Celestial Asia Securities Holdings 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 Celestial Asia Securities Holdings Limited, you should at once hand this circular 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.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims 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: 1049)

POSSIBLE MAJOR TRANSACTION

RELATING TO

UNCONDITIONAL MANDATORY CASH OFFERS WITH REGARD TO CASH FINANCIAL SERVICES GROUP LIMITED

29 June 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The S&P Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Financial information on CFSG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Reasons for the Acquisition and the Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Financial information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Information of the Offeror . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Shareholding structure of CFSG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
The Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Possible major acquisition of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Financial and trading prospects of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Business, discussion and analysis of the CFSG Group . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Effects of the Offers on the earnings, assets and liabilities of the Group . . . . . . . . . . .	23
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix II – Financial information of the CFSG Group . . . . . . . . . . . . . . . . . . . . . . . .	102
Appendix III – Unaudited pro forma financial information of the New Group. . . . . . .	180
Appendix IV – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	185

– 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 the auditors of the Company
“Acquisition” the acquisition of the Sale Shares by CIGL from the Vendors at HK$0.38 per CFSG Share pursuant to the S&P Agreements
“Announcement” the joint announcement dated 18 May 2007 issued by the Company and CFSG in relation to, among other things, the Offers
“ARTAR” Abdulrahman Saad Al-Rashid & Sons Company Limited, a substantial shareholder of both the Company and CFSG holding approximately 16.5% and 15.0% of the issued share capital of the Company and CFSG respectively
“associate(s)” has the same meaning ascribed in the Listing Rules and the GEM Listing Rules
“Board” the board of Directors
“Cash Guardian
Cash Guardian Limited, a substantial Shareholder of the Company
“Celestial Capital Celestial Capital Limited, a licensed corporation to carry on business in type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and an subsidiary of both the Company and CFSG, being the financial adviser to the Offeror in respect of the Offers
“CFSG CASH Financial Services Group Limited (stock code: 8122), a company incorporated in Bermuda with limited liability, the issued shares of which are listed on the GEM and a subsidiary of the Company
“CFSG Board” the board of directors of CFSG
“CFSG Directors” the directors of CFSG
“CFSG Group” CFSG and its subsidiaries

– 1 –

DEFINITIONS

“CFSG Options”	options granted to executive directors, employees, consultant,
	adviser or agent of any member of the Group pursuant to the
	share option scheme of CFSG adopted on 19 February 2002 which
	entitle the holder thereof to subscribe for CFSG Share(s) at a
	certain exercise price
“CFSG Option Holders”	holders of CFSG Options
“CFSG Share(s)”	ordinary share(s) of HK$0.10 each in the issued share capital of
	CFSG
“CFSG Shareholder(s)”	holder(s) of CFSG Share(s)
“CIGL” or “Offeror”	Celestial Investment Group Limited, a wholly-owned subsidiary
	of the Company
“Company”	Celestial Asia Securities Holdings Limited (stock code: 1049), a
	company incorporated in Bermuda with limited liability, the issued
	shares of which are listed on the main board of the Stock Exchange
“CRMG”	CASH Retail Management Group Limited (stock code: 996), a
	then associated company of the Group
“Directors”	the directors of the Company
“Executive”	the Executive Director of the Corporate Finance Division of the
	SFC or any delegate of the Executive Director
“Game Group”	Netfield Technology Limited and its subsidiaries which mainly
	carry on online game business
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“Group”	the Company and its subsidiaries
“Independent CFSG	CFSG Shareholders other than the Offeror together with parties
Shareholders”	acting in concert with it

– 2 –

DEFINITIONS

“Last Trading Day”	10 May 2007, the last trading day for the CFSG Shares prior to
	the date of the Announcement
“Latest Practicable Date”	26 June 2007, being the latest practicable date prior to the printing
	of this circular for ascertaining certain information referred to in
	this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“New Group”	the Group upon completion of the Offers
“Offers”	the Share Offer and the Option Offer
“Option Offer”	the unconditional mandatory cash offer for all outstanding CFSG
	Options at the Option Offer Price made by Celestial Capital on
	behalf of the Offeror in accordance with the Takeovers Code
“Option Offer Price”	the cash amount of HK$0.084 payable by the Offeror to CFSG
	Option Holders for each outstanding CFSG Option accepted under
	the Option Offer
“PRC” or “China”	the People’s Republic of China
“Retail Group”	CASH Retail Management (HK) Limited and its subsidiaries which
	mainly carry on retail businesses in Hong Kong
“S&P Agreements”	agreements entered into between, among others, CIGL as the
	purchaser and the Vendors on 11 May 2007 in relation to the
	Acquisition
“Sale Date”	11 May 2007, being the date of the S&P Agreements
“Sale Price”	the consideration for the Sale Shares in the amount of HK$0.38
	per Sale Share
“Sale Share(s)”	27,000,000 existing CFSG Share(s)
“SFC”	the Securities and Futures Commission

– 3 –

DEFINITIONS

“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share Offer”	the unconditional mandatory cash offer for all the issued CFSG
	Shares not already owned or agreed to be acquired by the Offeror
	or parties acting in concert with it at the Share Offer Price made
	by Celestial Capital on behalf of the Offeror in accordance with
	the Takeovers Code
“Share Offer Price”	the cash amount of HK$0.38 payable by the Offeror to CFSG
	Shareholders for each CFSG Share accepted under the Share Offer
“Share(s)”	ordinary shares of HK$0.10 each in the issued share capital of the
	Company
“Shareholder(s)”	holders of Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Vendors”	the vendors of the Sale Shares who are third parties independent
	of the Company and connected persons (as defined under the
	Listing Rules) of the Company
“HK$” and “HK cents”	Hong Kong dollar(s), the currency of Hong Kong
“%”	per cent

– 4 –

LETTER FROM THE BOARD

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CELESTIAL ASIA SECURITIES HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 1049)

Board of Directors:

Executive:

KWAN Pak Hoo Bankee LAW Ping Wah Bernard WONG Kin Yick Kenneth LIN Che Chu George

Registered office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Independent non-executive:

LEUNG Ka Kui Johnny WONG Chuk Yan CHAN Hak Sin

Head office and principal place of business: 21/F The Center 99 Queen’s Road Central Hong Kong

29 June 2007

To Shareholders

Dear Sir/Madam,

POSSIBLE MAJOR TRANSACTION

RELATING TO

UNCONDITIONAL MANDATORY CASH OFFERS WITH REGARD TO CASH FINANCIAL SERVICES GROUP LIMITED

INTRODUCTION

Reference is made to the Announcement. On 18 May 2007, the Company and CFSG jointly announced that, among other things, CIGL (a wholly-owned subsidiary of the Company) had entered into the S&P Agreements with the Vendors pursuant to which CIGL has acquired an aggregate of 27,000,000 CFSG Shares, representing approximately 1.95% shareholding in CFSG, from the Vendors for a consideration of HK$0.38 per CFSG Share. The Acquisition was completed on 11 May 2007.

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LETTER FROM THE BOARD

The Offeror, together with parties acting in concert with it, were beneficially interested in an aggregate of 713,293,982 CFSG Shares, representing approximately 51.58% of the issued share capital of CFSG before the Acquisition. In the 12-month-period immediately prior to the Acquisition, the lowest collective percentage holding of the Offeror and the parties acting in concert with it was 49.87% on 12 May 2006. Immediately following the completion of the Acquisition, the Offeror and parties acting in concert with it were interested in 740,316,592 CFSG Shares, representing approximately 53.53% of the total issued CFSG Shares. As the Offeror, together with parties acting in concert with it, have acquired more than 2% of the voting rights of CFSG immediately after the Acquisition compared with their lowest collective percentage holding in CFSG in the preceding 12-month-period, the Offeror and parties acting in concert with it are required to make an unconditional mandatory cash offer for all the issued CFSG Shares other than those already owned or agreed to be acquired by the Offeror or parties acting in concert with it in accordance with Rule 26.1(d) of the Takeovers Code. Under Rule 13 of the Takeovers Code, the Offeror is also required to make a comparable offer for the outstanding CFSG Options not already owned by the Offeror or parties acting in concert with it.

Celestial Capital has made the Offers on behalf of the Offeror to the Independent CFSG Shareholders and the CFSG Option Holders for all the issued shares in, and all outstanding share options of, CFSG other than other those already owned by or agreed to be acquired by the Offeror or parties acting in concert with it. A composite offer document dated 7 June 2007, combining the offer document and the offeree document, containing details of the Offers has been despatched to the Shareholders, the CFSG Shareholders and the CFSG Option Holders on the same day.

Under the Listing Rules, the Offers constitute a possible major acquisition for the Company and require the approval of the Shareholders. Cash Guardian and ARTAR, being a closely allied group of substantial Shareholders of the Company who collectively own approximately 53.19% in nominal value of the Shares giving the right to attend and vote at the general meeting of the Company, have issued a written certificate to the Company to approve the Offers in lieu of a resolution to be passed at a general meeting of the Company to consider the Offers.

The purpose of this circular is to give you further information regarding the S&P Agreements and the Offers.

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LETTER FROM THE BOARD

THE S&P AGREEMENTS

Date: 11 May 2007 Vendors: To the best of the Board’s knowledge, information and belief having made all reasonable enquiry, the Vendors and their ultimate controlling beneficial owners are third parties independent of the Company and connected persons (as defined under the Listing Rules) of the Company. The principal activities of the Vendors are investment holding. Purchaser: CIGL (a wholly-owned subsidiary of the Company) which was, together with parties acting in concert with it, interested in 713,293,982 CFSG Shares, representing approximately 51.58% of the issued share capital of CFSG, before the Acquisition. Purchaser Guarantor: Celestial Asia Securities Holdings Limited (i.e. the Company). Sale Shares: 27,000,000 CFSG Shares, representing approximately 1.95% of the issued share capital of CFSG. Sale Price: HK$0.38 per Sale Share in cash. The total consideration for the Sale Shares was HK$10,260,000, being satisfied by the internal resources of the Company and bank borrowing. The Sale Price represented (i) a discount of 1.30% to and premium of 1.06% over the closing price of the CFSG Shares immediately preceding the Sale Date of HK$0.385 and the 5-day average closing price of the CFSG Shares immediately preceding the Sale Date of HK$0.376 respectively; and (ii) a discount of approximately 48.65% to the closing price of HK$0.740 per CFSG Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Sale Price was determined between CIGL and the Vendors on an arm’s length basis with reference to the then prevailing market price of the CFSG Shares as at the date of the S&P Agreements. The Board considered that the Sale Price was fair and reasonable.

Completion: The Acquisition is not subject to any condition and the Acquisition was completed on the Sale Date.

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LETTER FROM THE BOARD

FINANCIAL INFORMATION ON CFSG

The current principal activities of CFSG Group are 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 audited consolidated net profits before and after taxation, minority interest and extraordinary items of the CFSG Group for the year ended 31 December 2005 were about HK$23.8 million and HK$26.6 million respectively, and the audited consolidated net profits before and after taxation, minority interest and extraordinary items of the CFSG Group for the year ended 31 December 2006 were about HK$46.1 million and HK$39.9 million respectively.

The audited consolidated net assets of the CFSG Group as at 31 December 2005 were about HK$356.6 million and the audited consolidated net assets of the CFSG Group as at 31 December 2006 were about HK$479.8 million.

Pursuant to Rule 4.01 of the Listing Rules, accountants’ report of the CFSG Group is not required to be included in this circular as CFSG is a company listed on the GEM. The financial information of the CFSG Group for the last three financial years ended 31 December 2004, 31 December 2005 and 31 December 2006 are set out in appendix II to this circular.

REASONS FOR THE ACQUISITION AND THE OFFERS

The current principal activities of the Group consist of (a) financial services provided via CFSG 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) retailing of furniture and household items and trendy digital products; (c) online game services, sales of online game auxiliary products and licensing services; and (d) investment holding. CFSG is currently a subsidiary of the Company.

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LETTER FROM THE BOARD

The Hong Kong stock market has been active and buoyant throughout the whole year of 2006. Signs of accelerating economic pick-up in PRC and continued speculation over RMB appreciation attracted significant inflow of hot money into Hong Kong, particularly into Chinarelated shares. Both China H-shares, red-chips and Hang Seng Indices had hit their respective record highs in December 2006. The average daily turnover for shares traded on the Stock Exchange in 2006 was approximately HK$33.7 billion, approximately 85.2% up from HK$18.2 billion in 2005. Notably, the initial public offering (“IPO”) market was hot and most IPO issues had been overwhelmingly received by the market because of investors’ confidence and the abundance of liquidity. CFSG had experienced rapid growth in its financial services business in the past two years on the back of the economy recovery and good performance of the Hong Kong stock market. CFSG achieved favourable results with turnover and net profit attributable to shareholders rose 79.5% and 50% respectively for the year ended 31 December 2006 as compared with year 2005. Also, the turnover and net profit attributable to CFSG Shareholders in the first quarter of 2007 rose 89.8% and 86.5% respectively as compared with the same period last year.

Riding on China’s booming economy, the Directors consider that there are tremendous growth opportunities for CFSG both in Hong Kong and on the mainland. The Board believes that, through the Acquisition and the Offers by increasing the controlling interests in CFSG, stable income will be provided for the Group and the shareholders’ value of the Company will be enhanced which are in the interests of the Company and its shareholders as a whole.

The Sale Price was determined after arm’s length negotiation between the parties to the S&P Agreements. Although the Sale Price represents a slight discount of approximately 1.30% to the closing price of HK$0.385 per CFSG Share on the Last Trading Day, on the basis that (a) the Sale Price of HK$0.38 per CFSG Share also represents a premium of about 8.57% over the audited net asset value of approximately HK$0.35 per CFSG Share as at 31 December 2006; (b) the relatively thin trading volume of the CFSG Shares (the average daily volume was approximately 1,658,000 CFSG Shares based on the 3 months’ trading volume up to 30 April 2007, representing approximately only 6.14% of the Sale Shares); and (c) the reasons for the Acquisition and the Offers as set out above, the Board is of the opinion that the terms of the S&P Agreements and of the transactions contemplated thereunder including the Sale Price and the Offers are fair and reasonable and in the interests of the Company and its shareholders as a whole.

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LETTER FROM THE BOARD

FINANCIAL INFORMATION ON THE GROUP

The audited consolidated net losses before and after taxation, minority interest and extraordinary items of the Group for the year ended 31 December 2005 were about HK$30.1 million and HK$37.0 million respectively.

The audited consolidated net profits before and after taxation, minority interest and extraordinary items of the Group for the year ended 31 December 2006 were about HK$59.3 million and HK$32.1 million respectively.

The audited consolidated net assets of the Group as at 31 December 2005 were about HK$183.3 million, and the audited consolidated net assets of the Group as at 31 December 2006 were about HK$305.0 million.

INFORMATION OF THE OFFEROR

The Offeror is an investment holding company, which was incorporated in the British Virgin Islands with limited liability on 19 January 1994, and its entire issued share capital is beneficially owned by the Company.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF CFSG

The following table sets out the shareholding structure of CFSG (based on information received by CFSG and notified pursuant to Part XV of the SFO as at the Latest Practicable Date) immediately before and after the Acquisition:

Before the Acquisition No. of Approximate CFSG Shares % Offeror 644,295,434 46.59 Cash Guardian_(Note 1) 40,392,000 2.92 Directors Mr Law Ping Wah Bernard 17,264,000 1.25 Mr Wong Kin Yick Kenneth 10,860,000 0.79 Mr Lin Che Chu George 280,000 0.02 Other parties acting in concert with the Offeror(Note 2) 202,548 0.01 Offeror and parties acting in concert with it 713,293,982 51.58 ARTAR(Note 3) 207,636,000 15.01 CFSG Directors (other than those who are also Directors) Mr Cheng Man Pan Ben(Note 4) 1,288,000 0.09 Mr Cheng Shu Shing Raymond(Note 4) 1,100,000 0.08 Sub-total: 2,388,000 0.17 CFSG’s subsidiaries’ directors and their associates 2,344,375 0.17 Public(Note 4)_ 457,389,091 33.07 Total 1,383,051,448 100.00	After the Acquisition and as at the Latest Practicable Date No. of Approximate CFSG Shares % 671,318,044 48.54 40,392,000 2.92 17,264,000 1.25 10,860,000 0.79 280,000 0.02 202,548 0.01 740,316,592 53.53 207,636,000 15.01 1,288,000 0.09 1,100,000 0.08 2,388,000 0.17 2,344,375 0.17 430,366,481 31.12 1,383,051,448 100.00	After the Acquisition, assuming all the CFSG Shareholders (save as CIGL and parties acting in concert with it, and those CFSG Shareholders who have undertaken not to accept the Share Offer(Note 4)) accept the Share Offer No. of Approximate CFSG Shares % 1,053,140,900 76.15 40,392,000 2.92 17,264,000 1.25 10,860,000 0.79 280,000 0.02 202,548 0.01 1,122,139,448 81.14 207,636,000 15.01 1,288,000 0.09 1,100,000 0.08 2,388,000 0.17 – – 50,888,000 3.68 1,383,051,448 100.00	After the Acquisition, assuming all the CFSG Shareholders (save as CIGL and parties acting in concert with it, and those CFSG Shareholders who have undertaken not to accept the Share Offer(Note 4)) accept the Share Offer No. of Approximate CFSG Shares % 1,053,140,900 76.15 40,392,000 2.92 17,264,000 1.25 10,860,000 0.79 280,000 0.02 202,548 0.01 1,122,139,448 81.14 207,636,000 15.01 1,288,000 0.09 1,100,000 0.08 2,388,000 0.17 – – 50,888,000 3.68 1,383,051,448 100.00
			81.14
			15.01
			0.09 0.08
			0.17
			–
			3.68
			100.00

Notes:

(1) Cash Guardian is a company controlled by Mr Kwan Pak Hoo Bankee, the chairman of both the Company and CFSG, and is a party acting in concert with CIGL.

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LETTER FROM THE BOARD

(2) The parties acting in concert with the Offeror are close relatives of Mr Kwan Pak Hoo Bankee, the chairman of both the Company and CFSG.
(3) ARTAR is a substantial shareholder of both the Company and CFSG.
(4) ARTAR, the above-named CFSG Directors and certain CFSG Shareholders (which in aggregate hold 50,888,000 CFSG Shares) have irrevocably undertaken not to accept the Share Offer in respect of a total of 260,912,000 CFSG Shares). In addition, all CFSG Option Holders have undertaken not to accept the Option Offer and not to exercise the CFSG Options before the close of the Offers.

Upon close of the Offers, if less than 20% of the CFSG Shares are held by the public, the Offeror and CFSG Directors will jointly and severally undertake to the Stock Exchange to take appropriate steps which may include, placing of new and/or existing issued CFSG Shares by CFSG and/or the Offeror respectively, to ensure that the minimum public float requirement under the GEM Listing Rules is complied with by CFSG.

THE OFFERS

The Offers have been made in compliance with the Takeovers Code by Celestial Capital on behalf of the Offeror on the basis of HK$0.38 in cash for each CFSG Share under the Share Offer and HK$0.084 in cash for each outstanding CFSG Option under the Option Offer.

The Share Offer Price was the same as the Sale Price for each Sale Share under the S&P Agreements. The Option Offer Price was determined by reference to the exercise price of the CFSG Options at HK$0.296 per CFSG Shares. The Option Offer Price was equivalent to the difference between the Share Offer Price and the exercise price of the CFSG Options.

Each of the CFSG Directors (other than those who are also Directors) (beneficially holding an aggregate of 2,388,000 CFSG Shares), ARTAR (beneficially holding 207,636,000 CFSG Shares) and certain CFSG Shareholders (beneficially holding an aggregate of 50,888,000 CFSG Shares) have given an irrevocable undertaking that they will not accept the Share Offer.

Each of the CFSG Option Holders has given an irrevocable undertaking to the Offeror that he or she will not accept the Option Offer and he or she will not exercise the CFSG Options before the close of the Offers.

A composite offer document dated 7 June 2007, combining the offer document and the offeree document, containing details of the Offers has been despatched to the Shareholders and the CFSG Shareholders and the CFSG Option Holders on the same day.

– 12 –

LETTER FROM THE BOARD

POSSIBLE MAJOR ACQUISITION OF THE COMPANY

As at the Latest Practicable Date, there are a total of 1,383,051,448 CFSG Shares in issue (of which 740,293,982 CFSG Shares are already owned or agreed to be acquired by the Offeror and parties acting in concert with it). The Offeror will acquire a maximum of 381,845,466 CFSG Shares under the Share Offer after taking into account the undertakings from CFSG Directors (other than those who are also Directors), ARTAR and certain CFSG Shareholders for a total of 260,912,000 CFSG Shares that they will not accept the Share Offer as mentioned under the heading “The Offers” above.

Under the Listing Rules, the acquisition of a maximum of 381,845,466 CFSG Shares under the Offers constitutes a possible major acquisition for the Company and requires the approval of the Shareholders. Cash Guardian and ARTAR, being a closely allied group of substantial Shareholders of the Company who collectively own approximately 53.19% in nominal value of the Shares giving the right to attend and vote at the general meeting of the Company, have issued a written certificate to the Company to approve the Offers in lieu of a resolution to be passed at a general meeting of the Company.

As no Shareholders will be required to abstain from voting on the relevant resolution(s) should a special general meeting of the Company be held, pursuant to Rule 14.44 of the Listing Rules, the Company does not need to hold a general meeting to consider the Offers.

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Financial prospects

The Group recorded a turnaround result with a net profit attributable to shareholders of HK$32.1 million for the year ended 31 December 2006 as compared with a loss of HK$37.0 million for last year after taking into account the gain on disposal of 32% shareholding investment in CRMG, the operating profit of CFSG and the operating loss of the Retail Group during year 2006. The major revenues of the Group are from its two major streams of business, namely the CFSG Group (financial services division) and the Retail Group (retail business division).

For the year ended 31 December 2006, the Group recorded revenue of HK$383.2 million for the CFSG Group, as compared to HK$213.6 million for last year. The increase was attributable to the significant growth in securities brokerage income due to the continued speculation over appreciation of Renminbi as well as the continuous boom of the IPO during the year under review, especially for mega China-related enterprises.

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LETTER FROM THE BOARD

The Retail Group still recorded a net loss for the year ended 31 December 2006 even though Pricerite had already recorded a turnaround profit of HK$14.0 million for the year ended 31 December 2006. On the one hand, the Retail Group had seen a continuing improvement in the local economy throughout the year. On the other hand, its retail business was being hit hard by the increase in rental and staff costs. Thus, Pricerite had managed to revamp its retail network and product ranges since 2005 in order to reduce the pressure of the rising costs on its retail business. It had also improved its profit margins by sourcing its household products at better prices but without compromising the product qualities expected from its customers upon setting up a new sourcing centre in the Yangtze River Delta in addition to its long established sourcing one in the Pearl River Delta during the year 2006. The Group’s other retail businesses, namely 3C Digital and LZ LifeZtore, still recorded operating losses for the year 2006. Expansion of its retail business into the PRC market has been the Group’s long-term growth strategy. LZ LifeZtore had opened its first new store in Shanghai in September 2006 and another two new stores were to be opened in the city immediately subsequent to the end of the year. The Retail Group’s operating loss was mainly due to the write-off of all pre-operating expenses for the new shops in 2006.

Trading prospects

The CFSG Group achieved favourable results and experienced respectable growth in its financial services business in the past year. Its brokerage business, among other business units, continued to experience the fastest growth in 2006 within the CFSG Group while revenue from other businesses continued to show steady and healthy increases in 2006. The enhanced sales platforms that it put in place to deliver better execution have allowed it to successfully expand its clientele to include institutional clients. The wealth management division, while encountering fierce competition, continued to maintain its share of the revenue contribution in 2006. To solidify and expand its market share in the increasingly competitive environment, the division will strengthen cross-selling synergy with the house-served brokerage clients. The investment banking unit continued to be active in sourcing deals from medium-sized companies in the PRC. The asset management business, which was launched in 2005, has experienced healthy growth in 2006. It continues to focus on growing its client base and assets under management while preparing to launch the discretionary portfolio management service. The CFSG Group will focus its resources and capital on developing its promising financial services business, including brokerage, wealth management, investment banking and direct investment fund.

For the Retail Group, the Board is cautiously optimistic about the retail industry in Hong Kong. The gradual economic recovery has presented opportunities for the Retail Group to build on its solid foundation, well-built infrastructure and cohesive staff team. Nonetheless, the high price of rent, labour, utilities and other operating costs in Hong Kong continues to make the operating

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LETTER FROM THE BOARD

environment a challenging one. The Retail Group will continue to develop its three brands and provide a diversified product portfolio through its single operating platform. The Board is optimistic in the future prospects of the retail industry in the PRC and will also look for opportunities in developing its retail business in the PRC. The Board is confident that through our single operating platform, a blend of improved operating efficiencies, better use of technology and human resources, we shall move forward with increased momentum.

The Game Group (online game division), though performed in line with the business and financial targets in 2006, was transferred from the CFSG Group to the Group. The Group will continue to explore new online games and expand its already extensive national and international distribution channels to increase the number of online game players, which, in turn, helps to generate sizable incomes in the coming year.

Material acquisitions and disposals of the Group

On 9 January 2007, the Company and CFSG jointly announced (i) the proposed transfer of the Game Group from the CFSG Group to the Group. The consideration was finally fixed at HK$120 million; and (ii) the proposed grant of the option to Mr Lin Che Chu George, the executive Director, to require the Group to transfer 10% of the issued share capital in Netfield Technology Limited, being the holding company of the Game Group, for a cash consideration at 10% of the consideration with respect of the consideration for the acquisition of the Game Group. The transaction was completed on 1 June 2007.
On 7 March 2007, the Company announced the disposal of about 4.19% shareholding interest in CRMG at a consideration of about HK$10.5 million on 6 March 2007.
On 13 March 2007, the Company further announced the disposal of all the remaining about 3.70% shareholding interest in CRMG at a consideration of about HK$9.3 million on 12 March 2007. The Group ceased to hold any shareholding interest in CRMG since then.
On 19 May 2007, the Company and CFSG jointly announced the Acquisition and the Offers.

Save as aforesaid, the Group did not make any material acquisitions or disposals subsequent to the year ended 31 December 2006 and up to the Latest Practicable Date. There was no significant investment held. The Group does not have any future plans for material investments or capital assets.

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LETTER FROM THE BOARD

Employee information

As at 31 December 2006, the Group had 1,296 employees, of which 390 were at the CFSG Group. The employees were remunerated according to their performance, working experience and market conditions. In addition to basic salaries and Mandatory Provident Fund schemes, we also offered staff benefits including medical schemes, discretionary share options, performance bonus and sales commission. The total amount of remuneration cost of employees of the Group for the year 2006 was approximately HK$228.4 million. The Group continued to organise training to employees in areas such as product knowledge, customer service, selling techniques, team building, interview techniques, communication, presentation, coaching, counselling, influencing, mentoring, project management, database and system management, computer applications, efficient writing and continuous professional training programmes required by regulatory bodies.

BUSINESS, DISCUSSION AND ANALYSIS OF THE CFSG GROUP

Business and financial review for the year ended 31 December 2004

For the year ended 31 December 2004, the CFSG Group recorded a net profit attributable to shareholders of HK$21.3 million as compared with HK$10.7 million in the previous year. The marked increase was attributed to the continuously positive sentiment in domestic stock market and the synergy effect resulting from the acquisition of wealth management business.

The CFSG Group’s turnover rose to HK$240.0 million for the full year, which was 25.6% higher than that of 2003.

Notwithstanding an increase in business transaction volume under the buoyant market environment, the CFSG Group remained focused on cost rationalisation. Taking into account of the consolidation of a subsidiary acquired in the second half of 2003, its operating overhead moderately increased by 13.5% to HK$178.1 million. Its cost leadership approach has enabled the CFSG Group to quickly capitalise on the market recovery in 2004 to achieve profitability and to be well prepared for future growth.

The CFSG Group’s total shareholders’ equity amounted to HK$240.3 million as of 31 December 2004 as compared to HK$119.3 million at the end of the previous year. The improvement, apart from earnings retained, was mainly attributed to the completion of a 1-for-1 rights issue in May raising approximately HK$101.9 million (before expenses). This capital raising exercise has strengthened its capital base so that the CFSG Group was in the best position to capture emerging opportunities.

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LETTER FROM THE BOARD

On 31 December 2004, its cash and bank balances totaled HK$521.4 million, representing an increase of HK$81.1 million as compared with the previous year. This was a result of an increase in clients’ deposits due to recovery in market confidence since the second half of 2003. It’s liquidity ratio on 31 December 2004 remained healthy at 1.3 times as compared 1.2 times on 31 December 2003.

Its total bank borrowings on 31 December 2004 were HK$96.2 million, which were drawn to fund securities margin financing to its clients. Most of these bank borrowings were collateralised by its margin clients’ securities pledged to it in turn for the purpose of securing financing from it. Apart from these, which were largely of a back-to-back nature, it had no other bank borrowings at the end of the year as it exercised prudence to ensure that its financial resources would not be in any way strained.

In August, the CFSG Group entered into a convertible note agreement with ARTAR, a prominent investment conglomerate in Saudi Arabia, for a consideration of HK$40.5 million. Together with this convertible note of HK$40.5 million, the ratio of its interest bearing borrowings to shareholders’ equity was decreased to 57.2% on 31 December 2004 as compared to 2.9 times on 31 December 2003. Insofar as that the convertible note accounted for approximately 17.0% of the shareholders equity with the maturity date on 31 December 2006, as well as the bank borrowings being of a back-to-back nature, its gearing was kept at a conservatively low level.

