association and bye-laws of the Company;
(b) the annual reports and audited consolidated financial statements of the Group for the two financial years ended 31 December 2008;
(c) the letter from Vinco Capital, the text of which is set out on pages 43 to 61 of this circular;
(d) the accountants’ report of the Retail Group, the text of which is set out in Appendix II to this circular;
(e) the letter from the Accountants in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;
(f) the letters of consent from the Independent Financial Adviser and the Accountants referred to in paragraph headed “Experts, qualifications and consents” in this Appendix IV;
(g) the material contracts referred to in paragraph headed “Material contracts” in this Appendix IV; and
(h) the prospectus of the Company dated 19 March 2009 in relation to the Rights Issue and the circular of the Company dated 26 May 2009 in relation to the Transactions.

– 189 –

NOTICE OF SGM

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CASH FINANCIAL SERVICES GROUP LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 510)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a Special General Meeting of CASH Financial Services Group Limited (“Company”, together with its subsidiaries “Group”) will be held at 28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong on 11 June 2009, Thursday, at 9:00 am for the purpose of considering and, if thought fit, passing the following resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT , subject to and conditional upon the resolutions numbered 2(a) to (c) set out below being passed as ordinary resolutions,
(a) the sale and purchase agreement dated 19 December 2008 as supplemented by the supplemental agreement dated 21 May 2009 (“S&P Agreement”, copy of which together with the supplemental agreement dated 21 May 2009 have been produced to the Meeting and marked “A(1) and A(2)” and signed by the chairman of the Meeting for the purpose of identification) entered into between the Company and CASH Group Limited (“CGL”) (a wholly-owned subsidiary of Celestial Asia Securities Holdings Limited (“CASH”, together with its subsidiaries “CASH Group”) (the controlling shareholder of the Company)) in relation to (i) the proposed acquisition of 60% of the equity shareholding interest in CASH Retail Management (HK) Limited (“CRM(HK)”, together with its subsidiaries “Retail Group”) and the loan due from the Retail Group to CGL, if any, by the Company from CGL, and (ii) the grant of a purchaser call option by CGL to the Company to acquire the remaining 40% of the equity shareholding interest in CRM(HK) exercisable at the discretion of both the Company or CGL, at a total adjusted consideration of HK$310,340,000 and the issue of convertible note(s) (to be defined in resolution number 1(b) below) by the Company to CGL to settle part of the consideration, subject to the terms and conditions as set out in the S&P Agreement and described in the circular of the Company dated the same date of this notice, and the transactions contemplated thereunder, be and are hereby approved and the directors of the Company (“Directors”) be and are hereby authorised to do such things or make such arrangement as they may think fit to give effect to the completion of the S&P Agreement and the transactions contemplated thereunder; and

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NOTICE OF SGM

(b) the issue of the convertible note(s) in the principal amount of approximately HK$233,952,000 (subject to the actual amounts due from CASH Group to the Retail Group to be set off as at the date of completion of acquisition of 60% of the equity interest of CRM(HK) as described in 1(a) above (“Convertible Note(s)”), subject to the terms and conditions of the S&P Agreement and described in the circular of the Company dated the same date of this notice, and the transactions contemplated thereunder be and are hereby approved and the Directors be and are hereby authorised to allot and issue the new shares of HK$0.10 each in the Company issuable upon the conversion of any part of the Convertible Note(s) during the conversion period.”
“ THAT , subject to and conditional upon the resolutions numbered 1(a) to (b) set out above being passed as ordinary resolutions,
(a) the first agreement (“First Agreement”, copy of which has been produced to the Meeting and marked “B” and signed by the chairman of the Meeting for the purpose of identification) dated 19 December 2008 entered into among the Company, CASH and CRM(HK) relating to provision of financial guarantee by each of the Company and/or CASH at an annual cap of up to HK$200 million for assisting the Retail Group to obtain banking facilities from various banks for each of the three financial years ending 31 December 2011, subject to the terms and conditions as set out in the First Agreement and described in the circular of the Company dated the same date of this notice, and the transactions contemplated thereunder be and are hereby approved and the Directors be and are hereby authorised to do such things or make such arrangement as they may think fit to give effect to the completion of the First Agreement and the transactions contemplated thereunder;
(b) the second agreement (“Second Agreement”, copy of which has been produced to the Meeting and marked “C” and signed by the chairman of the Meeting for the purpose of identification) dated 19 December 2008 entered into between CASH and CRM(HK) relating to sub-leasing arrangement by which CASH will sub-lease around 60% of floor area of its current office premises to the Retail Group as its office premises at an annual cap of rental (including rent and management fees) of up to HK$5 million, in total, for each of the three financial years ending 31 December 2011, subject to the terms and conditions as set out in the Second Agreement and described in the circular of the Company dated the same date of this notice, and the transactions contemplated thereunder be and are hereby approved and the Directors be and are hereby authorised to do such things or make such arrangement as they may think fit to give effect to the completion of the Second Agreement and the transactions contemplated thereunder; and