As of the end of the year, the CFSG Group did not have any material un-hedged foreign exchange exposure or interest rate mismatch. Cash deposits of approximately HK$0.8 million were pledged to secure general banking facilities granted to a subsidiary for bank guarantee. In addition, pursuant to a letter of undertaking provided by the CFSG Group to a bank, the CFSG Group covenant 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. Therefore, a bank deposit of approximately HK$16.0 million was held for this purpose. Save as aforesaid, it had no other material contingent liabilities.

As at 31 December 2004, the CFSG Group was holding a portfolio of listed investment with market value of approximately HK$47.0 million and a loss on investment of HK$20.1 million (including unrealised gain or loss arising from marking the value of investments to the market prices) was recorded for the year. During the year ended 31 December 2004, the CFSG Group did not make any material acquisitions or disposals nor did it hold any significant investment. It did not have any future plans for material investments or capital assets.

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LETTER FROM THE BOARD

Employee information

At 31 December 2004, the CFSG Group had 188 employees. Its employees were remunerated according to their performance, working experience and market conditions. In addition to basic salaries and Mandatory Provident Fund scheme, it also offered staff benefits including medical schemes, discretionary share options, performance bonus and sales commission. The total amount of remuneration cost of employees of the CFSG Group for the year under review was approximately HK$50.0 million. The CFSG Group continued to organise training to employees in areas such as product knowledge, language training, customer service, selling techniques, problem solving, time management, motivation, team building, coaching and continuous professional training programmes required by regulatory bodies.

Business and financial review for the year ended 31 December 2005

For the year ended 31 December 2005, the CFSG Group recorded a net profit attributable to shareholders of HK$26.6 million as compared to HK$20.4 million in the previous year. The increase was mainly attributable to an improved performance of the securities trading portfolio, and a decrease in depreciation and amortisation charges resulting from the adoption of the new financial reporting standards in the year under review.

The CFSG Group recorded a decrease in revenue to HK$213.6 million for the year ended 31 December 2005, as compared to HK$240.0 million in last year. The decrease was in part a reflection of a directionless market environment throughout the first half of the year under review and in part a result of a change in accounting treatment for brokerage commission de-regulation, especially in Hong Kong domestic securities market rebate for the current year. After the abolition of the minimum commission requirement, a significant portion of its commission revenue has been changed from a gross to a net basis. While this has technically reduced the revenue of the year, it had virtually no impact on its net profit. The brokerage revenue in the second half of the year began to pick up albeit at a much slower pace when the expectation that the US Federal Reserve would soon end its cycle of rising interest rates had greatly improved the sentiment of the securities market in the region.

The CFSG Group’s total equity amounted to HK$358.1 million on 31 December 2005 as compared to HK$240.3 million at the end of the previous year. The net increase was due to the growth in retained earnings and new funds raised to strengthen capital bases during the second half of the year.

On 31 December 2005, its cash and bank balances including trust and segregated accounts totaled HK$487.5 million as compared to HK$521.4 million at the end of the previous year. The reduction in cash and bank balances was a result of a decrease in clients’ deposits as they became more active in trading near year-end. On the other hand, its house funding rose as a result of

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LETTER FROM THE BOARD

several fund raising activities near year-end. The liquidity ratio on 31 December 2005 remained healthy at 1.3 times, being virtually unchanged from 31 December 2004. Given the strong funding requirements of the business and the expectation that the market would remain robust in the coming year, it believed it was in the best interest of the shareholders that it retained and reinvested the corporate funds back into the operations.

Its total bank borrowings on 31 December 2005 were HK$171.7 million, which were drawn to fund securities margin financing to its clients. Most of these bank borrowings were collateralised by its margin clients’ securities pledged to it in turn for the purpose of securing financing from it. Apart from these, largely back-to-back advances, it had no other bank borrowings at the end of the year as it exercised prudence to ensure that its financial resources would not be in any way strained.

During the year, the CFSG Group made several early partial repayments of a convertible loan note in an amount totalling HK$10.0 million, thereby reducing the outstanding nominal value of the convertible loan note to HK$30.5 million at the end of the year. Together with this convertible loan note, the ratio for its interest bearing borrowings to total equity was 56.4% on 31 December 2005 as compared to 56.6% on 31 December 2004. Insofar as that the convertible loan note, which accounted for approximately 8.4% of the total equity, matures on 31 December 2006, as well as the bank borrowings being of a back-to-back nature, its gearing was kept at a conservatively low level.

As of the end of the year, the CFSG Group did not have any material un-hedged foreign exchange exposure or interest rate mismatch. Cash deposits of approximately HK$0.9 million were pledged to secure general banking facilities granted to a subsidiary. In addition, pursuant to a letter of undertaking provided by the CFSG Group to a bank, the CFSG Group covenant 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. To this end, a bank deposit of approximately HK$16.2 million was held for this purpose. Save as aforesaid, it had no other material contingent liabilities.

In September 2005, the CFSG Group announced a major transaction for the proposed acquisition of the Game Group at a consideration of HK$110.0 million and several fund raising activities. These transactions were approved by the shareholders at the special general meeting of CFSG held on 20 December 2005 and all had been completed subsequent to the balance sheet date in January 2006. The placing of 145 million CFSG Shares held by CIGL to independent third parties at HK$0.40 each was completed on 23 September 2005. The corresponding top up of 145 million CFSG Shares to CIGL was then completed on 5 October 2005. The placing of 155 million CFSG Shares to various independent third parties at HK$0.40 each and the subscription of 120 million CFSG Shares by CIGL at HK$0.40 each were completed subsequent to the balance sheet date on 10 January 2006.

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LETTER FROM THE BOARD

On 15 September 2005, 132 million CFSG Shares at a subscription price of HK$0.27 each were issued to CIGL.

As at 31 December 2005, the CFSG Group was holding a portfolio of listed investments with market value of approximately HK$42.5 million and a loss on such listed investments of HK$3.3 million was recorded for the year.

Save as disclosed above, the CFSG Group did not make any material acquisitions or disposals nor did it hold any significant investment during the year ended 31 December 2005. Save as the balance of the consideration of HK$55.0 million to be paid for the acquisition of the Game Group, the CFSG Group did not have any material capital commitment as at 31 December 2005. The balance was fully paid in January 2006 upon completion of the acquisition of the Game Group. It did not have any future plans for material investments or capital assets.

Employee information

At 31 December 2005, the CFSG Group had 209 employees. Its employees were remunerated according to their performance, working experience and market conditions. In addition to basic salaries and Mandatory Provident Fund scheme, it also offered staff benefits including medical schemes, discretionary share options, performance bonus and sales commission. The total amount of remuneration cost of employees of the CFSG Group for the year under review was approximately HK$50.6 million. It continued to organise training for employees in areas such as product knowledge, customer service, selling techniques, problem solving, team building, communication, presentation, coaching, mentoring and continuous professional training programmes required by regulatory bodies. Meanwhile, it also liased with external consultants to conduct team building training program.

Business and financial review for the year ended 31 December 2006

For the year ended 31 December 2006, the CFSG Group achieved a net profit attributable to shareholders of HK$39.9 million as compared to HK$26.6 million in the previous year. The increase in net profit attributable to shareholders was mainly attributable to an improved performance of the CFSG Group’s broking business. As a result of having consolidated the loss of the Game Group of HK$27.5 million for the year ended 31 December 2006, the CFSG Group’s consolidated profit had been reduced from HK$67.7 million to HK$40.2 million.

The CFSG Group recorded revenues of HK$383.2 million for the year ended 31 December 2006 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 the IPO during the year under review, especially for mega China-related enterprises.

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LETTER FROM THE BOARD

The CFSG Group’s total equity amounted to HK$483.6 million on 31 December 2006 as compared to HK$358.1 million at the end of the previous year. The net increase was due to the growth in retained earnings and new funds raised to strengthen capital bases during the first half of the year.

On 31 December 2006, its cash and bank balances including trust and segregated accounts totalled HK$675.6 million as compared to HK$487.5 million at the end of the previous year. The increase in cash and bank balances of the trust and segregated accounts was a result of an increase in clients’ deposits as they became more active in trading near year-end. On the other hand, the decrease in cash and bank balances of its house accounts was a result of intense demand for margin financing from its clients during the year. The liquidity ratio on 31 December 2006 remained healthy at 1.2 times, as compared to 1.3 times on 31 December 2005.

Its total bank borrowings on 31 December 2006 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 its clients. HK$262.3 million of these bank borrowings were collateralised by its margin clients’ securities pledged to it 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 drawn down 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 its subsidiary. In addition, pursuant to a letter of undertaking provided by the CFSG Group to a bank, the CFSG Group covenants 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 this yearend, 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 its subsidiary, Fugleman Entertainment Company.

Apart from these, largely back-to-back advances, it had no other bank borrowings at the end of the year as we exercised prudence to ensure that its financial resources would not be in any way strained.

CFSG had a convertible loan note in the outstanding nominal value of HK$30.5 million on 31 December 2005. In January 2006, the noteholder of the convertible loan note partially exercised the right attaching to the convertible loan 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 of CFSG. In June 2006, CFSG had made early partial repayments of the convertible loan note in the total amount of HK$14.3 million. The convertible loan note was fully repaid as at the end the year. The ratio for its interest bearing borrowings to total equity was 57.9% on 31 December 2006 as compared to 56.4% on 31 December 2005. As most of the bank borrowings being of a back-to-back nature, its gearing was kept at a conservatively low level.

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LETTER FROM THE BOARD

As at the end of the year, the CFSG Group did not have any material un-hedged foreign exchange exposure or interest rate mismatch. Save as aforesaid, it had no other material contingent liabilities.

In January 2007, subsequent to the balance sheet date, the CFSG Group announced a connected and discloseable transaction for the proposed disposal of the entire issued capital of the Game Group to the CFSG Group’s controlling shareholder at a consideration of the higher of HK$120 million or the valuation of the online game business operated by the Game Group as at 31 December 2006. The Game Group is an online game developer and operator in PRC and Taiwan. The Game Group was originally acquired by the CFSG Group at a consideration of HK$110 million in September 2005 and the acquisition was completed in January 2006. Also, the fund raising exercises as announced in September 2005 were completed in January 2006. 155 million placing CFSG Shares at a placing price of HK$0.40 each and 120 million subscription CFSG Shares at a subscription price of HK$0.40 each were issued to CIGL and to various independent third parties respectively on 10 January 2006.

As at 31 December 2006, the CFSG 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 above, the CFSG Group did not make any material acquisitions or disposals nor did it hold any significant investment during the year ended 31 December 2006. The CFSG Group did not have any material capital commitment as at 31 December 2006. It did not have any future plans for material investments or capital assets.

Employee information

At 31 December 2006, the CFSG Group had 390 employees. Its employees were remunerated according to their performance, working experience and market conditions. In addition to basic salaries and Mandatory Provident Fund scheme, it also offered staff benefits including medical schemes, discretionary share options, performance bonus and sales commission. The total amount of remuneration cost of employees of the CFSG Group for the year under review was approximately HK$79.5 million. It continued to organise training to employees in areas such as product knowledge, customer service, selling techniques, team building, interview techniques, communication, presentation, coaching, counselling, influencing, mentoring, project management, database and system management, computer applications, efficient writing and continuous professional training programmes required by regulatory bodies.

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LETTER FROM THE BOARD

EFFECTS OF THE OFFERS ON THE EARNINGS, ASSETS AND LIABILITIES OF THE GROUP

Earnings

The CFSG Group has been a subsidiary of the Company prior to the Offers and its assets and liabilities have been consolidated into the consolidated financial statements of the Group. The Group will not record any profit and loss upon completion of the Offers as it represents an intragroup transaction.

Net assets

Based on the audited consolidated balance sheet of the Group as at 31 December 2006 set out in the 2006 annual report of the Company, the net assets of the Group as at 31 December 2006 was approximately HK$567.3 million. Based on the unaudited pro forma assets and liabilities statement of the New Group set out in Appendix II to this circular, prepared on the assumption that the Offers had been completed on 31 December 2006, the unaudited pro forma net assets of the New Group would be approximately HK$433.7 million with minority interest being decreased by approximately HK$133.6 million.

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

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION

A. SUMMARY OF FINANCIAL RESULTS FOR THE THREE YEARS ENDED 31 DECEMBER 2006

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 2006 as extracted from the annual reports of the Group for the respective years.

Consolidated Profit and Loss Account

Continuing operations
Revenue
Profit (Loss) before taxation
Taxation (charge) credit
Profit (Loss) for the year from
continuing operations
Discontinued operation
Loss for the period/year from
discontinued operation
Profit (Loss) for the year
Attributable to:
Equity holders of the Company
Minority interests
Profit (Loss) per share
From continuing and
discontinued operations:
– Basic
From continuing operations:
– Basic

For the year ended
31 December
2006
2005
2004
HK$’000
HK$’000
HK$’000
(restated)
816,622
213,620
247,420
59,300
(18,576)
(79,027)
(5,939)
2,999
(350)
53,361
(15,577)
(79,377)
–
(11,482)
(82,617)
53,361
(27,059)
(161,994)
32,057
(37,022)
(143,954)
21,304
9,963
(18,040)
53,361
(27,059)
(161,994)
HK$0.07
HK$(0.08)
HK$(0.37)
HK$0.07
HK$(0.06)
HK$(0.23)

Note: The 2004 figures were restated based on the latest Hong Kong Financial Reporting Standards.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Assets and Liabilities

Total assets Total liabilities Net assets	As at 31 December 2006 2005 2004 HK$’000 HK$’000 HK$’000 (restated) 2,309,371 1,265,224 1,534,878 (1,742,040) (901,143) (1,146,776) 567,331 364,081 388,102

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APPENDIX I FINANCIAL INFORMATION OF THE GROUP

B. FINANCIAL INFORMATION FOR THE TWO YEARS ENDED 31 DECEMBER 2006

The following financial information is extracted from the audited consolidated financial statements of the Group for each of the two years ended 31 December 2006.

Consolidated Income Statement

For the year ended 31 December 2006

Notes Revenue 6 Other income Cost of sales for retailing business Convertible loan note settlement income (expense) Salaries, allowances and commission 8 Other operating, administrative and selling expenses Depreciation of property and equipment Finance costs 9 Net gain (loss) on investments held for trading (Allowance for) Reversal of allowance for bad and doubtful debts Recovery of bad debts (Loss) Gain on disposal of property and equipment (Loss) Gain on dilution of shareholding in subsidiaries and associates Share of profit (loss) of associates 21 Gain on disposal of associates 21 Impairment loss recognised in respect of property and equipment 16 Impairment loss recognised in respect of available-for-sale investments 19 Profit (Loss) before taxation 12 Taxation (charge) credit 13 Profit (Loss) for the year from continuing operations Discontinued operation Loss for the period from discontinued operation 14 Profit (Loss) for the year	2006 HK$’000 816,622 4,104 (277,100) 291 (228,369) (256,251) (25,252) (63,500) 18,621 (2,876) – (2,331) (4,182) 14,374 71,100 (5,951) – 59,300 (5,939) 53,361 – 53,361	2005 HK$’000 213,620 3,480 – (85) (123,970) (70,879) (11,656) (16,984) (6,632) 702 8,294 6,773 16,289 (26,728) – – (10,800) (18,576) 2,999 (15,577) (11,482) (27,059)

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Attributable to: Equity holders of the Company Minority interests Earnings (Loss) per share 15 From continuing and discontinued operations: – Basic From continuing operations: – Basic – Diluted Notes	32,057 21,304 53,361 HK$0.07 HK$0.07 HK$0.06 2006 HK$’000	(37,022) 9,963 (27,059) HK$(0.08) HK$(0.06) N/A 2005 HK$’000

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 December 2006

Notes Non-current assets Property and equipment 16 Prepaid lease payments 17 Investment property 18 Available-for-sale investments 19 Goodwill 20 Interests in associates 21 Intangible assets 22 Other assets 24 Loan receivables 25 Deposit for acquisition of subsidiaries 26 Deferred tax assets 13 Current assets Inventories 27 Account receivables 28 Loan receivables 25 Prepayments, deposits and other receivables Receivable for disposal of an associate 21 Amounts due from associates Listed investments held for trading 29 Derivative financial instrument 30 Bank deposits under conditions 31 Bank balances – trust and segregated accounts 32 Bank balances (general accounts) and cash 32	2006 HK$’000 98,750 16,378 5,000 33,392 212,027 – 68,712 16,241 656 – 1,575 452,731 49,624 782,181 19,275 58,454 76,187 373 49,325 – 78,075 574,577 168,569 1,856,640	2005 HK$’000 12,802 – – – 17,426 103,870 11,261 7,564 725 56,095 3,940
		213,683
		– 469,772 38,460 19,580 – – 35,467 16 17,125 352,902 118,219
		1,051,541

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Current liabilities Account payables 33 Deferred revenue Accrued liabilities and other payables Payable for acquisition of subsidiaries 38(iii) Taxation payable Obligations under finance leases – amount due within one year 34 Borrowings – amount due within one year 35 Convertible loan note – amount due within one year 36 Net current assets Capital and reserves Share capital 37 Reserves Equity attributable to equity holders of the Company Equity component of convertible loan note of a listed subsidiary Share option reserve of a listed subsidiary Minority interests Total equity Non-current liabilities Deferred tax liabilities 13 Obligations under finance leases – amount due after one year 34 Borrowings – amount due after one year 35 Notes	1,071,830 8,027 109,467 100,590 4,869 756 405,189 – 1,700,728 155,912 608,643 65,623 239,332 304,955 – 2,496 259,880 567,331 8,494 541 32,277 41,312 608,643 2006 HK$’000	581,965 – 35,801 – 1,525 150 171,737 30,242 2005 HK$’000
		821,420
		230,121
		443,804

		43,748 139,596
		183,344 581 883 179,273
		364,081
		– 159 79,564
		79,723
		443,804

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2006

Equity component Attributable to equity holders of the Company of Share Acc- convertible option Con- Share Investment umulated loan note reserve Share Share tributed General Other Translation option revaluation (losses) of a listed of a listed capital premium surplus reserve reserve reserve reserve reserve profits Total subsidiary subsidiary HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (note h) (notes i (note k) & j) 43,748 295,177 16,724 1,160 12,314 – – – (148,606) 220,517 771 680 – – – – – – – – (37,022) (37,022) – – – – – – – – – – – – – 203 – – – – – – – – (151) (151) (190) – – (195,665) 195,665 – – – – – – – – – – – (195,665) – – – – – 195,665 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 43,748 99,512 16,724 1,160 12,314 – – – 9,886 183,344 581 883 – – – – – (288) – – – (288) – – – – – – – – – 15,564 – 15,564 – – – – – – – – – 14,095 – 14,095 – – – – – – – – – – 32,057 32,057 – – – – – – – (288) – 29,659 32,057 61,428 – – – – – – – – 422 – – 422 – 1,613 – – – – – – – – – – (308) – – – – – – – – – – – (273) – – – – – – – – – – – – – 21,875 39,373 – – – – – – – 61,248 – – – – – – – – – – – – – – – – – – – – – – – – – – – (1,487) – – – – – – – (1,487) – – 65,623 137,398 16,724 1,160 12,314 (288) 422 29,659 41,943 304,955 – 2,496	Equity component Attributable to equity holders of the Company of Share Acc- convertible option Con- Share Investment umulated loan note reserve Share Share tributed General Other Translation option revaluation (losses) of a listed of a listed capital premium surplus reserve reserve reserve reserve reserve profits Total subsidiary subsidiary HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (note h) (notes i (note k) & j) 43,748 295,177 16,724 1,160 12,314 – – – (148,606) 220,517 771 680 – – – – – – – – (37,022) (37,022) – – – – – – – – – – – – – 203 – – – – – – – – (151) (151) (190) – – (195,665) 195,665 – – – – – – – – – – – (195,665) – – – – – 195,665 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 43,748 99,512 16,724 1,160 12,314 – – – 9,886 183,344 581 883 – – – – – (288) – – – (288) – – – – – – – – – 15,564 – 15,564 – – – – – – – – – 14,095 – 14,095 – – – – – – – – – – 32,057 32,057 – – – – – – – (288) – 29,659 32,057 61,428 – – – – – – – – 422 – – 422 – 1,613 – – – – – – – – – – (308) – – – – – – – – – – – (273) – – – – – – – – – – – – – 21,875 39,373 – – – – – – – 61,248 – – – – – – – – – – – – – – – – – – – – – – – – – – – (1,487) – – – – – – – (1,487) – – 65,623 137,398 16,724 1,160 12,314 (288) 422 29,659 41,943 304,955 – 2,496	Equity component Attributable to equity holders of the Company of Share Acc- convertible option Con- Share Investment umulated loan note reserve Share Share tributed General Other Translation option revaluation (losses) of a listed of a listed capital premium surplus reserve reserve reserve reserve reserve profits Total subsidiary subsidiary HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (note h) (notes i (note k) & j) 43,748 295,177 16,724 1,160 12,314 – – – (148,606) 220,517 771 680 – – – – – – – – (37,022) (37,022) – – – – – – – – – – – – – 203 – – – – – – – – (151) (151) (190) – – (195,665) 195,665 – – – – – – – – – – – (195,665) – – – – – 195,665 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 43,748 99,512 16,724 1,160 12,314 – – – 9,886 183,344 581 883 – – – – – (288) – – – (288) – – – – – – – – – 15,564 – 15,564 – – – – – – – – – 14,095 – 14,095 – – – – – – – – – – 32,057 32,057 – – – – – – – (288) – 29,659 32,057 61,428 – – – – – – – – 422 – – 422 – 1,613 – – – – – – – – – – (308) – – – – – – – – – – – (273) – – – – – – – – – – – – – 21,875 39,373 – – – – – – – 61,248 – – – – – – – – – – – – – – – – – – – – – – – – – – – (1,487) – – – – – – – (1,487) – – 65,623 137,398 16,724 1,160 12,314 (288) 422 29,659 41,943 304,955 – 2,496	Minority interests Total HK$’000 HK$’000 166,086 388,054 9,963 (27,059 – 203 – (341 – – – – (3,677) (3,677 53,244 53,244 (46,343) (46,343	Minority interests Total HK$’000 HK$’000 166,086 388,054 9,963 (27,059 – 203 – (341 – – – – (3,677) (3,677 53,244 53,244 (46,343) (46,343
183,344	581	883	179,273	364,081
(288) – 15,564 – 14,095 – 32,057 –		– – – –	– – – 21,304	(288 15,564 14,095 53,361
61,428	–	–	21,304	82,732
422 – 1,613 – (308) – – (273) – – – – 61,248 – – – – – – – – (1,487) – –			– 2,035 – (308 – (273 (22,298) (22,298 – 61,248 79,212 79,212 2,389 2,389 – (1,487
304,955	–	2,496	259,880	567,331

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

(a) (i) During the year ended 31 December 2005, CASH Financial Services Group Limited (“CFSG”), a listed subsidiary of the Company, made partial repayment of the convertible loan note issued on 1 September 2004 amounting to HK$10,000,000. The consideration of HK$10,000,000 was allocated into liability component and equity component. An equity component of approximately HK$190,000 was released from the convertible loan note equity reserve.
(ii) During the year ended 31 December 2006, CFSG has made full repayment of the convertible loan note issued on 1 September 2004 that remained outstanding in June 2006 amounting to HK$8,000,000 and HK$6,300,000 on 1 June 2006 and 28 June 2006 respectively. The consideration of HK$14,300,000 was allocated into liability component and equity component. An equity component of approximately HK$273,000 was released from the convertible loan note equity reserve.
(b) Pursuant to a special resolution passed on 30 May 2005, the share premium account of the Company as of 31 December 2004 was reduced by an amount of HK$195,665,196 and such amount was transferred to the contributed surplus account of the Company.
(c) Pursuant to the minutes of a directors’ meeting held on 30 May 2005, an amount of HK$195,665,196 was transferred from the contributed surplus account to set off against the accumulated losses of the Company at 31 December 2004.
(d) (i) In September 2005, 132,000,000 shares of HK$0.10 each in CFSG were issued at a subscription price of HK$0.27 per a CFSG’s share.
(ii) In September 2005, 13,325,000 share options granted by CFSG were exercised at an exercise price of HK$0.34 per a CFSG’s share, resulting in the issue of 13,325,000 CFSG’s shares of HK$0.10 each.
(iii) In October 2005, 145,000,000 top up shares of HK$0.10 each of CFSG were issued to the Group, at the price of HK$0.40 per a CFSG’s share, resulting in the issue of 145,000,000 CFSG’s shares of HK$0.10 each.
(e) (i) In April 2005, 83,000,000 shares of HK$0.02 each of CASH Retail Management Group Limited (“CRMG”) were issued at a subscription price of HK$0.28 per share. The Group’s interest in CRMG was consequently reduced from 66.52% to 59.17%.
(ii) In May 2005, 223,000,000 shares of HK$0.02 each of CRMG were issued at subscription price of HK$0.30 per share. The Group’s interest in CRMG was further reduced from 59.17% to 45.60%.
(iii) In May 2005, 19,833,333 share options granted by CRMG were exercised at the exercise price of HK$0.316 per a CRMG’s share, resulting in the issue of 19,833,333 shares of HK$0.02 each. The Group’s interest in CRMG was further reduced from 45.60% to 44.69%.
(f) On 16 November 2006, 218,741,913 shares of HK$0.10 each were issued by way of rights issue at a subscription price of HK$0.28 per share. These shares rank pari passu in all respects with other shares in issue.

– 31 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

(g) (i) On 10 January 2006, 155,000,000 shares of HK$0.10 each of CFSG in CFSG were issued to independent third parties at a price of HK$0.40 per a CFSG’s share, resulting the issue of 155,000,000 CFSG’s shares of HK$0.10 each.
(ii) On 18 January 2006, convertible loan note issued by CFSG amounting to HK$16,200,000 was converted into 60,000,000 shares of CFSG at a conversion price of HK$0.27 per share.
(iii) In January 2006, 1,170,000 share options were exercised at an exercise price of HK$0.34 per a CFSG’s per share, resulting in the issue of 1,170,000 CFSG’s shares of HK$0.10 each.
(iv) In November 2006, 1,000,000 share options in CFSG were exercised at an exercise price of HK$0.296 per a CFSG’s share, resulting in the issue of 1,000,000 CFSG’s shares of HK$0.10 each.
(h) Under the Companies Act 1981 of Bermuda, the share premium of the Company can be used in paying up unissued shares of the Company to be issued to members of the Company as fully paid bonus shares.
(i) Under the Companies Act 1981 of Bermuda, contributed surplus is available for distribution to shareholders. However, a company cannot declare or pay a dividend, or make a distribution out of contribution surplus, if:
(i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or
(ii) the realisable value of the company’s assets would thereby less than the aggregate of its liabilities and its issued share capital and share premium accounts.
(j) The contributed surplus of the Group represents the difference between the nominal value of the share capital of the subsidiaries acquired pursuant to the group reorganisation in 1994 and the nominal value of the issued share capital of the Company issued in exchange thereof, and the net amount arising from the reduction of share premium account, capital reduction and the amounts transferred to set-off accumulated losses.
(k) The other reserve of the Group represents the reserve arising from the distribution of shares of CASH on-line Limited (now renamed CFSG) in year 2000.
(l) All the reserves of the Group are attributable to the Company and its subsidiaries.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Cash Flow Statement

For the year ended 31 December 2006

Note Operating activities Profit (Loss) before taxation Adjustments for: Convertible loan note settlement (income) expense Advertising and telecommunication services expenses 39(a) Allowance for bad and doubtful debts (reversal of allowance) Amortisation of intangible assets Amortisation of prepaid lease payments Depreciation of property and equipment Employee share option benefits Loss on deemed disposal of CRMG Loss on disposal on intangible assets Allowance for inventory obsolescence and write-off of inventories Dividends from investments Loss (Gain) on dilution of shareholding in subsidiaries and associates Gain on disposal of associates Impairment loss recognised in respect of property and equipment Impairment loss recognised in respect of available-for-sale investments Interest expenses Loss (Gain) on disposal of property and equipment Decrease (Increase) in fair value of derivative financial instrument Share of (profit) loss of associates Operating cashflow before movements in working capital Decrease in inventories Increase in account receivables Decrease in loan receivables Decrease (Increase) in prepayments, deposits and other receivables Increase in amounts due from associates (Increase) Decrease in listed investments held for trading (Increase) Decrease in bank balances – trust and segregated accounts Increase (Decrease) in account payables Increase in deferred revenue Increase (Decrease) in accrued liabilities and other payables	2006 HK$’000 59,300 (291) 5,393 2,876 4,131 207 25,252 2,035 – 199 3,544 (471) 4,182 (71,100) 5,951 – 63,500 2,331 16 (14,374) 92,681 9,424 (307,574) 19,052 11,837 (373) (11,725) (221,675) 331,051 8,027 18,221	2005 HK$’000 (30,058) 85 – (702) – 186 21,675 203 974 – – (143) (16,289) – – 10,800 19,240 (6,773) (64) 26,728 25,862 – (106,777) 1,670 (3,822) – 10,150 80,254 (34,941) – (41,098)

– 33 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Cash used in operations Income taxes paid Dividends received Net cash used in operating activities Investing activities Deposit payment for acquisition of online game business by CFSG Acquisition of subsidiaries 38 Proceeds from disposal of an associate 21 Increase in bank deposits under conditions Proceeds from disposal of property and equipment Purchase of property and equipment Statutory and other deposits paid Purchase of intangible assets Net cash used in investing activities Financing activities Increase in borrowings Repayment of borrowings Increase (Decrease) in bank overdrafts New obligations under finance leases Repayments of obligations under finance leases Repayments of convertible loan note Proceeds on issue of shares Proceeds on issue of shares to minority interests Contributions from minority shareholders Dividend paid to minority shareholders by CFSG Interest paid on obligations under finance leases Share issue expenses Interest paid on convertible loan note Interest paid on bank and other loans Deemed disposals of subsidiaries (net of cash and cash equivalents disposed) Net cash from (used in) financing activities Net increase (decrease) 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 (general accounts) and cash Note	(51,054) (1,045) 471 (51,628) – (44,053) 60,000 (16,550) 616 (29,766) (8,677) (1,931) (40,361) 62,548 – 59,610 967 (149) (14,300) 61,248 63,012 – (22,298) (108) (1,487) (212) (63,212) (3,319) 142,300 50,311 118,219 39 168,569 168,569 2006 HK$’000	(68,702) – 143 (68,559) (56,095) – – (343) 43,279 (7,539) (947) – (21,645) – 116,805 (10,373) – (221) (10,000) – – 62,230 (3,677) (15) (300) (1,067) (17,874) (163,232) (27,724) (117,928) 236,147 – 118,219 118,219 2005 HK$’000

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2006

1. General

The Company is 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 (“Stock Exchange”). The address of the registered office and principal place of business of the Company are disclosed in the corporate information of this Annual Report.

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

The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 47.

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

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (“New HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the New HKFRSs had no material effect on how the 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 standards, amendment or interpretations that have been issued but are not yet effective. The Directors of the Company anticipate that the application of these new standards, amendment or interpretations will have no material impact on the results and the financial position of the Group.

HKAS 1 (Amendment)	Capital disclosures_1_
HKFRS 7	Financial instruments: Disclosures_1_
HKFRS 8	Operating segments_2_
HK(IFRIC) – INT 7	Applying the restatement approach under HKAS 29
	Financial Reporting in Hyperinflationary Economies_3_
HK(IFRIC) – INT 8	Scope of HKFRS 2_4_
HK(IFRIC) – INT 9	Reassessment of embedded derivatives_5_
HK(IFRIC) – INT 10	Interim financial reporting and impairment_6_
HK(IFRIC) – INT 11	HKFRS 2 - Group and Treasury Share Transactions_7_
HK(IFRIC) – INT 12	Service concession arrangements_8_

1 Effective for annual periods beginning on or after 1 January 2007. 2 Effective for annual periods beginning on or after 1 January 2009. 3 Effective for annual periods beginning on or after 1 March 2006. 4 Effective for annual periods beginning on or after 1 May 2006. 5 Effective for annual periods beginning on or after 1 June 2006. 6 Effective for annual periods beginning on or after 1 November 2006.
7 Effective for annual periods beginning on or after 1 March 2007.
8 Effective for annual periods beginning on or after 1 January 2008.

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Significant accounting policies

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

The consolidated financial statements have been prepared in accordance with 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 subsidiaries 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 (or disposal groups) 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.

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.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Goodwill

Goodwill arising on acquisition prior to 1 January 2005

Goodwill arising on acquisition of subsidiaries 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 values of the identifiable assets and liabilities of the relevant subsidiaries at the date of acquisition.

For previously capitalised goodwill, the Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired.

Goodwill arising on acquisition on or after 1 January 2005

Goodwill arising on acquisition of subsidiaries 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 subsidiaries at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on acquisition of subsidiaries is presented separately in the 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 a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Investment in an associate

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 an associate are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, investment in an associate is 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 associate, 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 investment 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.

– 37 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

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.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided 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.

Trading investments such as securities, futures and options are accounted for under HKAS 39 as financial assets held for trading and the net increase or decrease in fair value are accounted for on a trade date basis and 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.

Interest income from clients are recognised on a time proportion basis, taking into account the principal amounts outstanding and the effective interest rates applicable.

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.

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.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Property and equipment

Property and equipment are stated at cost 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 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 date.

Any revaluation increase arising on revaluation of land and 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 profits.

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.

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognised impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

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

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 consolidated income statement for the period in which they arise.

– 39 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the 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 balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

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

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 consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are 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.

– 40 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

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

Retirement benefit costs

Payments to defined contribution retirement benefit plan/state-managed retirement benefit schemes 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 period 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 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, 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 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.

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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.

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.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.

Subsequent to initial recognition, intangible assets 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.

Research and development expenditures

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortised on a straight-line basis over its useful life, and carried at cost less subsequent accumulated amortisation and any accumulated impairment losses. 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 below).

The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria. Where no internally-generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible asset is reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.

Impairment

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any 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.

– 42 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

When 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.

Intangible assets with finite useful lives are tested for impairment when there is an indication that an asset may be impaired (see the accounting policies in respect of impairment losses for tangible and intangible assets below).

Inventories

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

Impairment losses (other than goodwill and intangible assets with indefinite useful lives)

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. 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, 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.

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 Group’s financial assets are classified into one of the three categories, including financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are 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. The accounting policies adopted in respect of each category of financial assets are set out below.

– 43 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Financial assets at fair value through profit or loss

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

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including account receivables, loan receivables, deposits and other receivables, bank deposits and bank balances) are carried at amortised cost using the effective interest method, less any identified impairment losses. 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. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction 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.

Available-for-sale financial assets

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

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

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 accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial liabilities

Financial liabilities including accounts payables, other payables and borrowings are subsequently measured at amortised cost, using the effective interest method.

Convertible loan note

Convertible loan note issued by the subsidiary of the Company that contain early redemption option, financial liability and equity components are classified separately into respective early redemption option derivative, liability and equity components on initial recognition. On initial recognition, the early redemption option derivative and liability component are recognised at fair value. The carrying amount of the equity component is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole. Issue costs are apportioned between the components of the convertible loan note based on their relative fair value at the date of issue. The issue costs relating to the equity component are charged directly to equity. The issue costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan note using the effective interest method. The portion relating to the derivative is charged directly to profit or loss.

In subsequent periods, the embedded derivative for early redemption right is carried at fair value, with changes in fair value being recognised in profit or loss directly. The liability component of the convertible loan note is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the subsidiary of the Company, will remain in convertible loan note equity reserve until the option is exercised (in which case the balance stated in equity component of convertible loan notes of a listed subsidiary will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible loan note equity reserve will be released to the accumulated profits. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Equity instruments

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

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 other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the combined contracts are not measured at fair value with changes in fair value recognised in profit or loss.

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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 and payable is recognised in profit or loss.

Equity-settled share-based payment transactions (Share options granted to employees of the Company)

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 expense in full at the grant date when the share options granted vest immediately, with a corresponding increase in equity (share option 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, if any, is recognised in profit or loss with a corresponding adjustment to share option reserve.

At the time when the share options are exercised, the amount previously recognised in share option 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 option reserve will be transferred to accumulated losses.

The above policy is applied to all equity-settled share-based payments that were granted after 7 November 2002 and vested after 1 January 2005. The Group chooses not to apply HKFRS 2 with respect to share options granted after 7 November 2002 and vested before 1 January 2005, accordingly, no amount has been recognised in the financial statements in respect of these equity-settled shared-based transactions.

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 sources of estimation uncertainty that may significantly affect the amounts recognised in the financial information are disclosed below.

Income taxes

As at 31 December 2006, a deferred tax asset of approximately HK$1,575,000 was recognised in the Group’s consolidated balance sheet. No deferred tax asset was recognised in the Group’s consolidated balance sheet in relation to the remaining unused tax losses of approximately HK$452,956,000. 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 income statement for the period in which such a recognition takes place.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Estimated impairment of goodwill and intangible assets

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. 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. As at 31 December 2006, the carrying amount of goodwill is approximately HK$212,027,000. Details of the recoverable amount calculation are disclosed in note 23.

Determining whether intangible asset relating to online game related intellectual property is impaired requires an estimation of the value in use of the online game related intellectual property. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the online game related intellectual property and 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. As at 31 December 2006, the carrying amount of online game related intellectual property is approximately HK$12,292,000. Details of the recoverable amount calculation are disclosed in note 22.

Determining whether intangible asset relating to domain name is impaired requires an estimation of the fair value less costs to sell. The fair value less costs to sell is arrived at by market approach, which is to determine the desirability of the domain name through recent sales or offering of similar domain name currently on the market in order to arrive at an indication of the most probable selling price for the domain name. As at 31 December 2006, the carrying amount of the domain name is approximately HK$5,460,000. Details of the recoverable amount calculation are disclosed in note 22.

Determining whether intangible asset relating to trademarks is impaired requires an estimation of the value in use of the trademarks. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the trademark and 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. As at 31 December 2006, the carrying amount of trademarks approximately HK$38,000,000. Details of the recoverable amount calculation are disclosed in note 22.

5. Financial instruments

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

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial risk management objectives and policies

Market risk

Equity price risk

The Group is exposed to equity price risk through its listed investments held for trading and available-forsale investments . The board of Directors manages the exposure by closely monitoring the portfolio of equity investments.

Cash flow interest rate risk

Most of the bank borrowings, that are matured within 3 months and are collateralised by margin clients’ securities, carry interest at variable rate which exposes the Group to cash flow interest rate risk. The 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 arises.

Credit risk

The Group’s maximum exposure to credit risk which will cause a financial loss to the Group in the event of the counterparties failure to perform their obligations as at 31 December 2006 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 brokerage and financing 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. With regard to provision of online game services, the Group has delegated a team responsible for determination of credit limits and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. 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.

The Group has significant concentration of credit risk on loan receivables and receivable for disposal of an associate as the credit risk are mainly attributable from certain limited counterparties, other than the aforesaid, there is no significant concentration of credit risk in trade debtors as the exposure spread over a number of counterparties and customers.

Bank balances are placed in various authorised institutions and the Directors of the Company consider the credit risk of such authorised institutions is low.

Liquidity risk

As part of ordinary broking activities, the Group is exposed to liquidity risk arising from timing difference between settlement with clearing houses or brokers and clients. 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.

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fair value

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

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices and ask prices respectively;
the fair value 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 or using prices from observable current market transactions; and
the fair value of derivative instruments is estimated using discounted cashflow analysis and the applicable yield curve.

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

6. Revenue

An analysis of the Group’s revenue for the year, for both continuing and discontinued operations, is as follows:

Continuing operations Fees and commission income Interest income Online game subscription income Sales of online game auxiliary products Licensing income Sales of furniture and household goods and trendy digital products, net of discounts and returns Discontinued operation Sales of furniture and household goods and trendy digital products, net of discounts and returns Others	2006 HK$’000 263,032 83,067 25,316 9,459 2,476 433,272 816,622 – – –	2005 HK$’000 178,720 34,900 – – – –
		213,620

		374,296 229
		374,525

– 49 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

During the year ended 31 December 2005, due to the issuance of the subscription shares, the placing shares and the option shares of CRMG, the Group’s shareholding in CRMG was reduced from 66.52% to 44.69% as at 23 May 2005. From then onwards, CRMG became an associate of the Group and the retailing business engaged by CRMG was classified as discontinued operation of the Group. The financial impact of CRMG on the Group’s results and cash flows is disclosed in note 14 to the consolidated financial statements.

As the Directors of the Company is optimistic about the retail business in Hong Kong in particular in view of the improving local economy and consumer market, the Group signed a sale and purchase agreement to acquire the entire interest on the Hong Kong retail businesses from CRMG on 20 February 2006. This acquisition was completed on 30 June 2006 (note 38(iii)), as a result, the financial results of the retail business is consolidated to the Group’s results in current year.

7. Business and geographical segments

Business segments

For management purposes, the Group is currently organised into four main operating divisions, namely, financial services, online game services, retailing, investment holding. The online game services division arose from acquisition of online game business on 10 January 2006 and the retailing division arose from acquisition of retailing business on 30 June 2006, as mentioned in note 38. These divisions are the basis on which the Group reports its primary segment information.

In 2005, retailing business is treated as discontinued operation due to the deemed disposal of CRMG as detailed in note 6.

Principal activities are as follows:

Financial services Broking, financing, corporate finance services, wealth management and securities trading Online game services Provision of online game services, sales of online game auxiliary products and licensing services Retailing Sales of furniture and household goods and trendy digital products Investment holding Strategic investments

– 50 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Segment information about these businesses is presented as follows:

Income statement for the year ended 31 December 2006

Revenue Segment profit (loss) Share of profit of associates Gain on disposal of associates Unallocated corporate expenses Profit before taxation Taxation charge Profit for the year	Financial services HK$’000 345,977 82,413 – –	Online game services HK$’000 37,251 (27,527) – –	Retailing HK$’000 433,272 (25,898) 14,374 71,100	Investment holding Consolidated HK$’000 HK$’000 122 816,622 (76) 28,912 – 14,374 – 71,100 (55,086 59,300 (5,939 53,361	Investment holding Consolidated HK$’000 HK$’000 122 816,622 (76) 28,912 – 14,374 – 71,100 (55,086 59,300 (5,939 53,361

					28,912 14,374 71,100 (55,086
					59,300 (5,939
					53,361

Balance sheet as at 31 December 2006

ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Financial services HK$’000 1,537,905 1,230,378	Online game services HK$’000 182,249 38,932	Retailing HK$’000 339,433 287,606	Investment holding Consolidated HK$’000 HK$’000 33,467 2,093,054 216,317 2,309,371 100,590 1,657,506 84,534 1,742,040	Investment holding Consolidated HK$’000 HK$’000 33,467 2,093,054 216,317 2,309,371 100,590 1,657,506 84,534 1,742,040
					2,309,371

					1,657,506 84,534
					1,742,040

– 51 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Other information for the year ended 31 December 2006

	Financial	Online game		Investment
	services	services	Retailing	holding	Unallocated	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Additions of property and
equipment	9,416	10,890	7,775	–	1,685	29,766
Addition of property and
equipment in acquisition
of subsidiaries	–	9,169	81,163	–	–	90,332
Allowance for bad and
doubtful debts	180	–	2,696	–	–	2,876
Depreciation of property
and equipment	7,056	1,117	16,213	–	866	25,252
Amortisation of prepaid
lease payments	–	–	207	–	–	207
Loss on disposal of
property and equipment	–	98	2,233	–	–	2,331
Impairment loss recognised
in respect of property
and equipment	–	–	5,951	–	–	5,951

Income statement for the year ended 31 December 2005

	Continuing operations	Continuing operations	Discontinued operation Retailing Consolidated HK$’000 HK$’000 374,525 588,145 (8,252) 33,191 – (26,728 (2,256) (19,240 – (16,307 (974) (974 (11,482) (30,058 – 2,999 (11,482) (27,059
Financial services HK$’000 213,557 23,847	Investment holding HK$’000 63 (3,918)	Others HK$’000 – 21,514

			33,191 (26,728 (19,240 (16,307 (974


			(30,058 2,999
			(27,059

– 52 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Balance sheet as at 31 December 2005

ASSETS Segment assets Interests in associates Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Financial services HK$’000 1,150,965 621,139	Investment holding HK$’000 741 –	Consolidated HK$’000 1,151,706 103,870 9,648
			1,265,224

			621,139 280,004
			901,143

Other information for the year ended 31 December 2005

Additions of property and equipment Depreciation of property and equipment Amortisation of prepaid lease payments Impairment loss recognised in respect of available-for-sale investments	Continuing operations Financial Investment services holding Others Total HK$’000 HK$’000 HK$’000 HK$’000 2,116 – 73 2,189 10,606 – 1,050 11,656 – – 186 186 – – 10,800 10,800	Discontinued operation Retailing Consolidated HK$’000 HK$’000 5,350 7,539 10,019 21,675 – 186 – 10,800

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Geographical segments

The Group’s operations are located in Hong Kong, the People’s Republic of China (“PRC”) and Taiwan. For the activities of financial services and retailing, they are mainly based in Hong Kong and the revenue of these activities are substantially derived from Hong Kong. The online game business activities are mainly based in PRC and Taiwan and the relevant revenue for the year ended 31 December 2006 are derived mainly from PRC and Taiwan.

The following table provides an analysis of the Group’s revenue by geographical market:

Hong Kong PRC Taiwan	2006 HK$’000 778,066 26,830 11,726 816,622	2005 HK$’000 213,620 – –
		213,620

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

Hong Kong PRC Taiwan Additions to property and equipment Hong Kong PRC Taiwan	2006 HK$’000 1,905,384 148,444 39,226 2,093,054 2006 HK$’000 17,066 12,100 600 29,766	2005 HK$’000 1,151,706 – –
		1,151,706

		2005 HK$’000 7,539 – –
		7,539

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Salaries, allowances and commission

Salaries, allowances and commission represents the amounts paid and payable to the Directors and employees and comprises of: Salaries, allowances and commission Contributions to retirement benefits schemes Employee share option benefits Finance costs Interest on: Bank overdrafts, bank loans and other borrowings wholly repayable within five years Finance leases Effective interest expense on convertible loan note	Continuing operations 2006 2005 HK$’000 HK$’000 220,045 120,478 6,289 3,289 2,035 203 228,369 123,970 Continuing operations 2006 2005 HK$’000 HK$’000 63,212 15,618 108 15 180 1,351 63,500 16,984	Discontinued operation 2006 2005 HK$’000 HK$’000 – 38,207 – 1,222 – – – 39,429 Discontinued operation 2006 2005 HK$’000 HK$’000 – 2,256 – – – – – 2,256	Consolidated 2006 2005 HK$’000 HK$’000 220,045 158,685 6,289 4,511 2,035 203 228,369 163,399 Consolidated 2006 2005 HK$’000 HK$’000 63,212 17,874 108 15 180 1,351 63,500 19,240	Consolidated 2006 2005 HK$’000 HK$’000 220,045 158,685 6,289 4,511 2,035 203 228,369 163,399 Consolidated 2006 2005 HK$’000 HK$’000 63,212 17,874 108 15 180 1,351 63,500 19,240
				19,240

9. Finance costs

– 55 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

10. Directors’ remuneration

The remuneration paid or payable to each of the nine (2005: ten) Directors were as follows:

Kwan Pak Hoo Bankee HK$’000 – – 840 3,526 143 42	Law Ping Wah Bernard HK$’000 – – 720 – 143 36	Wong Kin Yick Kenneth HK$’000 – – 1,290 1,000 143 66	Wong Kin Yick Kenneth HK$’000 – – 1,290 1,000 143 66	Li Yuen Cheuk Thomas HK$’000 – – 371 224 – 13	Kwok Oi Kuen Joan Elmond HK$’000 – – 324 160 – 22	Chan Hak Sin HK$’000 – 100 – – 53 –	Leung Ka Kui Johnny HK$’000 – 100 – – – –	Wong Chuk Yan HK$’000 – – – – – –	Lin Che Chu George HK$’000 – – 120 – 53 –	Total HK$’000 – 200 3,665 4,910 535 179
4,551	899	2,499		608	506	153	100	–	173	9,489

Kwan Pak Hoo Bankee HK$’000 – – 3,766 17 12 3,795	Law Ping Wah Bernard HK$’000 – – 720 17 36 773	Wong Kin Yick Kenneth HK$’000 – – 1,160 17 58 1,235	Li Yuen Cheuk Thomas HK$’000 – – 675 – 17 692	Kwok Oi Kuen Joan Elmond HK$’000 – – 870 17 44 931	Miao Wen Hao Felix HK$’000 – – 1,361 – 62 1,423	Chan Yau Ching Bob HK$’000 – – – – – –	Chan Hak Sin HK$’000 – 100 – – – 100	Leung Ka Kui Johnny HK$’000 – 100 – – – 100	Wong Chuk Yan HK$’000 – – – – – –	Total HK$’000 – 200 8,552 68 229
										9,049

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year ended 31 December 2006, Ms Kwok Oi Kuen Joan Elmond resigned as an Executive Director.

During the year ended 31 December 2005, Mr Chan Yau Ching Bob and Mr Miao Wen Hao Felix resigned as Executive Directors.

During both years, 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 both years.

11. Employees’ remuneration

Of the five individuals with the highest emoluments in the Group, two (2005: two) were Directors of the Company whose emoluments are included in the disclosures in note 10. The emoluments of the remaining three (2005: three) individuals were as follows:

Salaries, allowances and benefits in kind Contributions to retirement benefit scheme Performance related incentive payments Employee share option benefits Their remuneration were within the following band: HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$3,500,001 to HK$4,000,000	2006 HK$’000 2,920 156 4,124 – 7,200 2006 Number of Employees – 2 1	2005 HK$’000 4,286 122 102 12
		4,522

		2005 Number of Employees 2 1 –

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. Profit (loss) before taxation

	Continuing	Continuing	Discontinued	Discontinued
	operations		operation		Consolidated
	2006	2005	2006	2005	2006	2005
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Profit (Loss) before taxation
has been arrived at after
charging (crediting):
Advertising and promotion
expenses	39,250	6,051	–	10,218	39,250	16,269
Allowance for inventory
obsolescence
and write-off of inventories
(included in cost of sales
for retailing business)	3,544	–	–	–	3,544	–
Amortisation of intangible assets	4,131	–	–	–	4,131	–
Amortisation of prepaid
lease payments	207	186	–	–	207	186
Auditors’ remuneration	3,500	2,622	–	–	3,500	2,622
Consultancy fees	9,783	–	–	–	9,783	–
Depreciation of property
and equipment	25,252	11,656	–	10,019	25,252	21,675
Loss (Gain) on disposal of
property and equipment	2,331	(43)	–	(6,730)	2,331	(6,773)
Cost of inventories recognised
as an expense	277,100	–	–	248,565	277,100	248,565
Share of tax of an associate
(included in share of results
of associates)	4,614	–	–	–	4,614	–
Operating lease rentals in respect
of land and buildings:
Minimum lease payments	71,543	16,888	–	44,956	71,543	61,844
Contingent rents_(note)_	1,562	–	–	2,414	1,562	2,414
	73,105	16,888	–	47,370	73,105	64,258
Net foreign exchange (gain) loss	(166)	643	–	–	(166)	643
Dividends from investments	(471)	(143)	–	–	(471)	(143)

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.

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. Taxation (charge) credit

The (charge) credit comprises: Current tax: – Hong Kong – PRC Overprovision in prior years Deferred taxation	Continuing operations 2006 2005 HK$’000 HK$’000 (4,140) (941) (143) – (4,283) (941) 94 – (4,189) (941) (1,750) 3,940 (5,939) 2,999	Discontinued operation 2006 2005 HK$’000 HK$’000 – – – – – – – – – – – – – –	Consolidated 2006 2005 HK$’000 HK$’000 (4,140) (941) (143) – (4,283) (941) 94 – (4,189) (941) (1,750) 3,940 (5,939) 2,999

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profits for both years.

Certain subsidiaries of the Company are operating in PRC. They are subject to a tax 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 taxation has been made for the subsidiary operating in Taiwan as no assessable profit is arisen during the year.

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 operation	2006 HK$’000 59,300 – 59,300	2005 HK$’000 (18,576) (11,482) (30,058)

– 59 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Taxation (charge) credit at income tax rate of 17.5% Overprovision in respect of prior years Tax effect of share of results of associates 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 Recognition of tax losses/deferred tax assets previously not recognised Effect of different tax rates of subsidiaries operating in other jurisdictions Others Taxation (charge) credit	(10,378) 94 2,515 (7,926) 15,703 (14,018) 8,712 – (587) (54) (5,939) 2006 HK$’000	5,260 – (4,677) (4,885) 3,923 (6,319) 5,817 3,940 – (60) 2,999 2005 HK$’000

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

At 1 January 2005 Credit to consolidated income statement Eliminated on deemed disposal of CRMG At 31 December 2005 and 1 January 2006 Deferred tax liabilities on intangible assets arising from acquisition of subsidiaries Credit (Charge) to consolidated income statement At 31 December 2006	Accelerated tax depreciation HK$’000 (4,494) 1,169 2,549 (776) – 1,289 513	Estimated tax losses HK$’000 4,494 2,771 (2,549) 4,716 – (3,654) 1,062	Intangible asset HK$’000 – – – – (9,109) 615 (8,494)	Total HK$’000 – 3,940 – 3,940 (9,109) (1,750) (6,919)

– 60 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred tax assets Deferred tax liabilities	2006 HK$’000 1,575 (8,494) (6,919)	2005 HK$’000 3,940 –
		3,940

At the balance sheet date, the Group had estimated unused tax losses of HK$459,025,000 (2005: HK$449,585,000) available to offset against future profits. A deferred tax asset has been recognised in respect of HK$6,069,000 (2005: HK$26,949,000) of such losses. No deferred tax asset has been recognised in respect of the remaining estimated unused tax losses of HK$452,956,000 (2005: HK$401,756,000) due to the unpredictability of future profit streams.

14. Discontinued operation

In May 2005, subsequent to the issuance of 83,000,000 shares of HK$0.02 each by CRMG on 6 April 2005, the issuance of 223,000,000 shares of HK$0.02 each by CRMG on 19 May 2005 and the exercise of share options resulting in the issuance of 19,833,333 shares of HK$0.02 each by CRMG on 23 May 2005, the Company’s interest in CRMG was reduced from 66.52% as at 31 December 2004 to 44.69% at the end of May 2005. The Company’s interest in CRMG was further reduced to 40.59% as at 31 December 2005. Accordingly, the retailing operation engaged by CRMG was reclassified as discontinued operation under HKFRS 5 Non-current Assets Held for Sale and Discontinued Operation.

The loss for the year ended 31 December 2005 from discontinued operation is analysed as follows:

Loss of retailing operation for the year Loss on deemed disposals of CRMG	2005 HK$’000 (10,508 (974
	(11,482

– 61 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The results of the retailing operation for the period from 1 January 2005 to 23 May 2005 (the date which the Group lost control in CRMG), which have been included in the consolidated income statement, were as follows:

Revenue Cost of sales Other operating, administrative and selling expenses Depreciation of property and equipment Finance costs Loss before taxation Taxation Loss for the period	Period from 1.1.2005 to 23.5.2005 HK$’000 374,525 (248,565) (124,193) (10,019) (2,256) (10,508) – (10,508)

During the period from 1 January 2005 to 23 May 2005, CRMG paid HK$33,860,000 in respect of the Group’s operating cash flows, paid HK$71,578,000 in respect of investing activities and received HK$104,429,000 in respect of financing activities.

15. Earnings (loss) per share

The calculation of basic and diluted earnings per share attributable to the ordinary equity holders of the Company for the year ended 31 December 2006 are based on the following data:

Profit
Profit for the purpose of basic earnings per share
Effect of dilutive potential ordinary shares:
Interest on convertible loan note
Decrease in share of profits in CFSG and loss on dilution
Profit for the purpose of diluted earnings per share
Number of shares
Weighted average number of ordinary shares for the
purpose of basic 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 earnings per share

HK$’000
32,057
274
(3,488)
28,843
463,852,715
499,003
464,351,718

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

From continuing and discontinued operations

The calculation of basic and diluted loss per share attributable to the ordinary equity holders of the Company for the year ended 31 December 2005 was based on the following data:

Loss for the purpose of basic and diluted loss per share Number of shares Weighted average number of ordinary shares for the purpose of basic loss 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 per share	HK$’000 (37,022) 437,483,827 N/A 437,483,827

The computation of diluted earnings per share does not assume the exercise of certain of the Company’s outstanding share options as the exercise prices of those options were higher than the average market price for shares for the relevant period.

Loss per share
Continuing and discontinued operations
Basic and diluted loss per share	HK$(0.08)

From continuing operations

The calculation of the basic and diluted loss per share from continuing operations attributable to the ordinary equity holders of the Company for the year ended 31 December 2005 was based on the following data:

Loss for the year attributable to equity holders of the Company Loss per share Continuing operations Basic and diluted loss per share	HK$’000 (29,506) HK$(0.06)

The denominators used are the same as those detailed above for both basic and diluted loss per share.

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

From discontinued operation

The calculation of basic and diluted loss per share from discontinued operation attributable to the ordinary equity holders of the Company for the year ended 31 December 2005 was based on the following data:

Loss for the year attributable to equity holders of the Company Loss per share Discontinued operation Basic and diluted loss per share	HK$’000 (7,516) HK$(0.02)

The denominators used are the same as those detailed above for both basic and diluted loss per share.

No diluted loss per share amount for the year ended 31 December 2005 was disclosed as the effect of diluting event was insignificant.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. Property and equipment

THE GROUP COST At 1 January 2005 Additions Disposals Deemed disposal of subsidiaries At 31 December 2005 and 1 January 2006 Additions Disposals Arising on acquisition of subsidiaries At 31 December 2006 ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2005 Provided for the year Eliminated on disposals Eliminated on deemed disposal of subsidiaries At 31 December 2005 and 1 January 2006 Provided for the year Impairment loss recognised Eliminated on disposals At 31 December 2006 NET BOOK VALUES At 31 December 2006 At 31 December 2005	Buildings HK$’000 43,543 – (9,780) (33,763) – – – 31,000 31,000 22,651 712 (6,045) (17,318) – 700 – – 700 30,300 –	Construction Leasehold in progress improvements HK$’000 HK$’000 10,000 93,985 – 5,547 (10,000) (1,924) – (53,604) – 44,004 – 11,527 – (2,636) – 27,650 – 80,545 10,000 62,652 – 10,168 (10,000) (1,924) – (34,839) – 36,057 – 15,738 – 4,991 – (661) – 56,125 – 24,420 – 7,947	Furniture, fixtures and equipment HK$’000 193,048 1,526 (55,760) (78,329) 60,485 16,671 (7,079) 31,234 101,311 145,902 10,423 (54,941) (45,287) 56,097 8,005 960 (6,107) 58,955 42,356 4,388	Motor vehicles HK$’000 3,140 466 (350) (1,416) 1,840 1,568 – 448 3,856 2,014 372 (7) (1,006) 1,373 809 – – 2,182 1,674 467	Total HK$’000 343,716 7,539 (77,814) (167,112) 106,329 29,766 (9,715) 90,332 216,712 243,219 21,675 (72,917) (98,450) 93,527 25,252 5,951 (6,768) 117,962 98,750 12,802

– 65 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 5 years
Motor vehicles	3 years

The buildings of the Group are situated in Hong Kong and under medium-term lease.