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NOTICE OF SGM

(c) the third agreement (“Third Agreement”, copy of which has been produced to the Meeting and marked “D” and signed by the chairman of the Meeting for the purpose of identification) dated 19 December 2008 entered into among the Company, CASH and CRM(HK) relating to provision of services, including sales and marketing, advertising, promotional, etc, by the Retail Group at an annual cap of services fees of up to HK$2 million, in total, to each of the Group and CASH Group (not including the Group) for each of the three financial years ending 31 December 2011, subject to the terms and conditions as set out in the Third Agreement and described in the circular of the Company dated the same date of this notice, and the transactions contemplated thereunder be and are hereby approved and the Directors be and are hereby authorised to do such things or make such arrangement as they may think fit to give effect to the completion of the Third Agreement and the transactions contemplated thereunder.”

By order of the Board Suzanne W S Luke Company Secretary

Hong Kong, 26 May 2009 Registered office: Head office and principal place Clarendon House of business in Hong Kong: 2 Church Street 21/F Low Block Hamilton HM 11 Grand Millennium Plaza Bermuda 181 Queen’s Road Central Hong Kong

Notes:

A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and, in the event of a poll, vote on his behalf. A proxy need not be a member of the Company. A form of proxy is also enclosed for the meeting.
In order to be valid, the form of proxy must be deposited at the correspondence address of the Company at 28/F Manhattan Place, 23 Wang Tai Road, Kowloon Bay, Hong Kong together with a power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of that power of attorney or other authority, not less than 48 hours before the time for holding the special general meeting or any adjournment thereof.

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AI assistant

CASH Financial Services Group Limited — Proxy Solicitation & Information Statement 2009

49260_rns_2009-05-25_4defec4e-588b-4e2d-80d2-9ca5c5c793c1.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities.

CASH FINANCIAL SERVICES GROUP LIMITED

CONTINUING CONNECTED TRANSACTIONS – PROPOSED INTRA-GROUP ACTIVITIES

AND

NOTICE OF SPECIAL GENERAL MEETING

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

Grand Vinco Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

CASH FINANCIAL SERVICES GROUP LIMITED

Board of Directors:

Registered office:

AND

CONTINUING CONNECTED TRANSACTIONS – PROPOSED INTRA-GROUP ACTIVITIES

INTRODUCTION

LETTER FROM THE BOARD

THE S&P AGREEMENT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

CONVERTIBLE NOTE(S)

Principal terms

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conversion Shares to be issued upon conversion

Voting rights of the holder of the Convertible Note(s)

Listing of the Convertible Note(s)

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

ADJUSTMENT TO THE CONSIDERATION

LETTER FROM THE BOARD

THE RETAIL GROUP

REASONS FOR THE PROPOSED TRANSFER

LETTER FROM THE BOARD

REASONS FOR THE ISSUE OF THE CONVERTIBLE NOTE(S)

THE AGREEMENTS AND NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS ON THE FIRST COMPLETION

(a) The First Agreement relating to provision of guarantee

LETTER FROM THE BOARD

(b) The Second Agreement relating to leasing arrangement

(c) The Third Agreement relating to relating to provision of services

LETTER FROM THE BOARD

INFORMATION OF THE GROUP

FINANCIAL INFORMATION OF THE GROUP

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP AND THE RETAIL GROUP

Business and financial review for the year ended 31 December 2006

The Group

LETTER FROM THE BOARD

Material acquisitions and disposals

LETTER FROM THE BOARD

Material investments

Employee information

The Retail Group

Business review and result

Financial resources and liquidity

LETTER FROM THE BOARD

Foreign exchange risks

Material acquisitions and disposals

Capital commitments

Material investments

Employee information

LETTER FROM THE BOARD

Business and financial review for the year ended 31 December 2007

The Group

CASH Financial Services Group Limited Proxy Solicitation & Information Statement 2009