The net book values of motor vehicles included an amount of HK$1,508,000 (2005: HK$389,000) in respect of assets held under finance leases.

During the year, the Directors reassessed the recoverable amount of the property and equipment of certain shops and recognised an impairment loss of approximately HK$5,951,000. The recoverable amounts of the relevant assets have been determined on the basis of their value in use.

17. Prepaid lease payments

The 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$’000 16,793 415 16,378 16,793	2005 HK$’000 –

		– –
		–

The leasehold land is amortised on a straight-line basis over the remaining term of leases.

18. Investment property

FAIR VALUE At 1 January 2005 and 31 December 2005 Acquired on an acquisition of a subsidiary_(note 38(iii))_ At 31 December 2006	HK$’000 – 5,000
	5,000

All of the Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment property.

– 66 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The fair value of the Group’s investment property at 31 December 2006 has been arrived at on the basis of a valuation carried out at that date by Knight Frank Hong Kong Limited, independent qualified professional valuer not connected with the Group. Knight Frank Hong Kong 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 investment property shown above comprises land in Hong Kong with medium-term lease.

19. Available-for-sale investments

Available-for-sale investments as at 31 December 2006 comprise:

Listed investments: Equity securities listed in Hong Kong Unlisted investments: Unlisted shares, at cost _Less:_Impairment loss recognised	2006 HK$’000 33,392 10,800 (10,800) 33,392	2005 HK$’000 – 10,800 (10,800) –

The above unlisted investments represent investments in unlisted equity securities issued by private entities incorporated in Taiwan. They are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is significant that the Directors of the Company are of the opinion that their fair values cannot be measured reliably.

20. Goodwill

COST At 1 January 2005 Deemed disposal of CRMG Deemed disposal of CFSG Transfer of goodwill of CRMG to interest in associate At 1 January 2006 Arising on acquisition Deemed disposal of CFSG At 31 December 2006	HK$’000 57,199 (12,871) (566) (26,336) 17,426 195,464 (863) 212,027

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

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. Interests in associates

Cost of investments in associates: Listed in Hong Kong Unlisted in Hong Kong Share of post-acquisition losses Fair value of listed investments	2006 HK$’000 – 8 (8) – N/A	2005 HK$’000 130,598 – (26,728) 103,870 227,640

As at 31 December 2006, the Group had interests in the following associates:

					Proportion of
					nominal value
	Form of	Place and	Principal		of issued capital/	Proportion of
	business	date of	place of	Class of	registered capital	voting	Principal
Name of entity	structure	incorporation	operation	share held	held by the Group	power held	activity
					%	%
RACCA Capital Inc	Incorporated	British Virgin	Hong Kong	Ordinary	33	33	Dormant
		Islands
		24 April 2006
RACCA Capital Limited	Incorporated	Hong Kong	Hong Kong	Ordinary	33	33	Introducing
		17 May 2006					agent

During the year ended 31 December 2005, included in the cost of investments in associates is goodwill of HK$23,924,000. The movement of goodwill is set out below:

COST At 1 January 2005 Arising from change of a subsidiary to an associate on 23 May 2005_(note 14)_ Elimination on deemed disposal on 30 December 2005 At 1 January 2006 Disposal At 31 December 2006	HK$’000 – 26,336 26,336 (2,412) 23,924 (23,924) –

– 68 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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

Total assets Total liabilities Net (liabilities) assets Group’s share of net assets of associates Revenue Loss for the year Group’s share of results of associates for the year	2006 HK$’000 1,776 (3,318) (1,542) – 600 (1,542) 14,374	2005 HK$’000 952,600 (709,058
		243,542

		98,878

		865,647

		(65,838

		(26,728

The Group has discontinued recognition of its share of losses of the associates. The amounts of unrecognised share of the associates extracted from the management accounts of the associates are as follows:

Unrecognised share of losses of associates for the year Accumulated unrecognised share of losses of associates	2006 HK$’000 500

	500

At 31 December 2005, the Group held 443,572,587 shares in CRMG, which represented 40.59% of the issued share capital of CRMG as at that date. In February 2006, the Group disposed of 54,545,000 shares in CRMG at a consideration of approximately HK$30 million to two independent third parties. In October 2006, the Group disposed of 294,965,087 shares in CRMG at a consideration of approximately HK$106 million to an independent third party (HK$30 million was received during the year ended 31 December 2006 and the remaining balance of approximately HK$76 million will be settled in April 2007). An aggregate gain of HK$71,100,000 was resulted from the above disposals. After this disposal, the Group held 94,062,500 shares in CRMG (being about 8.61% of the issued share capital of CRMG immediately after the disposal in October 2006) which was classified as available-for-sale investments in the consolidated balance sheet as at 31 December 2006.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. Intangible assets

COST At 1 January 2005 and 31 December 2005 Arising on acquisitions of subsidiaries_(note 38)_ Additions Disposal At 1 January 2006 and 31 December 2006 AMORTISATION At 1 January 2005, 31 December 2005 and 1 January 2006 Charge for the year At 31 December 2006 NET BOOK VALUES At 31 December 2006 At 31 December 2005	Trading Club rights membership HK$’000 HK$’000 9,092 1,970 – – – 1,760 – – 9,092 3,730 – – – – – – 9,092 3,730 9,092 1,970	Online game related intellectual Others property HK$’000 HK$’000 199 – – 16,390 – 171 (199) – – 16,561 – – – 4,131 – 4,131 – 12,430 199 –	Domain name Trademarks HK$’000 HK$’000 – – 5,460 38,000 – – – – 5,460 38,000 – – – – – – 5,460 38,000 – –	Total HK$’000 11,261 59,850 1,931 (199 ) 72,843 – 4,131 4,131 68,712 11,261

Intangible assets amounting HK$9,092,000 represent trading rights in the exchanges in Hong Kong. Particulars regarding impairment testing on the trading rights are disclosed in note 23.

Intangible assets amounting to HK$3,730,000 represents 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 costs of disposal. Management of the Group determines that there is no impairment of the club memberships since the recoverable amounts of the club memberships exceed their carrying amounts.

Intangible assets of online game related intellectual property with carrying value of HK$138,000 at 31 December 2006 represented internally generated online game development costs. This intangible asset has definite useful life and is amortised on a straight-line basis over three years.

– 70 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Intangible assets of online game related intellectual property amounting to HK$12,292,000 at 31 December 2006 represented online game development costs and licensing fee, website development costs and software technology copyrights arising from acquisition of online game business in PRC as mentioned in note 38(i). These intangible assets have definite useful lives. Such intangible assets are amortised on a straight-line basis over four years.

For the purpose of impairment testing on online game related intellectual property, the recoverable amount has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a four-year period, and a discount rate of 15%. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted active concurrence user, peak concurrence user and payment subscribers, such estimation is based on the past performance and management’s expectations for the market development. The value in use at 31 December 2006 was supported by a valuation carried out at that day by B.I. Appraisals Limited, an independent qualified professional valuer not connected with the Group. Based on the valuation report, there is no impairment of the online game related intellectual property since the recoverable amount exceeds its carrying value.

Intangible assets amounting to HK$5,460,000 represent domain name. It is purchased from acquisitions of subsidiaries as disclosed in note 38(ii). It represents the legal and beneficial ownership of domain name “www.shanghai.com” and has indefinite useful life.

The domain name is considered by management of the Group as having an indefinite useful life because it is expected to be used indefinitely. The domain name will not be amortised until its useful life is determined to be finite, instead it will be tested for impairment annually and whenever there is an indication that it may be impaired.

For the purpose of impairment testing on domain name, the recoverable amount has been determined based on fair value less costs to sell. The fair value less costs to sell is arrived at by market approach, which is to determine the desirability of the domain name through recent sales or offering of similar domain name currently on the market in order to arrive at an indication of the most probable selling price for the domain name. The fair value less costs to sell at 31 December 2006 was supported by a valuation carried out at that day by B.I. Appraisals Limited, an independent qualified professional valuer not connected with the Group. Based on the valuation report, there is no impairment of domain name since the recoverable amount of the domain name exceeds its carrying value.

Intangible assets of trademarks amounting to HK$38,000,000 represent the perpetual right for the use of the brand name “Pricerite” and “3C” which takes the form of sign, symbol, name, logo design or any combination thereof arising from acquisition of retail business as mentioned in note 38(iii). These trademarks are considered by management of the Group as having an indefinite useful life. Particulars regarding impairment testing on trademarks is disclosed in note 23.

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Impairment testings on goodwill, trading rights and trademarks

As explained in note 7, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill, trading rights and trademarks set out in notes 20 and 22 respectively have been allocated to the following cash generating units (“CGUs”) respectively. The carrying amounts of goodwill, trading rights and trademarks as at 31 December 2006 allocated to these units are as follows:

Financial services Online game services Retailing business	Goodwill HK$’000 16,563 109,945 85,519 212,027	Trading rights HK$’000 9,092 – – 9,092	Trademarks HK$’000 – – 38,000
			38,000

Goodwill, trading rights and trademarks are considered by management of the Group as having indefinite useful life because they are expected to be used indefinitely. Management of the Group consider cashflow projections which was prepared based on financial budgets covering respective period of goodwill, trading rights and trademarks could determine that there was no impairment of any of its CGUs containing goodwill, trading rights or trademarks as at 31 December 2006.

The recoverable amounts of the CGUs of financial services 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 1-year period and discount rate of 7.75%. A key assumption for the value in use calculations is the budgeted growth rate, which is determined based on past performance and management’s expectations for the market development. 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.

The recoverable amount of the CGU of online game services has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a four-year period and discount rate of 15%. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted active concurrence user, peak concurrence user and payment subscribers, such estimation is based on the CGU’s past performance and management’s expectations for the market development. There is no impairment of goodwill since the recoverable amount of the above CGU exceeds its carrying value.

The recoverable amounts of the CGUs of retailing business 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 10-year period and discount rate of 16.4%. A key assumption for the value in use calculations is the budgeted growth rate, which is determined based on past performance and management’s expectations for the market development. 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. The value in use of trademarks at 31 December 2006 was supported by a valuation carried out at that day by Norton Appraisals Limited, an independent qualified professional valuer not connected with the Group. Based on the valuation report, there is no impairment of trademarks since the recoverable amount of the trademarks exceeds its carrying value.

– 72 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

24. Other assets

2006 HK$’000 Statutory and other deposits 16,241 Statutory and other deposits represent deposits with various exchanges and clearing houses.	2005 HK$’000 7,564

25. Loan receivables

Fixed-rate loan receivables Variable-rate loan receivables _Less:_Allowance for bad and doubtful debts Carrying amount analysed for reporting purposes: Non-current assets (receivable after one year from the balance sheet date) Current assets (receivable within one year from the balance sheet date)	2006 HK$’000 601 45,900 46,501 (26,570) 19,931 656 19,275 19,931	2005 HK$’000 637 76,684
		77,321 (38,136
		39,185

		725 38,460
		39,185

All the loan receivables are denominated in Hong Kong dollars.

Loan receivables with an aggregate carrying value of approximately HK$4,968,000 (2005: HK$25,756,000) are secured by pledged marketable securities.

The fixed-rate loan receivables have contractual maturity dates as follows:

Within one year More than one year but not exceeding two years More than two years but not exceeding five years More than five years	2006 HK$’000 48 48 144 361 601	2005 HK$’000 34 34 153 416
		637

– 73 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The effective interest rate (which is equal to contractual interest rate) on the Group’s fixed rate loan receivables is 2% (2005: 4.98%). Interest rate term is fixed at the time when entering into loan agreement.

The variable-rate loan receivables 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 five years In more than five years	2006 HK$’000 19,227 23 80 – 19,330	2005 HK$’000 38,426 23 79 20
		38,548

The effective interest rates (which are equal to contractual interest rate) on the Group’s variable rate loan receivables are prime rate plus a spread. Interest rate term is fixed at the time when entering into loan agreement.

26. Deposit for acquisition of subsidiaries

Pursuant to the circular of CFSG dated 30 November 2005, CFSG underwent several fund raising transactions and a major acquisition of Netfield Technology Limited and its subsidiaries (hereinafter collectively referred to as the “Netfield Group”).

Under the terms of acquisition, a deposit of HK$55,000,000 was paid as well as related costs of approximately HK$1,095,000 were incurred before 31 December 2005. This sum was presented as “Deposit for acquisition of subsidiaries” as at 31 December 2005.

This acquisition was completed on 10 January 2006.

27. Inventories

Finished goods held for sale Consumables for online game auxiliary products	2006 HK$’000 48,950 674 49,624	2005 HK$’000 – –
		–

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. Account receivables

Account receivables arising from the business of dealing in securities and equity options: Clearing houses, brokers and dealers Cash clients Margin clients Account receivables arising from the business of dealing in futures and options: Clearing houses, brokers and dealers Commission receivables from brokerage of mutual funds and insurance-linked investment plans and products Account receivables arising from the business of provision of corporate finance services Account receivables arising from the business of provision of online game services Trade debtors Other account receivables	2006 HK$’000 125,450 112,334 443,524 83,847 3,479 372 12,715 460 – 782,181	2005 HK$’000 29,894 94,958 270,707 70,718 2,275 1,032 – – 188
		469,772

Account receivables are netted off by allowance for bad and doubtful debts of HK$22,549,000 (2005: HK$27,872,000).

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

Except for the loans to margin clients as mentioned below, all the account receivables arising from the business of dealing in securities and equity options aged within 30 days.

Loans to margin clients are secured by clients’ pledged securities, 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.

– 75 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

Included in account receivables from margin clients arising from the business of dealing in securities is an amount due from an entity in which Mr Kwan Pak Hoo Bankee has a significant beneficial interest and is a Director. Details of the amount due from the entity are as follows:

			Maximum
	Balance	Balance	amount
	at	at	outstanding
Name of company	31.12.2006	1.1.2006	during the year
	HK$’000	HK$’000	HK$’000
Cash Guardian Limited (“Cash Guardian”)	–	11,569	12,720

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

In respect of the commission receivables from brokerage of mutual funds and insurance-linked investment plans and products, account receivables arising from the business of provision of corporate finance services and online game services, trade debtors and other account receivables, 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	2006 HK$’000 11,160 2,409 1,693 1,764 17,026	2005 HK$’000 2,373 436 5 681
		3,495

29. Listed investments held for trading

Listed investments held for trading included:

Equity securities listed in Hong Kong 30. Derivative financial instrument Interest rate swap	2006 HK$’000 49,325 2006 HK$’000 –	2005 HK$’000 35,467

		2005 HK$’000 16

– 76 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

The above derivative financial instrument was held for trading purpose and was measured at fair value at each balance sheet date. Its fair value was determined based on the agreed interest rate with authorised institutions for equivalent instrument at the balance sheet date. It was matured on 25 August 2006.

31. Bank deposits under conditions

Other bank deposits_(note (a)) Pledged bank deposits(note (b))_	2006 HK$’000 16,685 61,390 78,075	2005 HK$’000 16,207 918
		17,125

The bank deposits under conditions carry floating interest at prevailing market rate per annum. The effective interest rates on the Group’s bank deposits under 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 covenant to maintain deposits of not less than HK$15,000,000 (2005: HK$15,000,000) with a bank as a condition precedent to an overdraft facility granted by the bank.
(b) The Group’s bank deposits of HK$61,390,000 (2005: HK$918,000) are pledged to secure the general banking facilities granted by banks.

32. Bank balances

Bank balances – trust and segregated accounts

From the Group’s ordinary business, it receives and holds money deposited by clients and other institutions in the course of the conduct of the regulated activities. These clients’ monies are maintained in one or more segregated bank accounts. The Group has recognised the corresponding account payables 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.

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. Account payables

Account payables arising from the business of dealing in securities and equity options: Cash clients Margin clients Account payables to clients arising from the business of dealing in futures and options Account payables to clients arising from the business of dealing in leveraged foreign exchange contracts Account payables arising from the online game services Trade creditors Other account payables	2006 HK$’000 679,498 106,132 142,500 2,798 937 139,965 – 1,071,830	2005 HK$’000 347,961 77,148 127,446 3,010 – – 26,400
		581,965

The settlement terms of account payables arising from the business of dealing in securities are two days after trade date. Except for the amount payables 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 of the Company, the aged analysis does not give additional value in view of the nature of business of share margin financing.

Account payables 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 excesses 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 account payables amounting to HK$574,577,000 (2005: HK$352,902,000) was 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.

Account payables arising from the online game services are payable for production of online game auxiliary products. The entire account payables are aged within 30 days.

Trade creditors principally comprise amount outstanding for trade purpose and ongoing costs. The average credit period taken for trade purchase is 30 to 90 days.

– 78 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following is an aged analysis of trade creditors at the balance sheet date:

0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	2006 HK$’000 57,432 37,468 32,879 12,186 139,965	2005 HK$’000 – – – –
		–

34. Obligations under finance leases

The Group leases certain of its motor vehicles under finance leases. The average lease term is 2 to 3 years. Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 2.95% to 6%. No arrangements have been entered into for contingent rental payments.

Minimum lease payments 2006 2005 HK$’000 HK$’000 Amount payable under finance leases Within one year 824 164 In more than one year but not more than two years 555 177 1,379 341 _Less:_Future finance charges (82) (32) Present value of lease obligations 1,297 309 _Less:_Amount due for settlement within one year (shown under current liabilities) Amount due for settlement after one year	Present value of minimum lease payments 2006 2005 HK$’000 HK$’000 756 150 541 159 1,297 309 – – 1,297 309 (756) (150 541 159	Present value of minimum lease payments 2006 2005 HK$’000 HK$’000 756 150 541 159 1,297 309 – – 1,297 309 (756) (150 541 159
		309 –
		309 (150
		159

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets and are all denominated in Hong Kong dollars.

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

35. Borrowings

Secured bank borrowings: Bank overdrafts Bank loans Trust receipt loans Unsecured other borrowings The maturity profile of the above borrowings is as follows: On demand or within one year More than one year but not exceeding two years More than two years but not exceeding five years _Less:_Amount due within one year shown under current liabilities Amount due after one year	2006 HK$’000 89,347 200,922 74,989 365,258 72,208 437,466 2006 HK$’000 405,189 32,277 – 437,466 (405,189) 32,277	2005 HK$’000 29,737 142,000 – 171,737 79,564 251,301 2005 HK$’000 171,737 – 79,564 251,301 (171,737) 79,564

These borrowings are used to finance the financing business and retail business of the Group.

At 31 December 2006, borrowings of HK$362,837,000 (2005: HK$171,737,000) were secured by:

(a) corporate guarantees from the Company and a subsidiary;
(b) marketable securities of the Group’s clients (with client’s consent is used to finance the financing business of the Group only);
(c) pledged bank deposits; and
(d) pledge of the Group’s certain building and prepared lease payments.

The bank loan amounting to HK$2,421,000 as at 31 December 2006 was guaranteed by a director of a subsidiary, 富格曼科技股份有限公司 (translated as Fugleman Entertainment Company).

– 80 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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 (2005: HK$15,000,000) with a bank as a condition precedent to an overdraft facility granted by the bank (note 31).

Bank overdrafts amounting to HK$89,347,000 (2005: HK$29,737,000) carry interest at either Hong Kong Interbank Offered Rate (“HIBOR”) plus a spread or prime rate plus a spread. Bank loans amounting to HK$188,000,000 (2005: HK$142,000,000) are at variable-rate borrowings which carry interest at either HIBOR plus a spread or prime rate plus a spread. In addition, bank loans amounting to HK$2,421,000 and HK$10,501,000 (2005: nil) are at fixed rate of 6% and 5.75% respectively. The fixed-rate borrowing amounting to HK$2,421,000 is denominated in New Taiwan dollars, a currency other than its functional currency of Hong Kong dollars. Trust receipt loans amounting to HK$74,989,000 (2005: nil) carry interest at prime rate plus a spread. The unsecured other borrowings amounting to HK$21,208,000 (2005: HK$79,564,000) carry interest at prime rate plus 3% per annum and the remaining HK$51,000,000 unsecured other borrowing is non-interest bearing and repayable on demand.

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

As at the balance sheet date, the Group had undrawn borrowing facility amounting to HK$1,669,164,000 (2005: HK$677,500,000) with floating rate and expiring within one year.

36. Convertible loan note

Convertible loan note issued by CFSG

CFSG issued convertible loan note amounting to HK$40,500,000 to Abdulrahman Saad Al-Rashid & Sons Company Limited (“ARTAR”), an independent third party as at the date of issuance, on 1 September 2004. It bore interest at a rate of 3% per annum and would mature on 31 December 2006 or any other date mutually agreed between CFSG and ARTAR. The holder of the note did not have the right to demand for repayment of any principal amount of the note prior to its maturity and the accrued interest of the note prior to the interest payment date, and was not entitled to vote at general meetings of CFSG. CFSG had the right to repay early part or all of the amount and the accrued interest of the note at any time prior to the maturity date. The note was transferable to persons who are not a connected person of CFSG with the consent of CFSG provided that such consent is not required for transfer to the wholly-owned subsidiaries of ARTAR. During the year ended 31 December 2005, CFSG had made partial repayment of the convertible loan note in a total amount of HK$10,000,000. At 31 December 2005, the outstanding amount of the convertible loan note was HK$30,500,000 convertible into a total number of 112,962,962 shares at the initial conversion price of HK$0.27 per share.

On 18 January 2006, ARTAR had partially converted the convertible loan note in the sum of HK$16,200,000 at the conversion price of HK$0.27 per share for a total of 60,000,000 shares of HK$0.10 each in CFSG. On 1 June 2006 and 28 June 2006, CFSG made partial repayments of convertible loan note in an amount of HK$8,000,000 and HK$6,300,000 respectively. As at 28 June 2006, the convertible loan note was fully repaid.

The convertible loan note contains three components, embedded derivative for early redemption right, liability and equity elements. The Directors of the Company had assessed the fair value of the early redemption right and considered the fair value is insignificant. Upon the application of HKAS 32 Financial instruments: Disclosure and Presentation, the convertible loan note was split between the liability (including embedded derivative for early redemption) and equity elements, on a retrospective basis. The equity element is presented in equity heading “equity component of convertible loan note of a listed subsidiary”. The effective interest rate of the liability component is HIBOR plus a spread determined at the date of initial recognition.

– 81 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The movement of the liability component of the convertible loan note for the year is set out below:

Liability component at the beginning of the year Interest paid Conversion to ordinary shares of CFSG Early partial repayment Liability at the end of the year	2006 HK$’000 30,242 59 (16,062) (14,239) –	2005 HK$’000 39,834 284 – (9,876
		30,242

The partial repayment was allocated to the fair value of the liability component as at the date of early redemption determined on the same basis as initial recognition. The difference between the amount of partial repayment allocated to the liability component and the carrying amount of the liability component at that point in time is recognised directly in the income statement. During the year ended 31 December 2006, a partial repayment of HK$14,300,000 (2005: HK$10,000,000) was made and a corresponding settlement income of HK$291,000 (2005: expenses of HK$85,000) was recognised in the income statement directly.

37. Share capital

Notes Ordinary shares of HK$0.10 each Authorised: At 1 January 2005, 31 December 2005 and 31 December 2006 Issued and fully paid: At 1 January 2005 and 31 December 2005 Issue of shares due to rights issue (a) At 31 December 2006	Number of shares ‘000 1,000,000 437,484 218,742 656,226	Amount HK$’000 100,000

		43,748 21,875
		65,623

Note:

(a) On 17 November 2006, 218,741,913 shares of HK$0.10 each were issued by way of rights issue at a subscription price of HK$0.28 per share. These shares rank pari passu in all respects with other shares in issue.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

38. Acquisition of subsidiaries

(i) Netfield Group

On 10 January 2006, the Group acquired 100% of the equity interest of Netfield Technology Limited from an independent third party with an aggregate consideration of approximately HK$116,484,000. This acquisition has been accounted for using the purchase method. The amounts of goodwill and intangible assets arising as a result of the acquisition were HK$102,491,000 and HK$16,390,000 respectively.

NET ASSETS ACQUIRED: Property and equipment Prepayments, deposits and other receivables Bank balances and cash Accrued liabilities and other payables Amount due to a shareholder Intangible assets in relation to online game related intellectual property Deferred tax liabilities Amount due to a shareholder assigned to the Group Goodwill SATISFIED BY: Deposit paid_(note 26)_ Cash NET CASH OUTFLOW ARISING ON ACQUISITION: Cash consideration Bank balances and cash acquired Net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries	Acquiree’s carrying amount before combination HK$’000 2,615 1,496 2,300 (6,349) (24,694) – – (24,632)	Fair value adjustments HK$’000 – – – – – 16,390 (2,459) 13,931	Fair value HK$’000 2,615 1,496 2,300 (6,349) (24,694) 16,390 (2,459) (10,701) 24,694 102,491 116,484 56,095 60,389 116,484 (60,389) 2,300 (58,089)

– 83 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The goodwill arising on acquisition is attributable to the anticipated profitability of the Group in the new business of online game services.

The Netfield Group was acquired on 10 January 2006 and contributed approximately HK$25,525,000 to the Group’s revenue, and HK$23,633,000 loss to the Group’s profit for the period since acquisition to 31 December 2006.

(ii) Acquisition of New Dragon Investments Limited and its subsidiary (“New Dragon Group”)

On 31 July 2006, the Group signed a sale and purchase agreement to acquire 100% of the issued share capital of New Dragon Investments Limited. This acquisition was completed on 15 November 2006. This acquisition has been accounted for using the purchase method. The amount of goodwill arising as a result of the acquisition was approximately HK$7,454,000.

	Acquiree’s
	carrying amount and
	fair value before
	combination
	HK$’000
NET ASSETS ACQUIRED:
Property and equipment	6,554
Domain name	5,460
Inventories	325
Account receivables	5,763
Other receivables, deposits and prepayments	6,975
Bank balances and cash	5,182
Account payables	(12,276)
Accrued liabilities and other payables	(11,378)
Obligations under finance lease	(170)
Amount due to shareholder	(5,014)
	1,421
Minority interests	(2,389)
Amount due to shareholder assigned to the Group	5,014
Goodwill	7,454
Cash payment (include related costs of the acquisition)	11,500
SATISFIED BY:
Cash	9,000
Related costs of the acquisition	2,500
	11,500
NET CASH OUTFLOW ARISING ON ACQUISITION:
Total cash payment	(11,500)
Bank balances and cash acquired	5,182
	(6,318)

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The goodwill arising on acquisition is attributable to the anticipated profitability of the Group in the new market development of online game services in Taiwan.

Acquisition of the New Dragon Group contributed approximately HK$11,726,000 to the Group’s revenue and HK$61,000 to the Group’s profit for the period since acquisition to 31 December 2006.

(iii) CASH Retail Management (HK) Limited and its subsidiaries (“Retail Group”)

On 20 February 2006, the Group signed a sale and purchase agreement to acquire 100% of the issued share capital of CASH Retail Management (HK) Limited. This acquisition was completed on 30 June 2006. Prior to the acquisition, the Group indirectly held 35.61% equity interest of Retail Group through CRMG. Following the acquisition, the Retail Group has become a wholly-owned subsidiary of the Company. This acquisition has been accounted for using the purchase method. The amounts of goodwill and intangible assets arising as a result of the acquisition were approximately HK$69,955,000 and HK$38,000,000 respectively.

NET ASSETS ACQUIRED: Property and equipment Prepaid lease payment Investment property Inventories Account receivables Other receivables, deposits and prepayments Listed investments held for trading Pledged bank deposits Bank balances and cash Account payables Accrued liabilities and other payables Taxation payable Bank borrowings Intangible assets in relation to trademarks Deferred tax liabilities	Acquiree’s carrying amount before combination HK$’000 81,163 4,643 5,000 62,267 1,746 47,218 2,133 44,400 50,354 (146,538) (37,718) (200) (64,007) – – 50,461	Fair value adjustments HK$’000 – 12,357 – – – – – – – – – – – 38,000 (6,650) 43,707	Fair value HK$’000 81,163 17,000 5,000 62,267 1,746 47,218 2,133 44,400 50,354 (146,538) (37,718) (200) (64,007) 38,000 (6,650) 94,168

– 85 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group’s share of net assets of the Retail
Group at 30 June 2006
Fair value adjustment attributable to the
Group’s 35.61% interest in the Retail Group
credited to revaluation reserve
Goodwill
Consideration
SATISFIED BY:
Cash_(note)
NET CASH INFLOW ARISING ON ACQUISITION:
Cash paid
Bank balances and cash acquired
Acquiree’s
carrying
amount before
Fair value
combination
adjustments
_HK$’000
HK$’000

(17,969)
(15,564)
69,955
130,590
130,590
(30,000)
50,354
20,354
Fair value
HK$’000

Note: The final consideration for this acquisition was HK$130,590,000. HK$30,000,000 was settled by cash payment during the year and the remaining balance of HK$100,590,000 will be settled on or before 30 June 2007.

The goodwill arising on acquisition is attributable to the anticipated profitability of the retail business in Hong Kong.

Acquisition of the Retail Group contributed approximately HK$433,272,000 to the Group’s revenue, and HK$25,898,000 loss to the Group’s result for the period since acquisition to 31 December 2006.

If the acquisition discussed in (i) to (iii) above had been completed on 1 January 2006, the Group’s total revenue for the year would have been approximately HK$1,258,428,000, and loss for the year would have been approximately HK$33,506,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2006, nor is it intended to be a projection of future results.

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. Major non-cash transactions

(a) Pursuant to the agreement entered into between the Group and a third party, the third party agreed to procure its group companies to provide advertising and telecommunication services to the Group. The fee for these services will be used to offset the prepayment for advertising and telecommunication services which the Group paid. During the year, the Group utilised approximately HK$5,393,000 (2005: nil) advertising and telecommunication services.
(b) During the year ended 31 December 2006, the principal amount of convertible loan note of HK$16,200,000 was converted into 60,000,000 shares of HK$0.10 each of CFSG at a conversion price of HK$0.27 each.

40. Contingent liabilities

Company and subsidiaries

(a) In 2002, Pang Po King Cannie (“Pang”) filed a statement of claim against Celestial Securities Limited (“CSL”), a wholly-owned subsidiary of the Company, alleging that CSL, without knowledge or authority of or instructions from Pang, had misused the account opened by Pang with CSL to buy 1,046,000 shares of Takson Holdings Limited. The Directors of the Company confirmed that the subject transactions were made with knowledge and authority of Pang. The Directors of the Company do not envisage the claim by Pang will be held to be valid. The case was in progress and it was in the discovery stage as at 31 December 2006 and 2005. Accordingly, no provision was made in the financial statements.
(b) During the year ended 31 December 2005, Theodore J Marr (“Marr”) filed a cross-summons with the California in the United States of America against the Company and others alleging breaches of fiduciary duties and/or fraudulent conveyances. Marr’s claims in the cross-summons against the Company included US$900,000 (equivalent to approximately HK$7,020,000) arising out of an employment contract between ILUX Corporation (“ILUX”), a subsidiary of the Company, US$15,000,000 (equivalent to approximately HK$117,000,000) arising out of the dissolution of ILUX, exemplary and punitive damages of not less than US$5,000,000 (equivalent to approximately HK$39,000,000) in respect of each of Marr’s causes of action against cross-complainants, and interest. In August 2006, the Company made an application to the California court for the breach of fiduciary duties cause of action against the Company to be dismissed on the ground that Marr lacks standing to assert this cause of action, and in September 2006 the California court dismissed the breach of fiduciary duty claim against the Company. No court decision has been rendered yet in respect of Marr’s other causes of action against the Company. No provision has been made in the consolidated financial statements as in the opinion of the Directors, the potential liability arisen is remote.
(c) On 11 May 2006, Hallmark Cards, Incorporated (“Petitioner”) filed a petition for a winding-up order against Cosmos Global Limited (“CGL”), a subsidiary of the Company, under which the Petitioner claimed that CGL was indebted to the Petitioner for a sum of US$41,591.23 (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 CGL on the same date and CGL is now in the process of liquidation. CGL is a dormant company and the winding up of CGL will not have any material impact to the operation of the Group.

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(d) In 2003, Ka Chee Company Limited sued against Celestial (International) Securities & Investment Limited (“CISI”), a non-wholly-owned subsidiary of the Company, for an amount of HK$1,662,598. The nature of claim is a winding-up petition. A winding-up order was made by the court, the liquidator has been appointed, and the winding-up procedure is still in progress. Provision, which in the opinion of the Directors of the Company is adequate, has already been made for the claim. CISI is a dormant company and the winding up of CISI will not have any material impact to the operation of the Group.

41. Operating lease commitments

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

Within one year In the second to fifth year inclusive Over five years	2006 HK$’000 109,574 92,386 756 202,716	2005 HK$’000 16,643 20,901 –
		37,544

Operating lease payments represent rental payable by the Group for office premises and retail shops. Leases are mainly negotiated for an average term of six years and rentals are fixed for an average of three years. In addition to the fixed rentals, pursuant to the terms of certain rental agreements, the 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.

42. Share option schemes

(A) Share option scheme of the Company

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 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 the Group, including CFSG and its subsidiaries (“CFSG 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.

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(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 the Company as at the date of approval of the Share Option Scheme and such limit might be refreshed by shareholders in general meeting. The maximum number of shares was 43,748,382 shares, representing 6.7% of the issued share capital of the Company as at the date of the Annual Report. 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 the 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 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 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 and provided in the offer of grant of share option.
(vi) The exercise period should be any period fixed by the Board of Directors 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 the Company.
(viii) The exercise price of a share option must be the highest of:
the closing price of the Company’s shares on the date of grant which day must be a trading day;
the average closing price of the Company’s shares for the 5 trading days immediately preceding the date of grant; and
the nominal value of the Company’s share.
(ix) The life of the Share Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

– 89 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following table discloses details of the Company’s share options held by the Directors and the employees of the Group and movements in such holdings:

	Num	ber of share options	ber of share options
outstanding as at 1.1.2005 (Note (1)) 15,000,000 – 15,000,000 – 15,000,000	lapsed in 2005 (15,000,000) – (15,000,000) – (15,000,000)	outstanding as at 31.12.2005 and 1.1.2006 (Note (2)) – – – – –	granted in 2006 – 16,000,000 16,000,000 16,000,000 32,000,000	outstanding as at 31.12.2006 – 16,000,000
				16,000,000 16,000,000
				32,000,000

Notes:

(1) The lapsed share options were due to expiry or cessation of employment of participants with the Group.
(2) The closing price of the share immediately before the date of grant on 13 November 2006 was HK0.330. The share options are fully vested on the grant date.
(3) No share option was exercised or cancelled during the year.

The exercise in full of the outstanding 32,000,000 share options at 31 December 2006 would, under the present capital structure of the Company, result in the issue of 32,000,000 additional shares of the Company for a total cash consideration, before expenses, of approximately HK$10,336,000.

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$422,000.

These fair values are calculated using the Black-Scholes pricing model. The inputs into the model were a follows:

Weighted average share price	HK$0.330
Exercise price	HK$0.323
Expected volatility	67%
Expected life	2 years
Risk-free rate	4.59%
Expected dividend yield	Nil

Expected volatility was determined by using the historical volatility of the Company’s share price over the previous 256 trading days.

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group recognised the total expenses of approximately HK$422,000 (2005: nil) for the year ended 31 December 2006 in relation to share options granted by the Company.

(B) Share option scheme of CFSG

The CFSG’s share option scheme (“CFSG Share Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of CFSG held on 19 February 2002. The major terms of the CFSG 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.
(iii) The maximum number of shares in respect of which share options might be granted under the CFSG Share Option Scheme must not exceed 10% of the issued share capital of CFSG as at the date of approval of the CFSG 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 the CFSG 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 the CFSG 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 CFSG 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 CFSG 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 CFSG.

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(viii) The exercise price of a share option must be the highest of:
the closing price of the shares of CFSG on the date of grant which day must be a trading day;
the average closing price of the shares of CFSG for the 5 trading days immediately preceding the date of grant; and
the nominal value of the share of CFSG.
(ix) The life of the CFSG Share Option Scheme is effective for 10 years from the date of adoption until 18 February 2012.

The following table discloses details of the CFSG’s share options held by the Directors and the employees of the Group and movements in such holdings:

			Num	ber of share options	ber of share options
outstanding as at 1.1.2005 22,295,000 – – 22,295,000 21,190,000 – – – 21,190,000 43,485,000	granted in 2005 (Note (4)) – 38,700,000 – 38,700,000 – 36,300,000 – – 36,300,000 75,000,000	exercised in 2005 (Note (3)) – – – – (13,325,000) – – – (13,325,000) (13,325,000)	lapsed in 2005 (Note (6)) (22,295,000) – – (22,295,000) (2,795,000) – – – (2,795,000) (25,090,000)	outstanding as at 31.12.2005 and 1.1.2006 – 38,700,000 – 38,700,000 5,070,000 36,300,000 – – 41,370,000 80,070,000	granted in 2006 (Note (5)) – – 31,800,000 31,800,000 – – 69,500,000 6,000,000 75,500,000 107,300,000	lapsed in 2006 (Note (6)) – (38,700,000) – (38,700,000) (3,900,000) (36,300,000) – – (40,200,000) (78,900,000)	exercised in 2006 (Note (3)) – – – – (1,170,000) – (1,000,000) – (2,170,000) (2,170,000)	outstanding as at 31.12.2006 – – 31,800,000
								31,800,000

								– – 68,500,000 6,000,000
								74,500,000
								106,300,000

Notes:

(1) The share options are vested in 2 tranches as to (i) 50% exercisable from the commencement of the exercise period; and (ii) 50% exercisable from the expiry of 12 months from the commencement of the exercise period.
(2) The share 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.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(3) On 16 September 2005 and 26 September 2005, 650,000 share options and 12,675,000 share options were exercised at the exercise price of HK$0.34 per share. The weighted average closing price of the shares of CFSG immediately before the respective date of exercise was HK$0.495 per CFSG’s share and HK$0.470 per CFSG’s share.

On 25 January 2006 and 26 January 2006, 520,000 share options and 650,000 share options were exercised at the exercise price of HK$0.34 per share respectively. The weighted average closing prices of the shares of CFSG immediately before the date of exercise were HK$0.41 per CFSG’s share and HK$0.42 per CFSG’s share respectively.

On 14 November 2006, 1,000,000 share options were exercised at the exercise price of HK$0.296 per share. The weighted average closing price of the shares of CFSG immediately before the date of exercise was HK$0.34 per CFSG’s share.

(4) The closing price of the share of CFSG immediately before the date of grant on 6 October 2005 was HK$0.335.
(5) The closing price of the share of CFSG immediately before the date of grant on 7 July 2006 was HK$0.29.
(6) The lapsed share options were due to expiry or cessation of employment of participants with the Group.
(7) No share option was cancelled during the year.

The exercise in full of the outstanding 106,300,000 share options of CFSG at 31 December 2006 would, under the present capital structure of CFSG, result in the issue of 106,300,000 additional shares of CFSG for a total cash consideration, before expenses, of approximately HK$31,464,800.

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$1,613,000.

During the year ended 31 December 2005, share options were granted on 6 October 2005 and are fully vested on the same date. The estimated fair values of the share options granted on that date are HK$162,500.

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

These fair values are calculated using the Black-Scholes pricing model. The inputs into the model were a follows:

	Share options
	grant date
	6 October	7 July
	2005	2006
Weighted average share price	HK$0.32	HK$0.29
Exercise price	HK$0.38	HK$0.30
Expected volatility	20%	74%
Expected life	1 year	2 years
Risk-free rate	3.86%	4.59%
Expected dividend yield	3.125%	3.125%

Expected volatility was determined by using the historical volatility of the CFSG’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.

The Group recognised the total expenses of approximately HK$1,613,000 (2005: HK$203,000) for the year ended 31 December 2006 in relation to share options granted by CFSG.

43. Retirement benefits schemes

The 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 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 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 Group in an independently administrated fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

The employer’s contributions to the MPF Schemes charged to the income statement and the forfeited voluntary contributions credited to the income statements amounted to approximately HK$5,455,000 (2005: HK$5,456,000) and HK$340,000 (2005: HK$945,000) respectively for the year ended 31 December 2006.

During the year ended 31 December 2006, the Group acquired a subsidiary in Taiwan. The subsidiary operates pension plan under the Labor Pension Act (“Act”). The Act provides for a defined contribution benefit plan. Under the Act, the subsidiary make monthly contributions at 6% of basic salaries (i.e. net of bonuses and benefits) to the employees’ individual pension accounts. During the year ended 31 December 2006, the Group recognised pension costs of HK$88,000 (2005: nil).

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APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The Group operates various benefits schemes for its full-time employees in 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 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. During the year ended 31 December 2006, the Group recognised contribution to the aforesaid benefits schemes of HK$1,086,000 (2005: nil).

44. Commitments

Capital commitments

At the balance sheet date, the Group had the following capital commitments:

	2006	2005
	HK$’000	HK$’000
Capital expenditure commitment in respect of the
acquisition of subsidiaries contracted for but not
provided in the financial statements	–	55,000

45. Related party transactions

The Group had the following significant transactions with related parties:

(a) During the year, the Group received interest from margin financing of approximately HK$1,199,000 (2005: HK$928,000) from Cash Guardian, in which Kwan Pak Hoo Bankee, a Director of the Company has a controlling interest and is also a Director. The interest was calculated at commercial rates which were similar to the rates offered to other margin clients.
(b) During the year ended 31 December 2006, the Group acquired the Retail Group from CRMG at a total consideration of HK$130,590,000. Details of the acquisition are set out in note 38(iii).
(c) During both years, compensation of key management personnel represented Director’s remuneration which is disclosed in note 10. The Director’s remuneration is determinated by the remuneration committee having regard to the performance, responsibilities and experience of individuals and market trends.
(d) As at 31 December 2006, amount due from an entity, in which Kwan Pak Hoo Bankee has significant beneficial interest and is a Director, was nil (2005: HK$11,569,000). Details are set out in note 28.

46. Post balance sheet events

(a) Subsequent to 31 December 2006, the Group announced a connected and major transaction on 9 January 2007 for the proposed acquisition of the entire interest in Netfield Technology Limited from CFSG at a consideration (“Consideration”) of the higher of HK$120 million or the valuation of the online game business operated by Netfield Technology Limited as at 31 December 2006. The Consideration was finally fixed at HK$120 million. The transaction will be subject to the approval of the independent shareholders of the Company at a special general meeting to be held on 23 April 2007.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Pursuant to the option deed dated 9 January 2007, the Company agreed to grant an option, which is subjected to certain precedent conditions, to Mr Lin Che Chu George. Under such option, Mr Lin Che Chu George has a right to require the Group to transfer such number of shares in Netfield Technology Limited as representing 10% of the entire issued share capital of Netfield Technology Limited for 10% of the Consideration.

(b) On 6 March 2007 and 12 March 2007, the Group disposed of 50,000,000 shares in CRMG (being approximately 4.19% of the then entire issued share capital of CRMG) and 44,062,500 shares in CRMG (being approximately 3.7% of the then entire issued share capital of CRMG) at a consideration of approximately HK$10.5 million and HK$9.3 million respectively to two independent third parties. The disposals will result in a loss of approximately HK$13.7 million before recognition of the cumulative fair value gain of approximately HK$14.1 million on available-for-sale investments, which was previously recognised in investment revaluation reserve. Investment revaluation reserve of HK$14.1 million will be recognised as income as a result of the aforesaid disposals of CRMG’s shares. After the disposals, the Group did not hold any shareholding interest in CRMG.

47. Particulars of principal subsidiaries of the company

		Nominal value		Proportion
		of issued		of nominal
		and fully	Proportion	value of
		paid ordinary	of voting	issued share
		share capital/	power held	capital held
	Place of	registered	by the	by the
Name	incorporation	capital	Company	Company	Principal activities
				%
CFSG	Bermuda	HK$138,205,144	51.1*	46.22	Investment holding
CASH Asset Management	Hong Kong	HK$200,000	51.1	46.22	Provision of asset
Limited					management services
CASH E-Trade Limited	Hong Kong	HK$4,000,000	51.1	46.22	Provision of
					management services
					for group companies
CASH Payment Services	Hong Kong	HK$2	51.1	46.22	Provision of payment
Limited					gateway services
					for group companies
Celestial Capital Limited	Hong Kong	HK$27,000,000	51.1	46.22	Provision of corporate
					finance services
Celestial Commodities	Hong Kong	HK$10,000,000	51.1	46.22	Futures and options
Limited					broking and trading
Celestial Investments (HK)	Hong Kong	HK$10,000,000	51.1	46.22	Money lending
Limited

– 96 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Nominal value		Proportion
		of issued		of nominal
		and fully	Proportion	value of
		paid ordinary	of voting	issued share
		share capital/	power held	capital held
	Place of	registered	by the	by the
Name	incorporation	capital	Company	Company	Principal activities
				%
Celestial Securities Limited	Hong Kong	HK$140,000,000	51.1	46.22	Securities, equity
					options broking and
					trading, leveraged
					foreign exchange
					contracts and
					provision of share
					margin financing
icoupon Limited	British Virgin	US$1	51.1	46.22	Investment holding
	Islands
CASH Frederick Taylor	Hong Kong	HK$1,000,000	35.77**	32.35	Financial advisory
Limited (“CASH					consultancy
Frederick Taylor”)
富格曼科技股份有限公司	Taiwan	NTD40,820,000	26.06***	23.57	Online game operator
(translated as Fugleman
Entertainment Company)
摩力游（上海）信息	PRC	US$3,000,000	51.1	46.22	Online game developer
科技有限公司#
(translated as MOLI
China Information
Technology Limited)
上海摩力游數字	PRC	RMB1,000,000	51.1	46.22	Online game operator
娛樂有限公司##
(previously known as
上海嘉思華數字
娛樂有限公司)
(translated as Shanghai
Moliyo Digital
Entertainment
Limited)
3C Digital Limited	Hong Kong	HK$100	60	60	Retailing of digital
					products and
					electrical appliances
3C Electrical Appliances	Hong Kong	HK$1	60	60	Retailing of electrical
Limited					appliances
E-Tailer Holding Limited	British Virgin	US$1	100	100	Trading of securities
	Islands
Lifeztore (HK) Limited	Hong Kong	HK$1	100	100	Retailing of furniture
					and household goods

– 97 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Nominal value		Proportion
		of issued		of nominal
		and fully	Proportion	value of
		paid ordinary	of voting	issued share
		share capital/	power held	capital held
	Place of	registered	by the	by the
Name	incorporation	capital	Company	Company	Principal activities
				%
Pricerite Stores Limited	Hong Kong	HK$200,000,000	100	100	Retailing of furniture
					and household goods
Pricerite.com.hk Limited	Hong Kong	HK$2	100	100	Retailing of furniture
					and household goods
					through corporate
					sales
Wealthy View Investment	British Virgin	US$10	100	100	Investment holding
Limited	Islands
Richwell Target Limited	Hong Kong	HK$2	100	100	Property holding
生活經艷（上海）	PRC	HK$5,000,000	100	100	Retailing of furniture
商貿有限公司#					and household goods
(translated at Lifeztore
(Shanghai) Limited)

The Group holds a 46.22% equity interest in CFSG through CIGL. Cash Guardian, a company in which Mr Kwan Pak Hoo Bankee has a beneficial interest and is also a Director, holds 2.93% equity interest in CFSG. Cash Guardian has agreed that it will cast all votes at all shareholder’s meeting of CFSG, in accordance with the voting decision of the Company at all times. Mr Law Ping Wah Bernard and Mr Wong Kin Yick Kenneth, Directors of the Company, who have 1.25% and 0.71% equity interest and voting power respectively in CFSG, have agreed that they will not vote against the voting decision of the Company at all times. As a result, the Group is able to control the voting power at all the general meetings of CFSG. Accordingly, CFSG is accounted for a subsidiary of the Company.
** The Group holds a 32.35% effective interest in CASH Frederick Taylor and controls a 70.00% of voting power at general meetings of CASH Frederick Taylor through the 51.1% of voting power interest in CFSG.
*** The Group holds a 23.57% effective interest in 富格曼科技股份有限公司 (translated as Fugleman Entertainment Company) and controls a 51% of voting power at general meetings of 富格曼科技股份有限公司 (translated as Fugleman Entertainment Company) through the 51.1% of voting power interest in CFSG.
# Wholly-owned foreign enterprise established in PRC.
## Domestic enterprise with limited liabilities established in PRC.

All the subsidiaries shown above are indirectly held by the Company. In the opinion of the Directors, a complete list of the particulars of subsidiaries will be of excessive length and therefore the above list contains only the particulars of those subsidiaries which principally affect the results or net assets of the Group.

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. STATEMENT OF INDEBTEDNESS

Borrowing

As at 30 April 2007, the Group had total outstanding borrowings of approximately HK$580.9 million, comprising unsecured loan of HK$48.4 million payable to an independent third party on 29 September 2008, bank loans of HK$262.5 million, trust receipt loans of HK$53.4 million and bank overdrafts of HK$216.6 million. Bank loans and bank overdrafts in aggregate of HK$438.2 million was drawn to fund securities margin financing to the Group’s clients and were collateralised by securities of the Group’s margin clients, which were pledged to the Group for seeking financing. Bank loan of HK$30 million was drawn to finance initial public offering of new shares to the Group’s clients. In addition, the Group has outstanding obligations under finance leases of approximately HK$0.9 million as at 30 April 2007.

Pursuant to a letter of undertaking provided by the Group to a bank, the Group covenants to maintain deposits of not less than HK$15.0 million with the bank as a precondition for an overdraft facility of HK$15.0 million granted by the bank. A bank deposit of approximately HK$16.7 million was held for this purpose. Moreover, bank deposits with an aggregate amount of approximately HK$64.0 million was pledged for banking facilities granted by banks to the Group. Therefore, total bank deposits under conditions were approximately HK$80.7 million as at 30 April 2007.

In addition, as at 30 April 2007, the Group’s building and prepaid lease payment with a total carrying value of approximately HK$49.1 million was pledged to secure a bank loan and general banking facilities granted to the Group and the Group’s motor vehicles with a net book value of approximately HK$1.1 million was charged to secure the obligations under finance leases.

As at 30 April 2007, the Group’s bank borrowings of HK$529.0 million were guaranteed by the Company and certain subsidiaries of the Group. In addition, the Group’s bank borrowings of HK$1.5 million was secured by trade receivable of 富格曼科技股份有限公司 (translated as Fugleman Entertainment Company), a subsidiary of the Group. The remaining bank borrowings of approximately HK$2.0 million were guaranteed by a director of 富格曼科技股份有限公司 (translated as Fugleman Entertainment Company).

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

As at 30 April 2007, the Group had litigations/claims as disclosed in the paragraph “Litigation” in Appendix IV to this circular.

Save as aforesaid, the Group had no other material contingent liabilities as at 30 April 2007.

Disclaimers

Save as aforesaid, and apart from intra-group liabilities, the Group did not have any outstanding loan capital issued and outstanding or agreed to be issued, 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 30 April 2007.

The Board has confirmed that, save as disclosed above, there has not been any material change in the indebtedness or contingent liabilities of the Group since 30 April 2007.

3. LIQUIDITY, FOREIGN CURRENCY AND CAPITAL COMMITMENTS

Liquidity ratio

As at 31 December 2006, the Group’s cash and bank balances were HK$821.2 million. Our liquidity ratio was 1.1 times on 31 December 2006. Our gearing ratio was 1.4 times on 31 December 2006.

Capital commitments

Save for the maximum consideration of HK$145.1 million to be paid by the Group under the Offers, the Group did not have any material capital commitment as at 30 April 2007.

Foreign exchange risk

All of the Group’s borrowings are mainly in HK dollar, with the interest rates priced at close to banks’ funding costs. By using effective instruments to hedge any adverse changes in interest rates, our exposure to both foreign currency and interest rate fluctuation was insignificant. As at 30 April 2007, the Group did not have any material un-hedged foreign exchange exposure or interest rate mismatch.

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. WORKING CAPITAL

The Directors are of the opinion that, after taking into account the financial resources and banking facilities available to the Group and its internally generated funds and on the assumption that the balance of the consideration of HK$70 million for the acquisition of Netfield Technology Limited and its subsidiaries will be settled after the next twelve months from the date of this circular, the Group has sufficient working capital to satisfy its requirement for at least the next twelve months from 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 2006, the date to which the latest published audited financial statements of the Group were made up.

– 101 –

APPENDIX II FINANCIAL INFORMATION OF THE CFSG GROUP

SUMMARY OF FINANCIAL INFORMATION FOR EACH OF THE THREE YEARS ENDED 31 DECEMBER 2006

The following is a summary of the financial results of the CFSG Group for each of the three years ended 31 December 2006 as extracted from the annual reports of CFSG.

Revenue Net profit/loss before taxation Taxation (charge) credit Net profit after taxation Minority interests Dividends Earnings per CFSG Share attributable to CFSG Shareholders Dividends per CFSG Share attributable to CFSG Shareholders	2004 HK$’000 (Restated) 239,972 21,162 (350) 20,812 424 7,546 3.2 HK cents 1.0 HK cent	2005 HK$’000 213,557 23,847 3,440 27,287 661 – 3.2 HK cents –	2006 HK$’000 383,228 46,137 (5,939) 40,198 254 27,641 2.9 HK cents 2.0 HK cents

Notes:

The reports of the auditors in respect of the financial statements of the CFSG Group for each of the three years ended 31 December 2006 did not contain any qualification.
There was no extraordinary or exceptional items during the three years ended 31 December 2006.

– 102 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

In the year ended 31 December 2005, the CFSG Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKASs”) and Interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) that are effective for accounting periods beginning on or after 1 January 2005. The application of the new HKFRSs has resulted in a change in the presentation of the consolidated income statement, consolidated balance sheet and consolidated statement of changes in equity. In particular, the presentation of minority interests has been changed. The changes in presentation have been applied retrospectively. The adoption of the new HKFRSs has resulted in changes to the CFSG Group’s accounting policies in the following areas that have an effect on how the results for the current and prior accounting years are prepared and presented:

Business combinations

In the year ended 31 December 2005, the CFSG Group has applied HKFRS 3 Business Combinations which is effective for business combinations for which the agreement date is on or after 1 January 2005. In previous years, goodwill arising on acquisitions was capitalised and amortised over its estimated useful life. The CFSG Group has applied the relevant transitional provisions in HKFRS 3. On 1 January 2005, the CFSG Group eliminated the carrying amount of the related accumulated amortisation and impairment of approximately HK$104,512,000 with a corresponding decrease in the cost of goodwill. The CFSG Group has discontinued amortising such goodwill from 1 January 2005 onwards and such goodwill will be tested for impairment at least annually. Goodwill arising on acquisitions after 1 January 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition. As a result of this change in accounting policy, no amortisation of goodwill has been charged in the year ended 31 December 2005. Comparative figures for 2004 have not been restated (see the Summary of the effects on application of HKFRSs below for the financial impact).

Share-based payments

In the year ended 31 December 2005, the CFSG Group has applied HKFRS 2 Share-based payment which requires an expense to be recognised where the CFSG Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the CFSG Group is in relation to the expensing of the fair value of share options granted to CFSG Directors and employees of CFSG, determined at the date of grant of the share options, over the vesting period. Prior to the application of HKFRS 2, the CFSG Group did not recognise the financial effect of these share options until they were exercised. The CFSG Group has applied HKFRS 2 to share options granted on or after 1 January 2005. In relation to share options granted before 1 January 2005, the CFSG Group chooses not to apply HKFRS 2 with respect to share options granted on or before 7 November 2002 and vested before 1 January 2005. However, the CFSG Group is still required to apply HKFRS 2 retrospectively to share options that were granted after 7 November 2002 and had not yet vested on 1 January 2005. Comparative figures have been restated (see the Summary of the effects on application of HKFRSs below for the financial impact).

– 103 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Financial instruments

In the year 31 December 2005, the CFSG Group has applied HKAS 32 Financial Instruments: Disclosure and Presentation and HKAS 39 Financial Instruments: Recognition and Measurement. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1 January 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The principal effects resulting from the implementation of HKAS 32 and HKAS 39 are summarised below:

(i) Convertible loan note

The principal impact of HKAS 32 on the CFSG Group is in relation to convertible loan note issued by CFSG that contain an early redemption option, a liability component and an equity component. Previously, convertible loan note was classified as liability on the balance sheet. HKAS 32 requires an issuer of a compound financial instrument to separate the compound financial instrument into the early redemption option, liability component and equity component on initial recognition. Derivative embedded in a financial instrument is treated as separate derivative when its economic risk and characteristic are not closely related to those of the host contract (the liability component) and the host contract is not carried at fair value through profit or loss. At the date of issue, the early redemption option derivative, liability component are recognised at fair value. The carrying amount of the equity component is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole. Issue costs are apportioned between the components of the convertible loan note based on their relative fair value at the date of issue. The portion relating to the derivative is charged directly to profit or loss. The issuer of a compound financial instrument has to account for these components separately. In subsequent periods, the liability component is measured at amortised cost, using the effective interest rate method. The interest charged on the liability component is calculated by applying the original effective interest rate. The difference between this amount and the interest paid is added to the carrying amount of the liability component. The early redemption option derivative is subsequently measured at fair value at each balance sheet date. Because HKAS 32 requires retrospective application, comparative figures for 2004 have been restated. Comparative profit for 2004 has been restated in order to reflect the increase in effective interest on the liability component (see the Summary of the effects on application of HKFRSs below for the financial impact).

(ii) Classification and measurement of financial assets and financial liabilities

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

– 104 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

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

On 1 January 2005, the CFSG Group classified and measured its debt and equity securities in accordance with the transitional provisions of HKAS 39. As a result, “other investments” amounted to approximately HK$47,032,000 has been classified as “listed investments held for trading” on 1 January 2005 (see the Summary of the effects on application of HKFRSs below for the financial impact).

(iii) Financial assets and financial liabilities other than debt and equity securities

From 1 January 2005 onwards, the CFSG Group has classified and measured its financial assets and financial liabilities other than debt and equity securities (which were previously outside the scope of SSAP 24) in accordance with the requirements of HKAS 39. As mentioned above, financial assets under HKAS 39 are classified as “financial assets at fair value through profit or loss”, “available-for-sale financial assets”, “loans and receivables” or “held-to-maturity financial assets”. Financial liabilities are generally classified as “financial liabilities at fair value through profit or loss” or “other financial liabilities”. Financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value being recognised in profit or loss directly. Other financial liabilities are carried at amortised cost using the effective interest method after initial recognition. The CFSG Group has applied the relevant transitional provisions in HKAS 39. However, there has been no material effect on how the results for the current accounting period are prepared and presented.

– 105 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

(iv) Derivatives

From 1 January 2005 onwards, all derivatives that are within the scope of HKAS 39 are required to be carried at fair value at each balance sheet date regardless of whether they are deemed as held for trading or designated as effective hedging instruments. Under HKAS 39, derivatives (including embedded derivatives separately accounted for from the non-derivative host contracts) are deemed as held-for-trading financial assets or financial liabilities, unless they qualify and are designated as effective hedging instruments. The corresponding adjustments on changes in fair values for derivatives that are deemed as held for trading are recognised in profit or loss for the period in which they arise.

The CFSG Group has applied the relevant transitional provisions in HKAS 39. For derivatives that do not qualified as hedging instruments under HKAS 39, on 1 January 2005, the CFSG Group recognised the difference between the previous carrying amount recognised on the balance sheet and the fair value on 1 January 2005, amounting to HK$48,000, in the CFSG Group’s retained earnings (see the Summary of the effects on application of HKFRSs below for the financial impact).

Intangible assets

By 31 December 2004, intangible assets were amortised over their estimated useful lives. HKAS 38 Intangible Assets requires intangible assets to be assessed at the individual asset level as having either finite or indefinite life. A finite-life intangible asset is amortised over its estimated useful life whereas an intangible asset with an indefinite useful life is carried at cost less accumulated impairment losses (if any). Intangible assets with indefinite lives are not subject to amortisation but are tested for impairment annually or more frequently when there are indications of impairment. In accordance with the transitional provisions in HKAS 38, the CFSG Group reassessed the useful lives of its trading rights in the exchanges in Hong Kong on 1 January 2005 and concluded that the trading rights have indefinite useful lives. The CFSG Group has applied the revised useful lives prospectively and discontinued amortising the trading rights from 1 January 2005 onwards. No amortisation has been charged in relation to the trading rights for the year ended 31 December 2005. As a result, the profit for the year has been increased by approximately HK$1,830,000. Comparative figures for 2004 have not been restated (see the Summary of the effects on application of HKFRSs below for the financial impact).

– 106 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

SUMMARY OF THE EFFECTS ON APPLICATION OF HKFRSs

The effects of the changes in the accounting policies described above on the results for the years ended 31 December 2004 and 2005 are as follows:

Depreciation and amortisation Non-amortisation of goodwill Non-amortisation of trading rights Salaries, commission and related benefits Recognition of employee share option benefits Finance costs Increase in effective interest expense on the liability component of convertible loan note Convertible loan note settlement expense Increase in convertible loan note settlement expense Increase (Decrease) in profit for the year	2005 HK$’000 2,694 1,830 (203) (284) (85) 3,952	2004 HK$’000 – – (219) (361) (310) (890)

– 107 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

The cumulative effects of the application of the new HKFRSs on 31 December 2004 and 1 January 2005 are summarised below:

As at 31 December 2004 (originally stated) HK$’000 Balance sheet items Goodwill 4,933 Intangible assets 9,092 Other assets 11,387 Listed investments held for trading – Investments 47,032 Convertible loan note (40,500) Derivative financial instrument – Other net assets 207,704 Total effects on assets and liabilities 239,648 Share capital 75,456 Accumulated losses (84,951) Convertible loan note equity reserve – Share-based payment reserve – Other reserves 248,333 Minority interests – Total effects on equity 238,838 Minority interests 810	Retrospective adjustments HK$’000 HK$’000 HK$’000 HKAS 1 HKAS 32 HKFRS 2 – – – – – – – – – – – – – – – – 666 – – – – – – – – 666 – – – – – (105) (680) – 771 – – – 680 – – – 810 – – 810 666 – (810) – –	As at 31 December Prospective 2004 adjust- (restated) ments HK$’000 HK$’000 HKAS 39 4,933 – 9,092 – 11,387 – – 47,032 47,032 (47,032) (39,834) – – (48) 207,704 – 240,314 (48) 75,456 – (85,736) (48) 771 – 680 – 248,333 – 810 – 240,314 (48) – –	As at 1 January 2005 (restated) HK$’000 4,933 9,092 11,387 47,032 – (39,834) (48) 207,704 240,266 75,456 (85,784) 771 680 248,333 810 240,266 –

– 108 –

APPENDIX II FINANCIAL INFORMATION OF THE CFSG GROUP

The financial effects of the application of the new HKFRSs to the CFSG Group’s equity on 1 January 2004 are summarised below:

Share capital Accumulated losses Convertible loan note equity reserve Share-based payment reserve Other reserves Minority interests Total effects on equity	As originally stated HK$’000 37,728 (106,229) – – 186,377 – 117,876	HKAS 1 HK$’000 – – – – – 386 386	HKAS 32 HK$’000 – (729) 1,764 – – – 1,035	HKFRS 2 HK$’000 – (461) – 461 – – –	As restated HK$’000 37,728 (107,419) 1,764 461 186,377 386 119,297

The CFSG Group has not early applied the following new standards and interpretations that have been issued but are not yet effective. The CFSG Directors anticipate that the application of these new HKFRSs and HKFRS interpretations will have no material impact on the financial statements of the CFSG Group.

HKAS 1 (Amendment) Capital Disclosures [1] HKAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures [2] HKAS 21 (Amendment) Net investment in a Foreign Operation [2] HKAS 39 (Amendment) Cash Flow Hedge Accounting of Forecast Intragroup Transactions [2] HKAS 39 (Amendment) The Fair Value Option [2] HKAS 39 & HKFRS 4 Financial Guarantee Contracts [2] (Amendments) HKFRS 6 Exploration for and Evaluation of Mineral Resources [2] HKFRS 7 Financial Instruments: Disclosures [1] HK(IFRIC) – Int 4 Determining whether an Arrangement Contains a Lease [2] HK(IFRIC) – Int 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds [2] HK(IFRIC) – Int 6 Liabilities arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment [3] HK(IFRIC) – Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies [4]

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

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

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

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

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

In the year ended 31 December 2006, the CFSG Group has also applied, for the first time, a number of new HKFRSs, which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs had no material effect on how the 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 CFSG Group has not early applied the following new standards, amendment or interpretations that have been issued but are not yet effective. The CFSG Directors anticipate that the application of these standards, amendment or interpretations will have no material impact on the results and the financial position of the CFSG Group.

HKAS 1 (Amendment) Capital disclosures [1] HKFRS 7 Financial instruments: Disclosures [1] HKFRS 8 Operating segments [2] HK(IFRIC) – INT 7 Applying the restatement approach under HKAS 29 Financial Reporting in Hyperinflationary Economies [3] HK(IFRIC) – INT 8 Scope of HKFRS 2 [4] HK(IFRIC) – INT 9 Reassessment of embedded derivatives [5] HK(IFRIC) – INT 10 Interim financial reporting and impairment [6] HK(IFRIC) – INT 11 HKFRS 2 – Group and Treasury Share Transactions [7] HK(IFRIC) – INT 12 Service concession arrangements [8]

1 Effective for annual periods beginning on or after 1 January 2007. 2 Effective for annual periods beginning on or after 1 January 2009. 3 Effective for annual periods beginning on or after 1 March 2006. 4 Effective for annual periods beginning on or after 1 May 2006. 5 Effective for annual periods beginning on or after 1 June 2006. 6 Effective for annual periods beginning on or after 1 November 2006. 7 Effective for annual periods beginning on or after 1 March 2007. 8 Effective for annual periods beginning on or after 1 January 2008.

– 110 –

APPENDIX II FINANCIAL INFORMATION OF THE CFSG GROUP

AUDITED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006

The following is the audited financial statements of the CFSG Group for the year ended 31 December 2006 as extracted from the annual report 2006 of CFSG.

Consolidated Income Statement

For the year ended 31 December 2006

Notes Revenue 6 Other operating income Salaries, commission and related benefits 8 Depreciation and amortisation Finance costs 9 Other operating and administrative expenses (Allowance for) Reversal of allowance for bad and doubtful debts (Loss) Gain on disposal of property and equipment Net increase (decrease) in fair value of listed investments held for trading Convertible loan note settlement income (expense) Profit before taxation 12 Taxation (charge) credit 13 Profit for the year Attributable to: Equity holders of CFSG Minority interests Dividend: Proposed final dividend of HK$0.02 per share based on 1,382,051,448 shares (2005: nil) Dividends recognised as distribution during the year – 2006 interim – HK$0.03 per share (2005: nil) – 2005 final – nil (2004: HK$0.01 per share) Earnings per share 14 – Basic – Diluted	2006 HK$’000 383,228 2,397 (163,465) (12,304) (49,027) (124,966) (180) (98) 10,261 291 46,137 (5,939) 40,198 39,944 254 40,198 27,641 41,462 – 41,462 2.9 HK cents 2.9 HK cents	2005 HK$’000 213,557 2,721 (108,303) (10,606) (14,568) (56,316) 702 43 (3,298) (85) 23,847 3,440 27,287 26,626 661 27,287 – – 7,546 7,546 3.2 HK cents 3.0 HK cents

– 111 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Consolidated Balance Sheet

At 31 December 2006

Notes Non-current assets Property and equipment 15 Investment property 16 Goodwill 17 Intangible assets 18 Other assets 20 Loan receivables 21 Deposits for acquisition of subsidiaries 22 Interests in associates 23 Deferred tax assets 13 Current assets Inventories 24 Account receivables 26 Loan receivables 21 Prepayments, deposits and other receivables Amounts due from associates 25 Amounts due from fellow subsidiaries 25 Listed investments held for trading 27 Derivative financial instrument 28 Bank deposits under conditions 29 Bank balances – trust and segregated accounts 25 Bank balances (general accounts) and cash 25	2006 HK$’000 45,720 5,000 114,878 32,042 16,241 103 – – 2,346 216,330 674 781,721 19,227 23,764 373 3,463 54,317 – 27,813 574,577 73,226 1,559,155	2005 HK$’000 12,218 – 4,933 11,062 7,564 122 56,095 – 3,940
		95,934
		– 469,528 38,426 16,074 – 972 42,472 16 17,125 352,902 117,516
		1,055,031

– 112 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Current liabilities Account payables 30 Deferred revenue Accrued liabilities and other payables Taxation payable Obligations under finance leases – amount due within one year 31 Bank borrowings – amount due within one year 32 Convertible loan note – amount due within one year 34 Net current assets Capital and reserves Share capital 33 Reserves Equity attributable to equity holders of CFSG Minority interests Total equity Non-current liabilities Deferred tax liabilities 13 Bank borrowings – amount due after one year 32 Obligations under finance leases – amount due after one year 31 Notes	931,865 8,027 64,860 4,428 215 278,521 – 1,287,916 271,239 487,569 138,205 341,626 479,831 3,761 483,592 2,615 1,247 115 3,977 487,569 2006 HK$’000	555,565 – 33,939 1,084 150 171,737 30,242 2005 HK$’000
		792,717
		262,314
		358,248

		104,488 252,130
		356,618 1,471
		358,089
		– – 159
		159
		358,248

– 113 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

For the year ended 31 December 2006

	Attributable to equity holders of	Attributable to equity holders of	Attributable to equity holders of	Attributable to equity holders of	CFSG	Accumulated Minority losses Total interests HK$’000 HK$’000 HK$’000 (85,736) 239,504 810 26,626 26,626 661 – 203 – 151 (39) – (7,546) (7,546) – – 98,170 – – (300) – 12,827 – –	Accumulated Minority losses Total interests HK$’000 HK$’000 HK$’000 (85,736) 239,504 810 26,626 26,626 661 – 203 – 151 (39) – (7,546) (7,546) – – 98,170 – – (300) – 12,827 – –	Accumulated Minority losses Total interests HK$’000 HK$’000 HK$’000 (85,736) 239,504 810 26,626 26,626 661 – 203 – 151 (39) – (7,546) (7,546) – – 98,170 – – (300) – 12,827 – –	Total HK$’000 240,314 27,287 203 (39 (7,546 98,170 (300 –
	Convertible Share- loan note based Share Contributed equity payment premium surplus reserve reserve HK$’000 HK$’000 HK$’000 HK$’000 (Note e) 61,956 186,377 771 680 – – – – – – – 203 – – (190) – – – – – 69,138 – – – (300) – – – – (12,827) – –				Translation reserve HK$’000 – – – – – – – –
104,488	130,794	173,550	581	883	–	(53,678) 356,618		1,471	358,089
– –	– –	– –	– –	– –	(288) – – 39,944		(288) – 39,944 254		(288 40,198
–	–	–	–	–	(288) 39,944		39,656	254	39,910
	– – – 1,613 10,200 – (308) – – – (273) – 82,976 – – – – – – – (3,000) – – – – – – – – – – – – (45,000) – –				– – – – – – – – –	– 1,613 – 1,613 173 16,065 – 16,065 (79) (352) – (352 – 110,693 – 110,693 (41,462) (41,462) – (41,462 – (3,000) – (3,000 – – 2,389 2,389 – – (353) (353 45,000 – – –
138,205	220,970	128,550	–	2,496	(288) (10,102) 479,831			3,761	483,592

– 114 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Notes:

(a) (i) During the year ended 31 December 2005, the CFSG Group has made partial repayment of the convertible loan note issued on 1 September 2004 amounting to HK$10,000,000. The consideration of HK$10,000,000 was allocated into liability component and equity component. An equity component of approximately HK$190,000 was released from the convertible loan note equity reserve.
(ii) During the year ended 31 December 2006, the CFSG Group has made full repayment of the convertible loan note issued on 1 September 2004 that remained outstanding in June 2006 amounting to HK$8,000,000 and HK$6,300,000 on 1 June 2006 and 28 June 2006 respectively. The consideration of HK$14,300,000 was allocated into liability component and equity component. An equity component of approximately HK$273,000 was released from the convertible loan note equity reserve.
(b) (i) On 15 September 2005, 132,000,000 shares of HK$0.10 each of CFSG were issued by way of subscription at a subscription price of HK$0.27 each pursuant to a subscription agreement dated 16 August 2004. The gross proceeds of HK$35,640,000 were raised for strengthening the funding support and capital base of CFSG.
(ii) In September 2005, 650,000 share options and 12,675,000 share options of CFSG were exercised at an exercise price of HK$0.34 each, resulting in the issue of 650,000 shares and 12,675,000 shares of HK$0.10 each on 16 September 2005 and 26 September 2005 respectively. The proceeds before expenses were HK$4,530,500.
(iii) On 5 October 2005, 145,000,000 top up shares of HK$0.10 each of CFSG were issued to CIGL, the controlling shareholder, at the price of HK$0.40 each pursuant to the top up agreement dated 22 September 2005. The gross proceeds of HK$58,000,000 were raised for settlement of part of the consideration for proposed acquisition of an online game business under the sale and purchase agreement dated 15 September 2005. The acquisition was completed on 10 January 2006.
(c) (i) Pursuant to a minutes of a meeting of CFSG Board held on 30 May 2005, an amount of HK$12,827,000 was transferred from the contributed surplus account to set off against the accumulated losses of CFSG at 31 December 2004 of HK$5,282,000 and the payment for final dividend of 2004 of HK$7,546,000.
(ii) Pursuant to a minutes of a meeting of CFSG Board held on 6 November 2006, an amount of HK$45,000,000 was transferred from the contributed surplus account to set off against the accumulated losses of CFSG for payment of 2006 interim dividend of HK$41,462,000.

– 115 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

(d) (i) On 10 January 2006, 155,000,000 placing shares of HK$0.10 each of CFSG were issued at a placing price of HK$0.40 each to independent third parties. On the same date, 120,000,000 subscription shares of HK$0.10 each of CFSG were issued to CIGL at a price of HK$0.40 each. The gross proceeds of the two transactions of HK$62,000,000 and HK$48,000,000 respectively were raised to settle part of the consideration of the acquisition of an online game business as mentioned in note 36(a)(i). These shares rank pari passu in all respects with other shares in issue.
(ii) On 18 January 2006, convertible loan note of CFSG amounting to HK$16,200,000 was converted into 60,000,000 CFSG Shares at a conversion price of HK$0.27 each.
(iii) In January 2006, 520,000 share options and 650,000 share options respectively were exercised at an exercise price of HK$0.34 per share, resulting in the issue of 520,000 shares and 650,000 shares of HK$0.10 each of CFSG on 25 January 2006 and 26 January 2006 respectively for a total consideration (before expenses) of HK$397,800. These shares rank pari passu in all respects with other shares in issue.
(iv) In November 2006, 1,000,000 share options were exercised at an exercise price of HK$0.296 each, resulting in the issue of 1,000,000 shares of HK$0.10 each of CFSG on 14 November 2006 for a total consideration (before expenses) of HK$296,000.
(e) The contributed surplus of the CFSG Group represents the difference between the nominal amount of the shares issued by CFSG 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 CFSG Group prior to the group reorganisation, pursuant to the group reorganisation after deducting the expenses in connection with the listing of CFSG Shares and the acquisition of subsidiaries, and the net amount arising from the capital reduction, reduction of share premium account and amounts transferred to write off accumulated losses.

– 116 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Consolidated Cash Flow Statement

For the year ended 31 December 2006

Note Operating activities Profit before taxation Adjustments for: Convertible loan note settlement (income) expense Advertising and telecommunication services expenses 35 Allowance for (Reversal of allowance for) bad and doubtful debts Amortisation of intangible assets Depreciation of property and equipment Interest expenses Employee share option benefits Loss (Gain) on disposal of property and equipment Net decrease (increase) in fair value of derivative financial instrument Operating cash inflows before movements in working capital Decrease in loan receivables Increase in account receivables Increase in inventories Increase in prepayments, deposits and other receivables Increase in amount due from associates (Increase) Decrease in amounts due from fellow subsidiaries (Increase) Decrease in listed investments held for trading (Increase) Decrease in bank balances – trust and segregated accounts Increase (Decrease) in account payables Increase in deferred income Increase (Decrease) increase in accrued liabilities and other payables Cash used in operation Income taxes paid Net cash used in operating activities	2006 HK$’000 46,137 (291) 4,933 180 4,131 8,173 49,027 1,613 98 16 114,017 19,016 (306,408) (349) (2,563) (373) (2,491) (11,845) (221,675) 364,024 8,027 4,053 (36,567) (845) (37,412)	2005 HK$’000 23,847 85 – (702) – 10,606 14,568 203 (43) (16) 48,548 701 (106,533) – (3,296) – 1,076 4,560 80,254 (61,341) – (380) (36,411) – (36,411)

– 117 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Investing activities Deposit payment for acquisition of online game business Acquisitions of business 36(a) Acquisition of assets and liabilities 36(b) Increase in bank deposits under conditions Statutory and other deposits paid Purchase of intangible assets Purchases of property and equipment Proceeds on disposal of property and equipment Net cash used in investing activities Financing activities Increase in bank overdrafts Increase in bank loans Repayment of loan Proceeds on issue of shares Share issue expenses Dividend paid Dividend paid to minority interests Interest paid on bank borrowings Interest paid on obligations under finance leases Interest paid on convertible loan note Repayment of obligations under finance leases Repayment of convertible loan note Net cash from 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 Bank balances (general accounts) and cash Note	– (64,407) (736) (10,688) (8,677) (171) (20,306) 5 (104,980) 59,610 48,421 (12,105) 110,693 (3,000) (41,462) (353) (48,739) (14) (212) (149) (14,300) 98,390 (44,002) 117,516 (288) 73,226 73,226 2006 HK$’000	(56,095) – – (343) (947) – (1,650) 60 (58,975) 11,582 64,000 – 98,170 (300) (7,546) – (13,202) (15) (1,067) (220) (10,000) 141,402 46,016 71,500 – 117,516 117,516 2005 HK$’000

– 118 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Notes to the Consolidated Financial Statements

For the year ended 31 December 2006

1. General

CFSG is 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 Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (“Stock Exchange”). Its ultimate holding company is Celestial Asia Securities Holdings Limited (“CASH”), a company incorporated in Bermuda with its shares being listed on the Stock Exchange.

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

CFSG is an investment holding company. The principal activities of its principal subsidiaries are set out in

note 44.

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

In the current year, the CFSG Group has applied, for the first time, a number of new standard, amendments and interpretations (“New HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the New HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

HKAS 1 (Amendment)	Capital disclosures_1_
HKFRS 7	Financial instruments: Disclosures_1_
HKFRS 8	Operating segments_2_
HK(IFRIC) – INT 7	Applying the restatement approach under HKAS 29
	Financial Reporting in Hyperinflationary Economies_3_
HK(IFRIC) – INT 8	Scope of HKFRS 2_4_
HK(IFRIC) – INT 9	Reassessment of embedded derivatives_5_
HK(IFRIC) – INT 10	Interim financial reporting and impairment_6_
HK(IFRIC) – INT 11	HKFRS 2 – Group and Treasury Share Transactions_7_
HK(IFRIC) – INT 12	Service concession arrangements_8_

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

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

3 Effective for annual periods beginning on or after 1 March 2006.

4 Effective for annual periods beginning on or after 1 May 2006.

5 Effective for annual periods beginning on or after 1 June 2006.

6 Effective for annual periods beginning on or after 1 November 2006.

7 Effective for annual periods beginning on or after 1 March 2007.
8 Effective for annual periods beginning on or after 1 January 2008.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

3. Significant Accounting Policies

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

Basis of consolidation

The consolidated financial statements incorporate the financial statements CFSG and its subsidiaries. Control is achieved where CFSG 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 CFSG 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 CFSG 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 CFSG 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 subsidiaries 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 CFSG 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.

– 120 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

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 CFSG Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the CFSG 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.

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 acquisition prior to 1 January 2005

Goodwill arising on acquisition of subsidiaries for which the agreement date is before 1 January 2005 represents the excess of the cost of acquisition over the CFSG Group’s interest in the fair values of the identifiable assets and liabilities of the relevant subsidiaries at the date of acquisition.

For previously capitalised goodwill, the CFSG Group has discontinued amortisation from 1 January 2005 onwards, and such goodwill is tested for impairment annually, and whenever there is an indication that the cash generating unit to which the goodwill relates may be impaired.

Goodwill arising on acquisition on or after 1 January 2005

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

Capitalised goodwill arising on acquisition of subsidiaries is presented separately in the balance sheet.

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

– 121 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Investments in associates

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 is carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the CFSG Group’s share of the net assets of the associates, less any identified impairment loss. When the CFSG 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 CFSG Group’s net investments in the associates), the CFSG 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 CFSG Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the CFSG 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 CFSG Group, profits and losses are eliminated to the extent of the CFSG Group’s interest in the relevant associate.

Income recognition

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

Trading investments such as securities, futures and options are accounted for under HKAS 39 as financial assets held for trading and the net increase or decrease in fair value are accounted for on a trade date basis and 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.

Sales of online game auxiliary products are recognised when products are delivered and title has passed.

Licensing fee income is recognised on a straight-line basis over the licensing period.

– 122 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

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.

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.

Investment property

Leasehold land held for undetermined future use is regarded as held for capital appreciation purpose and classified as an investment property. 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 the consolidated income statement for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. 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

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APPENDIX II

The CFSG Group as lessee

Assets held under finance leases are recognised as assets of the CFSG 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 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. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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

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APPENDIX II

Retirement benefits costs

Payments to defined contribution retirement benefits plans/state-managed retirement benefits schemes 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.

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 CFSG 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 liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the CFSG 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.

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APPENDIX II

Intangible assets

Intangible assets acquired separately

Intangible assets acquired in a business combination

Research and development expenditures

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

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APPENDIX II

Impairment

Inventories

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

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 CFSG 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. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

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

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APPENDIX II

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 account receivables, loan receivables, deposits and other receivables and amounts due from associates and fellow subsidiaries) are carried at amortised cost using the effective interest method, less any identified impairment losses. 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. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction 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 CFSG Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Other financial liabilities (including account payables, other payables and bank borrowings) are subsequently measured at amortised cost, using the effective interest rate method.

Convertible loan note

Convertible loan note issued by CFSG that contain early redemption option, financial liability and equity components are classified separately into respective early redemption option derivative, liability and equity components on initial recognition. On initial recognition, the early redemption option derivative, liability component are recognised at fair value. The carrying amount of the equity component is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole. Issue costs are apportioned between the components of the convertible loan note based on their relative fair value at the date of issue. The issue costs relating to the equity component are charged directly to equity. The issue costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan note using the effective interest method. The portion relating to the derivative is charged directly to profit or loss.

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APPENDIX II

In subsequent periods, the embedded derivative component is carried at fair value, with changes in fair value being recognised in profit or loss directly. The liability component of the convertible loan note is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of CFSG, will remain in convertible loan note equity reserve until the embedded option is exercised (in which case the balance stated in convertible loan notes equity reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible loan note equity reserve will be released to the retained earnings. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Equity instruments

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

Derivative financial instruments

Embedded derivatives

Derivatives embedded in other financial instruments or other 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 CFSG 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.

Provisions

Provisions are recognised when the CFSG Group has a present obligation as a result of a past event, and it is probable that the CFSG Group will be required to settle that obligation. Provisions are measured at the CFSG Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

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APPENDIX II

Equity-settled share-based payment transactions (Share options granted to employees of CFSG)

At each balance sheet date, the CFSG Group revises its estimates of the number of options that are expected to ultimately vest. The effect of change in estimates, 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.

Impairment losses (other than goodwill and intangible assets with indefinite useful lives)

At each balance sheet date, the CFSG 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. 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.

4. Key sources of estimation uncertainty

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

Income taxes

As at 31 December 2006, a deferred tax asset of approximately HK$2,346,000 in relation to unused tax losses has been recognised in the CFSG Group’s consolidated balance sheet. No deferred tax asset was recognised in the CFSG Group’s consolidated balance sheet in relation to the remaining unused tax losses of approximately HK$294,808,000. 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 income statement for the period in which such a recognition takes place.

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APPENDIX II

Reversal of allowance of bad and doubtful debts

The policy for reversal of allowance of bad and doubtful debts of the CFSG 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 client of the CFSG Group were improved and no impairment of their ability to make payments were noted, reversal of allowances may be required.

Estimated impairment of goodwill and intangible assets

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the CFSG Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. 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. As at 31 December 2006, the carrying amount of goodwill is approximately HK$114,878,000. Details of the recoverable amount calculation are disclosed in note 19.

Determining whether intangible asset relating to online game related intellectual property is impaired requires an estimation of the value in use of the online game related intellectual property. The value in use calculation requires the CFSG Group to estimate the future cash flows expected to arise from the online game related intellectual property and 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. As at 31 December 2006, the carrying amount of online game development cost is approximately HK$12,292,000. Details of the recoverable amount calculation are disclosed in note 18.

Financial instruments

Financial risk management objectives and policies

The CFSG Group’s major financial instruments include equity investments, statutory and other deposits, bank balances and cash, bank borrowings, account receivables and account payables. 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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APPENDIX II

Market risk

Equity price risk

The CFSG Group is exposed to equity price risk through its investments in equity securities. The CFSG Board manages the exposure by closely monitoring the portfolio of equity investments.

Cash flow interest rate risk

Most of the bank borrowings, that are matured within 3 months and are collateralised by margin clients’ securities, carry interest at variable rate which exposes the CFSG Group to cash flow interest rate risk. The CFSG 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 arises.

Credit risk

The CFSG Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 December 2006 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 brokerage and financing 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. With regard to provision of online game services, the CFSG Group has delegated a team responsible for determination of credit limits and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the CFSG 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 CFSG Directors consider that the CFSG Group’s credit risk is significantly reduced.

The CFSG Group has no significant concentration of credit risk, with exposure spread over a number of counterparties and customers.

Bank balances are placed in various authorised institutions and the CFSG Directors consider the credit risk of such authorised institutions is low.

Liquidity risk

As part of ordinary broking activities, the CFSG Group is exposed to liquidity risk arising from timing difference between settlement with Clearing House or brokers and clients. 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.

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APPENDIX II

Fair value

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

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices and ask prices respectively;
the fair value 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 or using prices from observable current market transactions; and
the fair value of derivative instruments, are calculated using quoted prices. Where such prices are not available, the fair value of a non-option derivative is estimated using discounted cash flow analysis and the applicable yield curve. For an option-based derivative, the fair value is estimated using option pricing model (for example, the Black-Scholes pricing model).

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

6. Revenue

Fees and commission income Interest income Online game subscription income Sales of online game auxiliary products Licensing income	2006 HK$’000 263,032 82,945 25,316 9,459 2,476 383,228	2005 HK$’000 178,719 34,838 – – –
		213,557

7. Business and geographical segments

Business segments

For management purposes, the CFSG Group is currently organised into four main operating divisions, namely, broking, financing, corporate finance and online game services. The online game services division arose from acquisition of online game business on 10 January 2006 as mentioned in note 36(a). These divisions are the basis on which the CFSG Group reports its primary segment information.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Principal activities are as follows:

– Broking Broking of securities, options, futures and leveraged foreign exchange contracts as well as mutual funds and insurance-linked investment products and their trading – Financing Provision of margin financing and money lending services – Corporate Provision of corporate finance services finance – Online game Provision of online games services, sales of online game auxiliary products and services licensing services

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

Income statement for the year ended 31 December 2006

Revenue RESULT Segment profit (loss) Other operating income Unallocated corporate expenses Profit before taxation Taxation charge Profit for the year	Broking HK$’000 247,547 64,917	Financing HK$’000 85,054 15,277	Corporate finance HK$’000 13,376 2,219	Online game services Consolidated HK$’000 HK$’000 37,251 383,228 (27,527) 54,886 2,397 (11,146) 46,137 (5,939) 40,198

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APPENDIX II

Balance sheet as at 31 December 2006

ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Broking HK$’000 984,705 846,541	Financing HK$’000 540,658 383,479	Corporate finance HK$’000 12,542 358	Online game services Consolidated HK$’000 HK$’000 182,249 1,720,154 55,331 1,775,485 38,932 1,269,310 22,583 1,291,893	Online game services Consolidated HK$’000 HK$’000 182,249 1,720,154 55,331 1,775,485 38,932 1,269,310 22,583 1,291,893
					1,775,485

					1,269,310 22,583
					1,291,893

Other information for the year ended 31 December 2006

			Corporate	Online game
	Broking	Financing	finance	services	Unallocated	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Additions of property and
equipment	–	–	–	10,890	9,416	20,306
Allowance for bad and
doubtful debts	53	27	100	–	–	180
Depreciation of property
and equipment	125	–	1	1,117	6,930	8,173
Loss on disposal of property
and equipment	–	–	–	98	–	98

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APPENDIX II

Income statement for the year ended 31 December 2005

Revenue RESULT Segment profit (loss) Other operating income Unallocated corporate expenses Profit before taxation Taxation credit Profit for the year Balance sheet as at 31 December 2005 ASSETS Segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities Unallocated corporate liabilities Consolidated total liabilities	Broking HK$’000 171,628 29,847 Broking HK$’000 624,276 478,417	Financing HK$’000 34,838 7,281 Financing HK$’000 404,049 248,885	Corporate finance HK$’000 7,091 (5,337) Corporate finance HK$’000 16,601 3,337	Consolidated HK$’000 213,557 31,791 2,721 (10,665) 23,847 3,440 27,287 Consolidated HK$’000 1,044,926 106,039 1,150,965 730,639 62,237 792,876

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APPENDIX II

Other information for the year ended 31 December 2005

			Corporate
	Broking	Financing	finance	Unallocated	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Additions of property and
equipment	–	–	–	2,116	2,116
(Reversal of allowance)
Allowance for bad and
doubtful debts	(104)	(898)	300	–	(702)
Depreciation of property
and equipment	769	–	19	9,818	10,606
Gain on disposal of
property and equipment	–	–	–	(43)	(43)

Geographical segments

The CFSG Group’s operations are located in Hong Kong, the PRC and Taiwan. For the activities of broking, financing and corporate finance, they are based in Hong Kong and the revenue of these activities for the year ended 31 December 2006 are derived from Hong Kong. The online game services are mainly based in PRC and Taiwan and the relevant revenue for the year ended 31 December 2006 are derived mainly from PRC and Taiwan.

The following table provides an analysis of the CFSG Group’s revenue by geographical market:

Hong Kong PRC Taiwan	2006 HK$’000 345,977 25,525 11,726 383,228	2005 HK$’000 213,557 – –
		213,557

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APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

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

Hong Kong PRC Taiwan Additions to property and equipment Hong Kong PRC Taiwan	2006 HK$’000 1,537,905 143,023 39,226 1,720,154 2006 HK$’000 – 10,290 600 10,890	2005 HK$’000 1,044,926 – –
		1,044,926

		2005 HK$’000 – – –
		–

8. Salaries, commission and related benefits

Salaries, allowances and commission represent the amounts paid and payable to the CFSG Directors and employees and comprises of: Salaries, allowances and commission Contributions to retirement benefits scheme Employee share option benefits	2006 HK$’000 158,417 3,435 1,613 163,465	2005 HK$’000 106,050 2,050 203
		108,303

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APPENDIX II

9. Finance costs

Interest on: Bank overdrafts and loans wholly repayable within five years Finance leases Effective interest expense on convertible loan note	2006 HK$’000 48,739 14 274 49,027	2005 HK$’000 13,202 15 1,351
		14,568

10. CFSG Directors’ remuneration

The remuneration paid or payable to each of the eight (2005: nine) CFSG Directors were as follows:

Fees: Executive CFSG Directors Independent non-executive CFSG Directors Other remuneration paid to executive CFSG Directors: Salaries, allowances and benefits in kind Discretionary bonus Employee share option benefits Contributions to retirement benefits scheme Total remuneration	Kwan Pak Hoo Bankee HK$’000 – – 120 – 90 6 216	Law Ping Wah Bernard HK$’000 – – 600 – 90 30 720	Wong Kin Yick Kenneth HK$’000 – – 1,290 1,000 90 66 2,446	Cheng Man Pan Ben HK$’000 – – 734 – 90 30 854	Kwok Oi Kuen Cheng Joan Shu Shing Elmond Raymond HK$’000 HK$’000 – – – 100 – – – – – 15 – – – 115	Hui Ka Wah Ronnie HK$’000 – 100 – – 15 – 115	Lo Kwok Hung John HK$’000 – 100 – – 15 – 115	2006 Total HK$’000 – 300 2,744 1,000 405 132
								4,581

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APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Fees: Executive CFSG Directors Independent non-executive CFSG Directors Other remuneration paid to executive CFSG Directors: Salaries, allowances and benefits in kind Employee share option benefits Contributions to retirement benefits scheme Total remuneration	Kwan Pak Hoo Bankee HK$’000 – – 120 17 6 143	Law Ping Wah Bernard HK$’000 – – 600 17 30 647	Wong Kin Yick Kenneth HK$’000 – – 1,160 17 58 1,235	Cheng Man Pan Ben HK$’000 – – 640 18 27 685	Kwok Oi Kuen Joan Elmond HK$’000 – – – 17 – 17	Cheng Shu Shing Raymond HK$’000 – 100 – 2 – 102	Hui Ka Wah Ronnie HK$’000 – 100 – 2 – 102	Lo Kwok Hung John HK$’000 – 30 – 2 – 32	Wong Kwong Chi Simon HK$’000 – 70 – – – 70	2005 Total HK$’000 – 300 2,520 92 121
										3,033

During the year ended 31 December 2006, Ms Kwok Oi Kuen Joan Elmond resigned as an executive CFSG Director.

During the year ended 31 December 2005, Mr Wong Kwong Chi Simon resigned as an independent nonexecutive CFSG Director and Mr Lo Kwok Hung John was appointed as an independent non-executive CFSG Director.

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

11. Employees’ remuneration

Of the five individuals with the highest emoluments in the CFSG Group, one (2005: one) was CFSG Director whose emolument is included in the disclosures in note 10 above. The emoluments of the remaining four (2005: four) individuals were as follows:

Salaries, allowances and benefits in kind Contributions to retirement benefits scheme Performance related incentive payments Discretionary bonus Employee share option benefits	2006 HK$’000 3,400 180 4,747 260 75 8,662	2005 HK$’000 5,487 146 102 – 12
		5,747

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APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Their remuneration were within the following bands:

HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$3,500,001 to HK$4,000,000 12. Profit before taxation Profit before taxation has been arrived at after charging (crediting): Auditors’ remuneration Amortisation of intangible assets (included in depreciation and amortisation) Depreciation of property and equipment Owned assets Leased assets Advertising and promotion expenses Operating lease rentals in respect of land and buildings Loss (Gain) on disposal of property and equipment Net foreign exchange (gain) loss Unrealised gain on derivative financial instrument Dividends from investments 13. Taxation charge (credit)	2006 Number of employees 1 2 1 2006 HK$’000 1,800 4,131	2005 Number of employees 3 1 – 2005 HK$’000 1,550 –
	8,077 96	10,471 135
	8,173 24,967 13,099 98 (131) – (471)	10,606 6,134 9,415 (43) 645 (16) (143)

Current tax: – Hong Kong – PRC Overprovision in prior years Deferred taxation	2006 HK$’000 4,140 143 (94) 1,750 5,939	2005 HK$’000 500 – – (3,940) (3,440)

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APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profits for both years.

No provision for taxation has been made for subsidiary located in Taiwan as no assessable profit is arisen during the year.

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

Profit before taxation Taxation at income tax rate of 17.5% Overprovision in respect of prior years Tax effect of expenses not deductible for tax purpose Tax effect of income not taxable for tax purpose Utilisation of estimated tax losses previously not recognised Tax effect of estimated tax losses not recognised Tax effect of estimated tax losses in previous years now recognised Effect of different tax rates of subsidiaries operating in other jurisdictions Other difference Taxation charge (credit) for the year	2006 HK$’000 46,137 8,074 (94) 3,319 (3,008) (5,708) 2,685 – 587 84 5,939	2005 HK$’000 23,847 4,173 – 1,499 (936) (5,492) 1,207 (3,940) – 49 (3,440)

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

At 1 January 2005 Credit to consolidated income statement At 31 December 2005 and 1 January 2006 Deferred tax liability on intangible assets arising from acquisition of subsidiaries_(note 36(a)(i))_ Credit (Charge) to consolidated income statement At 31 December 2006	Accelerated tax depreciation HK$’000 (1,945) 1,169 (776) – 5 (771)	Estimated tax losses HK$’000 1,945 2,771 4,716 – (2,370) 2,346	Intangible asset HK$’000 – – – (2,459) 615 (1,844)	Total HK$’000 – 3,940 3,940 (2,459) (1,750) (269)

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APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

For the purpose of balance sheet presentation, deferred tax assets and liabilities of approximately HK$771,000 (2005: HK$776,000) have been offset. Same amount of movement amounting to HK$5,000 (2005: HK$1,169,000) have been credited and charged to the current year consolidated income statement for accelerated tax depreciation and estimated tax losses respectively. HK$2,365,000 (2005: HK$3,940,000) estimated tax losses have been debited (2005: credited) to the consolidated income statement for recognising the utilisation of deferred tax assets.

At the balance sheet date, the CFSG Group had unused estimated tax losses of HK$308,213,000 (2005: HK$325,487,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$13,405,000 (2005: HK$26,949,000) of such losses. No deferred tax asset has been recognised in respect of remaining HK$294,808,000 (2005: HK$298,538,000) due to the unpredictability of future profit streams.

14. Earnings per share

The calculation of basic and diluted earnings per share attributable to the ordinary equity holders of CFSG for the year ended 31 December 2006 together with the comparative figures for 2005 are based on the following data:

Profit Profit for the purpose of basic earnings per share Effect of dilutive potential ordinary shares: Interest on convertible loan note Profit for the purpose of diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares assumed exercise of share options Effect of dilutive potential ordinary shares assumed conversion of convertible loan note Weighted average number of ordinary shares for the purpose of diluted earnings per share	2006 HK$’000 39,944 274 40,218 2006 1,371,527,475 4,107,008 21,765,601 1,397,400,084	2005 HK$’000 26,626 1,351
		27,977

		2005 832,131,859 N/A 112,962,963
		945,094,822

The computation of diluted earnings per share does not assume the exercise of certain of outstanding CFSG Options as the exercise prices of those options were higher than the average market price for shares for the relevant period.

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APPENDIX II

15. Property and equipment

Leasehold improvements HK$’000 COST At 1 January 2005 34,291 Additions 197 Disposals – At 31 December 2005 34,488 Additions 7,526 Arising on acquisition of subsidiaries (see note 36) 8,561 Disposals/written off (154) At 31 December 2006 50,421 ACCUMULATED DEPRECIATION At 1 January 2005 21,306 Provided for the year 5,548 Eliminated on disposals – At 31 December 2005 26,854 Provided for the year 4,841 Eliminated on disposals/ written off (56) At 31 December 2006 31,639 CARRYING VALUES At 31 December 2006 18,782 At 31 December 2005 7,634	Furniture and fixtures HK$’000 21,607 136 (8) 21,735 133 79 (507) 21,440 17,713 3,030 (8) 20,735 572 (507) 20,800 640 1,000	Computer and equipment HK$’000 25,684 1,317 – 27,001 12,647 12,662 (5,437) 46,873 22,042 1,834 – 23,876 2,594 (5,432) 21,038 25,835 3,125	Motor vehicles HK$’000 1,723 466 (350) 1,839 – 170 – 2,009 1,519 194 (333) 1,380 166 – 1,546 463 459	Total HK$’000 83,305 2,116 (358) 85,063 20,306 21,472 (6,098) 120,743 62,580 10,606 (341) 72,845 8,173 (5,995) 75,023 45,720 12,218

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APPENDIX II FINANCIAL INFORMATION OF THE CFSG GROUP

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

The carrying values of property and equipment included fully depreciated property and equipment with cost amounting to HK$48,771,000 (2005: HK$49,981,000).

The carrying values of motor vehicles included amounts of HK$463,000 (2005: HK$389,000) in respect of assets held under finance leases.

16. Investment property

FAIR VALUE At 1 January 2005 and 31 December 2005 Acquired on an acquisition of a subsidiary_(see note 36(b))_ At 31 December 2006	HK$’000 – 5,000
	5,000

All of the CFSG Group’s property interests held under operating leases to earn rentals or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment property.

The fair value of the CFSG Group’s investment property at 31 December 2006 has been arrived at on the basis of a valuation carried out at that date by Knight Frank Hong Kong Limited, independent qualified professional valuer not connected with the CFSG Group. Knight Frank Hong Kong 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 investment property shown above comprises land in Hong Kong with medium-term lease.

17. Goodwill

COST At 1 January 2005 and at 31 December 2005 Arising on acquisitions of subsidiaries_(see note 36(a))_ At 31 December 2006	HK$’000 4,933 109,945
	114,878

Particulars regarding impairment testing on goodwill are disclosed in note 19.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

18. Intangible assets

COST At 1 January 2005 Reclassified from other assets Elimination of accumulated amortisation upon the application of HKAS 38 At 31 December 2005 Arising on acquisitions of subsidiaries_(see note 36)_ Additions At 31 December 2006 AMORTISATION At 1 January 2005 Elimination of accumulated amortisation upon the application of HKAS 38 At 31 December 2005 Charge for the year At 31 December 2006 CARRYING VALUES At 31 December 2006 At 31 December 2005	Online game related Trading Club intellectual rights membership property HK$’000 HK$’000 HK$’000 15,039 – – – 1,970 – (5,947) – – 9,092 1,970 – – 3,090 16,390 – – 171 9,092 5,060 16,561 5,947 – – (5,947) – – – – – – – 4,131 – – 4,131 9,092 5,060 12,430 9,092 1,970 –	Domain name HK$’000 – – – – 5,460 – 5,460 – – – – – 5,460 –	Total HK$’000 15,039 1,970 (5,947) 11,062 24,940 171 36,173 5,947 (5,947) – 4,131 4,131 32,042 11,062

Intangible assets amounting to HK$9,092,000 represent trading rights in the exchanges in Hong Kong. Until 31 December 2004, the trading rights had been amortised on a straight-line basis over 10 years. In accordance with the transitional provisions in HKAS 38, the CFSG Group reassessed the useful lives of the trading rights on 1 January 2005 and concluded that the trading rights have indefinite useful lives and discontinued amortising the trading rights from 1 January 2005 onwards. Particulars regarding impairment testing on the trading rights are disclosed in note 19.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Intangible assets amounting to HK$5,060,000 represent club memberships. Until 31 December 2004, the club memberships were classified as other assets. On 1 January 2005, in the opinion of the CFSG Directors, club memberships were reclassified to intangible assets with indefinite useful life.

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 costs of disposal. During the year ended 31 December 2006, management of the CFSG Group determines that there is no impairment of the club membership since the recoverable amount of the club memberships exceeds its carrying amount.

Intangible assets of online game related intellectual property with carrying value of HK$138,000 represent internally generated online game development cost. This intangible asset has definite useful life and is amortised on a straight-line basis over three years.

Intangible assets of online game related intellectual property amounting to HK$12,292,000 represent online game development cost and licensing fee, website development cost and software technology copyrights arising from acquisition of online game business in PRC as mentioned in note 36(a)(i). These intangible assets have definite useful lives. Such intangible assets are amortised on a straight-line basis over four years.

For the purpose of impairment testing on online game related intellectual property, the recoverable amount has been determined based on a value in use calculation that calculation uses cash flow projections based on financial budgets approved by management covering a four-year period, and discount rate of 15%. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted active concurrence user, peak concurrence user and payment subscribers, such estimation is based on the past performance and management’s expectations for the market development. The value in use at 31 December 2006 has been supported by valuation carried out at that day by B. I. Appraisals Limited, an independent qualified professional valuer not connected with the CFSG Group. Based on the valuation report, there is no impairment of online game related intellectual property since the recoverable amount exceeds its carrying value.

Intangible assets amounting to HK$5,460,000 represent domain name. It is purchased from acquisitions of subsidiaries as disclosed in note 36(a)(ii). It represents the legal and beneficial ownership of domain name “www.shanghai.com” and has indefinite useful life.

The domain name is considered by the management of the CFSG Group as having an indefinite useful life because it is expected to be used indefinitely. The domain name will not be amortised until its useful life is determined to be finite. Instead it will be tested for impairment annually and whenever there is an indication that it may be impaired.

For the purpose of impairment testing on domain name, the recoverable amount has been determined based on fair value less costs to sell. The fair value less costs to sell is arrived at by market approach, which is to determine the desirability of the domain name through recent sales or offering of similar domain name currently on the market in order to arrive at an indication of the most probable selling price for the domain name. The fair value less costs to sell at 31 December 2006 has been supported by valuation carried out at that day by B.I. Appraisals Limited, an independent qualified professional valuer not connected with the CFSG Group. Based on the valuation report, there is no impairment of domain name since the recoverable amount of the domain name exceeds its carrying value.

– 147 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

19. Impairment testing on goodwill and trading rights

As explained in note 7, the CFSG 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 17 and 18 respectively have been allocated to three individual cash generating units (“CGUs”) respectively, including two subsidiaries in broking, one subsidiary in corporate finance and the newly acquired online game business. The carrying amounts of goodwill and trading rights as at 31 December 2006 allocated to these units are as follows:

Broking – Broking of securities Broking – Mutual funds and insurance-linked investment products Corporate finance Online game services	Goodwill HK$’000 – 2,272 2,661 109,945 114,878	Trading rights HK$’000 9,092 – – –
		9,092

During the year ended 31 December 2006, management of the CFSG Group determines that there are no impairments 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 1-year period, and discount rate of 7.75%. A key assumption for the value in use calculations is the budgeted growth rate, which is determined based on past performance and management’s expectations for the market development. 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.

The recoverable amount of the CGU of online game services has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a four-year period, and discount rate of 15%. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted active concurrence user, peak concurrence user and payment subscribers, such estimation is based on the CGU’s past performance and management’s expectations for the market development. There is no impairment of goodwill since the recoverable amount of the above CGU exceeds its carrying value.

20. Other assets

	2006	2005
	HK$’000	HK$’000
Statutory and other deposits	16,241	7,564

Statutory and other deposits represent deposits with various exchanges and clearing houses. They are non-interest bearing.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

21. LOAN RECEIVABLES

Variable-rate loan receivables 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)	2006 HK$’000 45,900 (26,570) 19,330 19,227 103 19,330	2005 HK$’000 76,684 (38,136
		38,548

		38,426 122
		38,548

Loan receivables with an aggregate carrying value of approximately HK$4,968,000 (2005: HK$25,756,000) are secured by pledged marketable securities.

The variable-rate loan receivables 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 In more than four years but not more than five years In more than five years	2006 HK$’000 19,227 23 25 27 28 – 19,330	2005 HK$’000 38,426 23 25 26 28 20
		38,548

The effective interest rates (which are equal to contractual interest rate) on the CFSG Group’s loan receivables are Prime rate plus a spread. Interest rate term is fixed at the time when entering into loan agreement.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

22. Deposits for acquisition of subsidiaries

Pursuant to the circular of CFSG dated 30 November 2005 (“Circular”), the CFSG Group underwent several fund raising transactions and a major acquisition transaction of Netfield Technology Limited and its subsidiaries (hereinafter collectively referred to as the “Netfield Group”).

Under the terms of acquisition, deposit of HK$55,000,000 had been paid as well as related costs of approximately HK$1,095,000 were incurred before 31 December 2005. This sum is presented as “Deposits for acquisition of subsidiaries” as at 31 December 2005.

The acquisition was completed on 10 January 2006.

23. Interests in associates

Cost of investments in an associate: Unlisted Share of post-acquisition loss	2006 HK$’000 8 (8) –	2005 HK$’000 – –
		–

As at 31 December 2006, the CFSG Group had interests in the following associates:

					Proportion of
		Country of			nominal value
	Form of	incorporation/	Principal		of issued capital/	Proportion of
	business	date of	place of	Class of	registered capital held	voting	Principal
Name of entity	structure	incorporation	operation	share held	by the CFSG Group	power held	activity
					%	%
RACCA Capital Inc	Incorporated	British Virgin	Hong Kong	Ordinary	33	33	Investment
		Islands					holding
		24 April 2006
RACCA Capital Limited	Incorporated	Hong Kong	Hong Kong	Ordinary	33	33	Introducing
		17 May 2006					agent

– 150 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

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

Total assets Total liabilities Net liabilities CFSG Group’s share of net assets of associates Revenue Loss for the year CFSG Group’s share of loss of associates for the year	2006 HK$ 1,776,020 (3,318,494
	(1,542,474

	–

	600,000

	1,542,498

	8

24. Inventories

	2006	2005
	HK$’000	HK$’000
Consumables:
Online game auxiliary products (at cost)	674	–

25. Other financial assets and liabilities

Amounts due from associates/fellow subsidiaries

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

Bank balances – trust and segregated accounts

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

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

Bank balances (general accounts) and cash

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

26. Account receivables

Account receivables arising from the business of dealing in securities and equity options: Clearing houses, brokers and dealers Cash clients Margin clients Account receivables arising from the business of dealing in futures and options: Clearing houses, brokers and dealers Commission receivables from brokerage of mutual funds and insurance-linked investment plans and products Account receivables arising from the business of provision of corporate finance services Account receivables arising from the business of provision of online game services	2006 HK$’000 125,450 112,334 443,524 83,847 3,479 372 12,715 781,721	2005 HK$’000 29,894 94,958 270,707 70,662 2,275 1,032 –
		469,528

Account receivables are netted off by allowance for bad and doubtful debts of HK$20,086,000 (2005: HK$27,872,000).

Except for the loans to margin clients as mentioned below, all the account receivables arising from the business of dealing in securities and equity options aged within 30 days.

Loans to margin clients are secured by clients’ pledged securities, repayable on demand and bear interest at commercial rates. No aged analysis is disclosed as in the opinion of CFSG Directors, the aged analysis does not give additional value in view of the nature of business of share margin financing.

– 152 –

APPENDIX II FINANCIAL INFORMATION OF THE CFSG GROUP

Included in account receivables from margin clients arising from the business of dealing in securities is an amount due from an entity in which Mr Kwan Pak Hoo Bankee has a controlling interest and is a CFSG Director. Details of the amount due from the entity are as follows:

			Maximum
			amount
	Balance	Balance	outstanding
	at	at	during
Name of company	31.12.2006	1.1.2006	the year
	HK$’000	HK$’000	HK$’000
Cash Guardian Limited (“Cash Guardian”)	–	11,569	12,720

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

In respect of the commission receivables from brokerage of mutual funds and insurance-linked investment plans and products as well as account receivables arising from the business of provision of corporate finance services and online game services, the CFSG 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 Listed investments held for trading Listed investments held for trading include: Equity securities listed in Hong Kong	2006 HK$’000 10,849 2,387 1,690 1,640 16,566 2006 HK$’000 54,317	2005 HK$’000 2,373 436 5 493
		3,307

		2005 HK$’000 42,472

27. Listed investments held for trading

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

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

28. Derivative financial instrument

	2006	2005
	HK$’000	HK$’000
Interest rate swap	–	16

The above derivative financial instrument is held for trading purpose and is measured at fair value at each balance sheet date. Its fair value is determined based on the agreed interest rate with authorised institutions for equivalent instrument at the balance sheet date. It has already been matured on 25 August 2006.

29. Bank deposits under conditions

Other bank deposits_(note (a)) Pledged bank deposits(note (b))_	2006 HK$’000 16,685 11,128 27,813	2005 HK$’000 16,207 918
		17,125

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

Notes:

(a) Pursuant to a letter of undertaking given by the CFSG Group to a bank, the CFSG Group covenants to maintain deposits of not less than HK$15,000,000 (2005: 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 withdrawn.
(b) The CFSG Group’s bank deposits of HK$11,128,000 (2005: HK$918,000) were pledged to secure the general banking facilities granted by banks. The bank deposits will mature when the banking facilities are withdrawn.

– 154 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

30. Account payables

Account payables arising from the business of dealing in securities and equity options: Cash clients Margin clients Account payables to clients arising from the business of dealing in futures and options Account payables to clients arising from the business of dealing in leveraged foreign exchange contracts Account payables arising from the online game services	2006 HK$’000 679,498 106,132 142,500 2,798 937 931,865	2005 HK$’000 347,961 77,148 127,446 3,010 –
		555,565

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

Account payables 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 excesses 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 CFSG Directors, the aged analysis does not give additional value in view of the nature of these businesses.

The account payables amounting to approximately HK$574,577,000 (2005: HK$352,902,000) was 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 CFSG Group does not have a currently enforceable right to offset these payables with the deposits placed.

Account payables arising from the online game services are payable for production of online game auxiliary products. The whole account payables are aged within 30 days.

– 155 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

31. Obligations under finance leases

It is the CFSG Group’s policy to lease certain of its motor vehicles under finance leases. The average lease term is 2 to 3 years. Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 5.1% to 6% per annum. No arrangements have been entered into for contingent rental payments.

Minimum lease payments 2006 2005 HK$’000 HK$’000 Amount payable under finance leases Within one year 243 164 In more than one year but not more than two years 119 177 362 341 _Less:_future finance charges (32) (32) Present value of lease obligations 330 309 _Less:_Amount due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months	Present value of minimum lease payments 2006 2005 HK$’000 HK$’000 215 150 115 159 330 309 – – 330 309 (215) (150 115 159	Present value of minimum lease payments 2006 2005 HK$’000 HK$’000 215 150 115 159 330 309 – – 330 309 (215) (150 115 159
		309 –
		309 (150
		159

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

32. Bank borrowings

Bank overdrafts, secured Bank loans, secured	2006 HK$’000 89,347 190,421 279,768	2005 HK$’000 29,737 142,000
		171,737

– 156 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

The maturity profile of the above loans and overdrafts is as follows:

Within one year More than one year but not exceeding two years _Less:_Amount due within one year shown under current liabilities Amount due after one year under non-current liabilities	2006 HK$’000 278,521 1,247 279,768 (278,521) 1,247	2005 HK$’000 171,737 – 171,737 (171,737) –

At 31 December 2006, bank borrowings of HK$277,347,000 (2005: HK$171,737,000) used to finance the financing business of the CFSG Group were secured by:

(a) corporate guarantees from CFSG; and
(b) marketable securities of the CFSG Group’s clients (with client’s consent).

The bank loan amounting to HK$2,421,000 as at 31 December 2006 is secured by personal guarantee from a director of a subsidiary, Fugleman Entertainment Company.

In addition, pursuant to a letter of undertaking given by the CFSG Group to a bank, the CFSG Group covenants to maintain deposits of not less than HK$15,000,000 (2005: HK$15,000,000) with a bank as a condition precedent to an overdraft facility granted by the bank (see note 29).

Bank overdrafts amounting to HK$89,347,000 (2005: HK$29,737,000) carry interest at either HIBOR plus a spread or Prime rate plus a spread. Bank loans amounting to HK$188,000,000 (2005: HK$142,000,000) are at variablerate borrowings which carry interest at either HIBOR plus a spread or Prime rate plus a spread. In addition, bank loans amounting to HK$2,421,000 (2005: nil) are at fixed rate borrowing of 6%. The fixed-rate borrowing is denominated in New Taiwan dollar, a currency other than its functional currency of Hong Kong dollar.

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

As at the balance sheet date, the CFSG Group has undrawn borrowing facility amounting to HK$1,642,653,000 (2005: HK$675,500,000) with floating rate and expiring within one year.

– 157 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

33. Share capital

Notes Ordinary shares of HK$0.10 each Authorised: At 1 January 2005 Increase during the year (a) At 31 December 2005 and 31 December 2006 Issued and fully paid: At 1 January 2005 Issue of subscription shares (d) Exercise of share options (c) Issue of top up shares (d) At 31 December 2005 and 1 January 2006 Issue of placing shares (d) Issue of subscription shares (d) Issue of conversion shares (b) Exercise of share options (c) At 31 December 2006	Number of shares ’000 2,000,000 1,000,000 3,000,000 754,556 132,000 13,325 145,000 1,044,881 155,000 120,000 60,000 2,170 1,382,051	Amount HK$’000 200,000 100,000
		300,000

		75,456 13,200 1,332 14,500
		104,488 15,500 12,000 6,000 217
		138,205

Notes:

(a) Increase of authorised share capital

Pursuant to an ordinary resolution passed on 20 December 2005, the authorised share capital of CFSG was increased from HK$200,000,000 to HK$300,000,000 by the creation of an additional 1,000,000,000 shares of HK$0.10 each.

(b) Conversion of convertible loan note

On 18 January 2006, convertible loan note amounting to HK$16,200,000 was converted into 60,000,000 shares of CFSG at a conversion price of HK$0.27 per share. These shares rank pari passu in all respects with other shares in issue.

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

(c) Exercise of share options

In September 2005, 650,000 share options and 12,675,000 share options of CFSG respectively were exercised at an exercise price of HK$0.34 each, resulting in the issue of 650,000 shares and 12,675,000 shares of HK$0.10 each on 16 September 2005 and 26 September 2005 respectively for a total consideration (before expenses) of HK$4,530,000. These shares rank pari passu in all respects with other shares in issue.

In January 2006, 520,000 share options and 650,000 share options of CFSG respectively were exercised at an exercise price of HK$0.34 per share, resulting in the issue of 520,000 shares and 650,000 shares of HK$0.10 each on 25 January 2006 and 26 January 2006 respectively for a total consideration (before expenses) of HK$397,800. These shares rank pari passu in all respects with other shares in issue.

In November 2006, 1,000,000 share options of CFSG were exercised at an exercise price of HK$0.296 each, resulting in the issue of 1,000,000 shares of HK$0.10 each on 14 November 2006 for a total consideration (before expenses) of HK$296,000. These shares rank pari passu in all respects with other shares in issue.

(d) Issue of new shares

Pursuant to the subscription agreement dated 16 August 2004, a total of 132,000,000 shares of HK$0.10 each of CFSG were issued to CIGL at the price of HK$0.27 each on 15 September 2005. The gross proceeds of HK$35,640,000 were used to strengthen the funding support and capital bases of CFSG. These shares rank pari passu in all respects with other shares in issue.

Pursuant to the top up agreement dated 22 September 2005, a total of 145,000,000 top up shares of HK$0.10 each of CFSG were issued to CIGL at the price of HK$0.40 each on 5 October 2005. The gross proceeds of HK$58,000,000 were used to pay part of the consideration for proposed acquisition of an online game business under the sale and purchase agreement dated 15 September 2005. The acquisition was completed on 10 January 2006. These shares rank pari passu in all respects with other shares in issue.

On 10 January 2006, 155,000,000 placing shares of HK$0.10 each of CFSG were issued at a placing price of HK$0.40 each to independent third parties. On the same date, 120,000,000 subscription shares of HK$0.10 each were issued to CIGL at a price of HK$0.40 per share. The gross proceeds of the two transactions of HK$62,000,000 and HK$48,000,000 respectively were raised to settle part of the consideration of the acquisition of an online game business as mentioned in note 36(a)(i). These shares rank pari passu in all respects with other shares in issue.

– 159 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

34. Convertible loan note

CFSG issued convertible loan note amounting to HK$40,500,000 to ARTAR, at the date of issuances on 1 September 2004. It bears interest at a rate of 3% per annum and is matured on 31 December 2006 or any other date mutually agreed between CFSG and ARTAR. The holder of the note does not have the right to demand for repayment of any principal amount of the note prior to its maturity and the accrued interest of the note prior to the interest payment date, and is not entitled to vote at general meetings of CFSG. CFSG has the right to repay early part or all of the amount and the accrued interest of the note at any time prior to the maturity date. The note is transferable to persons who are not a connected person of CFSG with the consent of CFSG provided that such consent is not required for transfer to the wholly-owned subsidiaries of ARTAR. During the year ended 31 December 2005, CFSG had made partial repayment of the convertible loan note in a total amount of HK$10,000,000. At 31 December 2005, the outstanding amount of the convertible loan note was HK$30,500,000 convertible into a total number of 112,962,962 shares at the initial conversion price of HK$0.27 per share.

On 18 January 2006, ARTAR had partially converted the convertible loan note in the sum of HK$16,200,000 at the conversion price of HK$0.27 per share for a total of 60,000,000 shares of HK$0.10 each in CFSG. On 1 June 2006 and 28 June 2006, CFSG has made partial repayments of convertible loan note in an amount of HK$8,000,000 and HK$6,300,000 respectively. As at 28 June 2006, the convertible loan note was fully repaid.

The convertible loan note contains three components, embedded derivative for early redemption right, liability and equity elements. The CFSG Directors had assessed the fair value of the early redemption right and considered the fair value is insignificant. Upon the application of HKAS 32 Financial instruments: Disclosure and Presentation, the convertible loan note was split between the liability (including embedded derivative for early redemption) and equity elements, on a retrospective basis. The equity element is presented in equity heading “convertible loan note equity reserve”. The effective interest rate of the liability component is HIBOR plus a spread determined at date of initial recognition.

The movement of the liability component of the convertible loan note for the year is set out below:

Liability component at the beginning of the year Interest paid Conversion to ordinary shares Early partial repayment Liability at the end of the year	2006 HK$’000 30,242 59 (16,062) (14,239) –	2005 HK$’000 39,834 284 – (9,876) 30,242

– 160 –

APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

The fair value of the liability component of the convertible loan note at the balance sheet date, determined based on the present value of the estimated future cash outflows discounted at the prevailing market rate for an equivalent nonconvertible loan note at the balance sheet date, approximates its carrying amount.

35. Major non-cash transactions

(a) 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, including the CFSG Group. The fee for these services will be used to offset the prepayment for advertising and telecommunication services which the CFSG Group paid. During the year, the CFSG Group has utilised approximately HK$4,933,000 advertising and telecommunication services (2005: nil).
(b) During the year ended 31 December 2006, the principal amount of convertible loan note of HK$16,200,000 was converted into 60,000,000 shares of HK$0.10 each at a conversion price of HK$0.27 each.

36. Acquisitions of subsidiaries

(a) Acquisitions of business

(i) Netfield Group

On 10 January 2006, the CFSG Group acquired 100% of the equity interest of Netfield Technology Limited from an independent third party with an aggregate consideration of approximately HK$116,484,000. This acquisition has been accounted for using the purchase method. The amounts of goodwill and intangible assets arising as a result of the acquisition were HK$102,491,000 and HK$16,390,000 respectively.

Note Net assets acquired: Property and equipment Prepayments, deposits and other receivables Bank balances and cash Accrued liabilities and other payables Amount due to a shareholder Intangible assets in relation to online game related intellectual property Deferred tax liabilities	Acquiree’s carrying amount before combination HK$’000 2,615 1,496 2,300 (6,349) (24,694) – – (24,632)	Fai value adjustment HK$’000 – – – – – 16,390 (2,459) 13,931	Fair value HK$’000 2,615 1,496 2,300 (6,349) (24,694) 16,390 (2,459) (10,701)

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FINANCIAL INFORMATION OF THE CFSG GROUP

Amount due to a shareholder assigned to the CFSG Group Goodwill Cash consideration Total consideration satisfied by: Deposit paid 22 Cash consideration paid Net cash outflow arising on acquisition: Total cash payment Bank balances and cash acquired Acquiree’s carrying amount before Fai value combination adjustment Note HK$’000 HK$’000	24,694 102,491 116,484 56,095 60,389 116,484 (60,389) 2,300 (58,089) Fair value HK$’000

The goodwill arising on acquisition is attributable to the anticipated profitability of the CFSG Group in the new business of online game services.

The Netfield Group was acquired on 10 January 2006 and contributed approximately HK$25,525,000 to the CFSG Group’s revenue, and HK$23,633,000 loss to the CFSG Group’s profit for the period since acquisition to 31 December 2006.

(ii) New Dragon Investments Limited and its subsidiary (“New Dragon Group”)

On 31 July 2006, the CFSG Group signed a sale and purchase agreement to acquire 100% of the issued share capital of New Dragon Investments Limited. This acquisition has been completed on 15 November 2006. This acquisition has been accounted for using the purchase method. The amount of goodwill arising as a result of the acquisition was approximately HK$7,454,000.

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APPENDIX II

		Acquiree’s
	carrying amount and
	fair value before
		combination
		HK$’000
Net assets acquired:
Property and equipment		6,554
Domain name		5,460
Inventories		325
Trade receivables		5,763
Other receivables, deposits and prepayments		6,975
Bank balances and cash		5,182
Trade payables		(12,276)
Other payables and accruals		(11,376)
Obligations under finance lease		(172)
Amount due to shareholder		(5,014)
		1,421
Minority interests		(2,389)
Amount due to shareholder assigned to the CFSG Group		5,014
Goodwill		7,454
Cash payment (include related costs of the acquisition)		11,500

Total consideration satisfied by:
Cash consideration paid		9,000
Related costs of the acquisition		2,500
		11,500

Net cash outflow arising on acquisition:
Total cash payment		(11,500)
Bank balances and cash acquired		5,182
		(6,318)

The goodwill arising on acquisition is attributable to the anticipated profitability of the CFSG Group in the new market development of online game services in Taiwan.

Acquisition of the New Dragon Group contributed approximately HK$11,726,000 to the CFSG Group’s revenue and HK$61,000 to the CFSG Group’s profit for the period since acquisition to 31 December 2006.

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FINANCIAL INFORMATION OF THE CFSG GROUP

If the acquisitions discussed in (i) and (ii) above had been completed on 1 January 2006, the CFSG Group’s total revenue for the year would have been approximately HK$398,704,000, and profit for the year would have been approximately HK$35,320,000. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of CFSG Group that actually would have been achieved had the acquisition been completed on 1 January 2006, nor is it intended to be a projection of future results.

(b) Acquisition of assets and liabilities from CASH

During the year, through the acquisition of equity interest of certain subsidiaries of CASH, the CFSG Group has, in substance, acquired the following assets and related liabilities at a total consideration of HK$852,000:

Property and equipment Club memberships Investment property Prepayment Bank balances and cash Accounts payable and accruals Loan payable Net assets acquired Cash consideration Net cash outflow arising on acquisition: Total cash payment Bank balances and cash Net cash outflow arising on acquisition of assets and related liabilities	HK$’000 12,303 3,090 5,000 1,589 116 (9,141) (12,105) 852 852 (852) 116 (736)

37. Share option schemes

(A) Share option schemes of CFSG

The share option scheme of CFSG (“Option Scheme”) was adopted pursuant to an ordinary resolution passed at the special general meeting of CFSG held on 19 February 2002. 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 and its subsidiaries including the CFSG Group (“CASH Group”); or
attract potential candidates to serve the CASH Group for the benefit of the development of the CASH Group.

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APPENDIX II

(ii) The participants included any employee, CFSG 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 CFSG as at the date of approval of the Option Scheme and such limit might be refreshed by shareholders in general meeting. The maximum number of shares was 138,105,144 shares, representing 9.99% of the issued share capital of CFSG, as at the date of the 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 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 CFSG Board and provided in the offer of grant of option.
(vi) The exercise period should be any period fixed by the CFSG Board 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 CFSG.
(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.

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FINANCIAL INFORMATION OF THE CFSG GROUP

The following table discloses details of the share options of CFSG held by the CFSG Directors and the employees of the CFSG Group and movements in such holdings:

			N	umber of options	umber of options
outstanding as at 1.1.2005 12,740,000 650,000 – – 13,390,000 9,555,000 20,540,000 – – – 30,095,000 43,485,000	exercised in 2005 (Note 3) – – – – – – (13,325,000) – – – (13,325,000) (13,325,000)	granted in 2005 (Note 4) – – 42,000,000 – 42,000,000 – – 33,000,000 – – 33,000,000 75,000,000	lapsed in 2005 (Note 6) (12,740,000) – – – (12,740,000) (9,555,000) (2,795,000) – – – (12,350,000) (25,090,000)	outstanding as at 31.12.2005 and 1.1.2006 – 650,000 42,000,000 – 42,650,000 – 4,420,000 33,000,000 – – 37,420,000 80,070,000	granted in 2006 (Note 5) – – – 27,000,000 27,000,000 – – – 74,300,000 6,000,000 80,300,000 107,300,000	exercised in 2006 (Note 3) – – – – – – (1,170,000) – (1,000,000) – (2,170,000) (2,170,000)	lapsed in 2006 (Note 6) – (650,000) (42,000,000) – (42,650,000) – (3,250,000) (33,000,000) – – (36,250,000) (78,900,000)	outstanding as at 31.12.2006 – – – 27,000,000
								27,000,000
								– – – 73,300,000 6,000,000
								79,300,000
								106,300,000

Notes:

(1) The options are vested in 2 tranches as to (i) 50% exercisable from the commencement of the exercise period; and (ii) 50% exercisable from the expiry of 12 months from the commencement of the exercise period.
(2) 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.
(3) On 16 September 2005 and 26 September 2005, 650,000 share options and 12,675,000 shares options of CFSG were exercised at the exercise price of HK$0.34 per share. The weighted average closing price of the CFSG Shares immediately before the respective date of exercise was HK$0.495 per share and HK$0.470 per share.

On 25 January 2006 and 26 January 2006, 520,000 share options and 650,000 share options of CFSG were exercised at the exercise price of HK$0.34 per share respectively. The weighted average closing prices of the CFSG Shares immediately before the date of exercise were HK$0.41 per share and HK$0.42 per share respectively.

On 14 November 2006, 1,000,000 share options of CFSG were exercised at the exercise price of HK$0.296 per share. The weighted average closing price of the CFSG Shares immediately before the date of exercise was HK$0.34 per share.

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APPENDIX II

(4) The closing price of the CFSG Share immediately before the date of grant on 6 October 2005 was HK$0.335.
(5) The closing price of the CFSG Share immediately before the date of grant on 7 July 2006 was HK$0.29.
(6) The lapsed options were due to expiry or cessation of employment of participants with the CFSG Group.
(7) No option was cancelled during the year.

The exercise in full of the outstanding 106,300,000 share options at 31 December 2006 would, under the present capital structure of CFSG, result in the issue of 106,300,000 additional shares for a total cash consideration, before expenses, of approximately HK$31,464,800.

During the year ended 31 December 2006, options were granted on 7 July 2006 and are fully vested at the same date. The estimated fair values of the options granted on that date are HK$1,613,000.

During the year ended 31 December 2005, options were granted on 6 October 2005 and are fully vested at the same date. The estimated fair values of the options granted on that date are HK$162,500.

These fair values are calculated using the Black-Scholes pricing model. The inputs into the model were as follows:

	Share option	grant date
	6 October 2005	7 July 2006
Weighted average share price	HK$0.32	HK$0.29
Exercise price	HK$0.38	HK$0.30
Expected volatility	20%	74%
Expected life	1 year	2 years
Risk-free rate	3.86%	4.59%
Expected dividend yield	3.125%	3.125%

Expected volatility was determined by using the historical volatility of CFSG 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.

The CFSG Group recognised the total expenses of approximately HK$1,613,000 (2005: HK$203,000) for the year ended 31 December 2006 in relation to share options granted by CFSG.

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APPENDIX II

(B) Share option scheme of CASH

The share option scheme of CASH was adopted pursuant to an ordinary resolution passed at the special general meeting of CASH held on 19 February 2002 (“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, CFSG 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 CASH Board and provided in the offer of grant of option.
(vi) The exercise period should be any period fixed by the CASH Board 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 CASH.

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APPENDIX II

(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 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 CFSG Directors and the employees of the CFSG Group and movements in such holdings:

	N	umber of options
outstanding as at 1.1.2005 10,000,000 – 10,000,000 – 10,000,000	lapsed in 2005 (10,000,000) – (10,000,000) – (10,000,000)	outstanding as at 31.12.2005 and 1.1.2006 – – – – –	granted in 2006 – 12,000,000 12,000,000 20,000,000 32,000,000	outstanding as at 31.12.2006 – 12,000,000
				12,000,000
				20,000,000
				32,000,000

38. Retirement benefits scheme

The CFSG 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 CFSG Group in Hong Kong are required to join the MPF Scheme. In respect of those employees who leave the CFSG 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 CFSG 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 CFSG Group in an independently administrated fund. The CFSG Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

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FINANCIAL INFORMATION OF THE CFSG GROUP

The employer’s contributions to the retirement benefits scheme charged to the income statement and the forfeited voluntary contributions credited to the income statements amounted to approximately HK$3,528,000 (2005: HK$2,366,000) and HK$93,000 (2005: HK$316,000) respectively for the year ended 31 December 2006.

During the year ended 31 December 2006, the CFSG Group has acquired a subsidiary in Taiwan. The subsidiary operates pension plan under the Labor Pension Act (“Act”).

The Act provides for a defined contribution benefit plan. Under the Act, the subsidiary make monthly contributions at 6% of basic salaries (i.e. net of bonuses and benefits) to the employees’ individual pension accounts. During the year ended 31 December 2006, the CFSG Group recognised pension costs of HK$88,000.

The CFSG Group operates various benefits schemes for its full-time employees in 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 CFSG 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. During the year ended 31 December 2006, the CFSG Group recognised contribution to the above benefit schemes of HK$1,086,000.

39. Related party transactions

The CFSG Group had the following significant transactions with related parties:

(a) During the year ended 31 December 2006, the CFSG Group received right issue underwriting fee of approximately HK$705,000 from CASH. The fee was calculated at 2.5% on the total proceeds from the placement received by CASH.
(b) During the year ended 31 December 2006, the CFSG Group received interest from margin financing of approximately HK$1,199,000 (2005: HK$928,000) from Cash Guardian, in which Mr Kwan Pak Hoo Bankee, a CFSG Director has a controlling interest and is also a Director. The interest was calculated at commercial rates which were similar to the rates offered to other margin clients.
(c) During the year ended 31 December 2006, the CFSG Group received interest from margin financing of approximately HK$39,525 (2005: HK$8,700) from certain wholly-owned subsidiaries of CASH. The interest was calculated at commercial rates which were similar to the rates offered to other margin clients.
(d) During the year ended 31 December 2006, the CFSG Group acquired three subsidiaries from CASH at a total consideration of HK$852,000 (see note 36(b)).
(e) During the year ended 31 December 2006, the CFSG Group paid introducing fee to an associate amounting to HK$600,000.
(f) At 31 December 2006, the CFSG Group had amounts of approximately HK$3,463,000 (2005: HK$972,000) due from fellow subsidiaries. The amounts were unsecured, non-interest bearing and had no fixed repayment terms.
(g) During both years, compensation of key management personnel represents CFSG Directors’ remuneration, as stated in note 10. The CFSG Directors’ remuneration is determined by the remuneration committee having regard to the performance, responsibilities and experiences of individuals and market trends.

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APPENDIX II

40. Commitments

Capital commitment

	2006	2005
	HK$’000	HK$’000
Capital expenditure in respect of the acquisition of subsidiaries
contracted for but not provided in the financial statements	–	55,000

The acquisition of subsidiaries was duly passed at the special general meeting by shareholders and independent shareholders of CFSG on 20 December 2005. The acquisition was completed on 10 January 2006 upon the completion of all conditions as stated in the share purchase agreement dated 15 September 2005.

41. Operating lease commitments

At the balance sheet date, the CFSG 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	2006 HK$’000 8,590 918 9,508	2005 HK$’000 6,582 4,826
		11,408

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

42. Contingent liabilities

In 2002, Pang Po King Cannie (“Pang”) filed a statement of claim against Celestial Securities Limited (“CSL”), a wholly-owned subsidiary of CFSG, alleging that CSL, without knowledge or authority of or instructions from Pang, had misused the account opened by Pang with CSL to buy 1,046,000 shares of Takson Holdings Limited. The CFSG Directors confirmed that the subject transactions were made with knowledge and authority of Pang. The CFSG Directors do not envisage the claim by Pang will be held to be valid. The case was in progress and it was in the discovery stage as at 31 December 2006 and 2005. Accordingly, no provision was made in the financial statements.

43. Post balance sheet events

Subsequent to 31 December 2006, the CFSG Group announced a connected and discloseable transaction on 9 January 2007 for the proposed disposal of the entire interest in Netfield Technology Limited to CASH at a consideration (“Consideration”) of the higher of HK$120 million or the valuation of the online game business operated by Netfield Technology Limited as at 31 December 2006. The transaction will be subject to the approval of the independent shareholders of CFSG at a special general meeting to be convened.

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FINANCIAL INFORMATION OF THE CFSG GROUP

Pursuant to the option deed dated 9 January 2007, CASH has agreed to grant an option, which is subjected to certain precedent conditions, to Mr Lin Che Chu George, a common director of both CASH and Netfield Technology Limited. Under such option, Mr Lin Che Chu George has a right to require CASH to transfer such number of shares in Netfield Technology Limited as representing 10% of the entire issued share capital of Netfield Technology Limited for 10% of the Consideration.

44. Particulars of principal subsidiaries of CFSG

			Proportion of
		Nominal value of	nominal value
		issued and fully	of issued
		paid ordinary	share capital
	Place of	share capital/	held by
Name	incorporation	registered capital	CFSG	Principal activities
			%
CASH Asset Management Limited	Hong Kong	HK$200,000	100	Provision of asset
				management services
CASH E-Trade Limited	Hong Kong	HK$4,000,000	100	Provision of
				management services
				for group companies
CASH Payment Services Limited	Hong Kong	HK$2	100	Provision of payment
				gateway services for
				group companies
Celestial Capital Limited	Hong Kong	HK$27,000,000	100	Provision of corporate
				finance services
Celestial Commodities Limited	Hong Kong	HK$10,000,000	100	Futures and options
				broking and trading
Celestial Investments (HK) Limited	Hong Kong	HK$10,000,000	100	Money lending
Celestial Securities Limited	Hong Kong	HK$140,000,000	100	Securities, equity options
				broking and trading,
				leveraged foreign
				exchange contracts and
				provision of share
				margin financing
icoupon Limited	British Virgin	US$1	100	Investment holding
	Islands

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APPENDIX II

			Proportion of
		Nominal value of	nominal value
		issued and fully	of issued
		paid ordinary	share capital
	Place of	share capital/	held by
Name	incorporation	registered capital	CFSG	Principal activities
			%
CASH Frederick Taylor Limited	Hong Kong	HK$1,000,000	70	Financial advisory
				consultancy
富格曼科技股份有限公司	Taiwan	NTD40,820,000	51	Online game operator
(translated as Fugleman
Entertainment Company)
摩力游（上海）信息科技有限公司	PRC	US$3,000,000	100	Online game developer
(translated as MOLI China
Information Technology Limited)
上海摩力游數字娛樂有限公司	PRC	RMB1,000,000	100	Online game operator
(previously known as
上海嘉思華數字娛樂有限公司)
(translated as Shanghai Moliyo
Digital Entertainment Limited

CASH E-Trade Limited and icoupon Limited are directly held by CFSG. All other subsidiaries shown above are indirectly held by CFSG.

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APPENDIX II

45. SUMMARISED BALANCE SHEET OF CFSG

Non-current assets Investments in subsidiaries Deposit for acquisition Current assets Amounts due from subsidiaries Bank balances (general accounts) Current liabilities Accrued liabilities and other payables Amounts due to subsidiaries Convertible loan note – amount due within one year Net current liabilities Capital and reserves Share capital Reserves Total equity	2006 HK$’000 470,800 – 470,800 235,861 72 235,933 1,920 323,273 – 325,193 (89,260) 381,540 138,205 243,335 381,540	2005 HK$’000 (restated) 466,279 56,095 522,374 127,772 691 128,463 1,499 323,273 30,242 355,014 (226,551) 295,823 104,488 191,335 295,823

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FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

UNAUDITED FINANCIAL INFORMATION FOR THE THREE MONTHS ENDED 31 MARCH 2007

The following is the unaudited financial results of the CFSG Group for the three months ended 31 March 2007 as extracted from the first quarterly report 2007 of CFSG.

Results

The unaudited consolidated results of the CFSG Group for the three months ended 31 March 2007 together with the comparative figures for the last corresponding period are as follows:

Notes
Revenue
(3)
Other operating income
Salaries, commission and related benefits
Depreciation and amortisation
Finance costs
Other operating,
selling and administrative expenses
Net (decrease) increase in fair value of
listed investments held for trading
Profit before taxation
Taxation charge
(4)
Profit for the period
Attributable to:
Equity holders of CFSG
Minority interests
Earnings per share
(5)
– Basic
– Diluted

Unaudited
three months ended
31 March
2007
2006
HK$’000
HK$’000
167,835
88,441
417
274
(49,423)
(44,506)
(4,490)
(1,747)
(12,203)
(10,117)
(66,978)
(19,271)
(1,301)
5,027
33,857
18,101
(4,646)
(2,620)
29,211
15,481
28,551
15,311
660
170
29,211
15,481
2.1 HK cents
1.2 HK cents
2.0 HK cents
1.1 HK cents

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APPENDIX II

FINANCIAL INFORMATION OF THE CFSG GROUP

Notes:

(1) Basis of preparation

The unaudited consolidated results of the CFSG Group have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants. In addition, the unaudited consolidated accounts include applicable disclosures required by the GEM Listing Rules and by the Hong Kong Companies Ordinance.

The unaudited consolidated results for the three months ended 31 March 2007 have not been audited by the auditors of CFSG, but have been reviewed by the audit committee of CFSG.

(2) Significant accounting policies

The accounting policies and methods of computation used in the preparation of these accounts are consistent with those used in the annual accounts for the year ended 31 December 2006.

The new standards, amendment or interpretations which become effective and therefore are adopted in 2007 have no material impact on the results and financial position of the CFSG Group.

The CFSG Group has not early applied the following new standards, amendment or interpretations that have been issued but are not yet effective. The CFSG Directors anticipate that the application of these standards, amendment or interpretations will also have no material impact on the results and the financial position of the CFSG Group.

HKFRS 8 Operating segments [1] HK(IFRIC) – INT 11 HKFRS 2 – Group and Treasury Share Transactions [2] HK(IFRIC) – INT 12 Service concession arrangements [3]

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

2 Effective for annual periods beginning on or after 1 March 2007.

3 Effective for annual periods beginning on or after 1 January 2008.

(3) Revenue

Fees and commission income Interest income Online game subscription income Sales of online game auxiliary products Licensing income	Unaudited three months ended 31 March 2007 2006 HK$’000 HK$’000 86,970 69,185 21,217 17,697 30,604 1,559 28,907 – 137 – 167,835 88,441	Unaudited three months ended 31 March 2007 2006 HK$’000 HK$’000 86,970 69,185 21,217 17,697 30,604 1,559 28,907 – 137 – 167,835 88,441
		88,441

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APPENDIX II

(4) Taxation charge

Current tax: – Hong Kong – PRC – Elsewhere Deferred taxation (credit) charge	Unaudited three months ended 31 March 2007 2006 HK$’000 HK$’000 4,300 120 – – 500 – (154) 2,500 4,646 2,620	Unaudited three months ended 31 March 2007 2006 HK$’000 HK$’000 4,300 120 – – 500 – (154) 2,500 4,646 2,620
		2,620

Hong Kong Profits Tax is calculated at 17.5% on the estimated assessable profits for both periods. Taxes on profits assessable elsewhere have been calculated at the rates prevailing in the countries in which the CFSG Group operates, based on existing legislation, interpretations and practices in respect thereof.

Certain subsidiaries of the CFSG Group are operating in PRC. They are 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 taxation has been made for these subsidiaries as no assessable profit is arisen during both periods.

Deferred tax credit for current period related to amortisation of the deferred tax liability on intangible assets arising from acquisition of subsidiaries in 2006.

Part of the deferred tax asset of HK$2,500,000 had been utilised in 2006 due to assessable profit was expected to be earned by certain subsidiaries. No other deferred tax asset has been recognised in the financial statements due to the unpredictability of future taxable profit streams.

– 177 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

(5) Earnings per share

The calculation of basic and diluted earnings per share attributable to the ordinary equity holders of CFSG for the three months ended 31 March 2007 together with the comparative figures for the prior period are based on the following data:

Profit Profit for the purpose of basic earnings per share Effect of dilutive potential ordinary shares: Interest on convertible loan note Profit for the purpose of diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares assumed exercise of share options Effect of dilutive potential ordinary shares assumed conversion of convertible loan note Weighted average number of ordinary shares for the purpose of diluted earnings per share	Unaudited three months ended 31 March 2007 2006 HK$’000 HK$’000 28,551 15,311 – 107 28,551 15,418 1,382,051,448 1,326,548,099 17,716,667 N/A N/A 52,962,962 1,399,768,115 1,379,511,061	Unaudited three months ended 31 March 2007 2006 HK$’000 HK$’000 28,551 15,311 – 107 28,551 15,418 1,382,051,448 1,326,548,099 17,716,667 N/A N/A 52,962,962 1,399,768,115 1,379,511,061
		15,418

		1,326,548,099 N/A 52,962,962
		1,379,511,061

The computation of diluted earnings per share for 2006 does not assume the exercise of the outstanding CFSG Options as the exercise prices of those options were higher than the average market price for shares during that period.

– 178 –

FINANCIAL INFORMATION OF THE CFSG GROUP

APPENDIX II

(6) Reserves

Beginning of the three months period Profit for the period, representing total recognised income for the period End of the three months period Beginning of the three months period Profit for the period, representing total recognised income for the period Arising from partial repayment of convertible loan note Issue of new shares End of the three months period		Unaudited three months ended 31 March 2007 Convertible (Accumulated loan note Share-based losses)/ Share Contributed equity payment Translation retained premium surplus reserve reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 220,970 128,550 – 2,496 (288) (10,102) – – – – – 28,551 220,970 128,550 – 2,496 (288) 18,449 Unaudited three months ended 31 March 2006	Unaudited three months ended 31 March 2007 Convertible (Accumulated loan note Share-based losses)/ Share Contributed equity payment Translation retained premium surplus reserve reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 220,970 128,550 – 2,496 (288) (10,102) – – – – – 28,551 220,970 128,550 – 2,496 (288) 18,449 Unaudited three months ended 31 March 2006	Unaudited three months ended 31 March 2007 Convertible (Accumulated loan note Share-based losses)/ Share Contributed equity payment Translation retained premium surplus reserve reserve reserve profits HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 220,970 128,550 – 2,496 (288) (10,102) – – – – – 28,551 220,970 128,550 – 2,496 (288) 18,449 Unaudited three months ended 31 March 2006	Total HK$’000 341,626 28,551 370,177 Total HK$’000 252,130 15,311 (273) 92,981 360,149
		Share Contributed premium surplus HK$’000 HK$’000 130,794 173,550 – – – – 92,981 – 223,775 173,550	Convertible loan note Share-based equity payment Accumulated reserve reserve losses HK$’000 HK$’000 HK$’000 581 883 (53,678) – – 15,311 (273) – – – – – 308 883 (38,367)

– 179 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

A. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP AFTER THE OFFERS (“NEW GROUP”)

The unaudited pro forma statement of assets and liabilities of the New Group has been prepared to illustrate the effect of the Offers.

The unaudited pro forma statement of assets and liabilities of the New Group has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Offers as if the Offers took place on 31 December 2006.

The unaudited pro forma statement of assets and liabilities of the New Group is based on a number of assumptions, estimates and uncertainties. Accordingly, the accompanying unaudited pro forma statement of assets and liabilities of the New Group does not purport to describe the actual financial position of the New Group that would have been attained had the Offers been completion on 31 December 2006. The unaudited pro forma statement of assets and liabilities of the New Group does not purport to predict the future financial position of the New Group.

The unaudited pro forma statement of assets and liabilities 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 New Group following completion of the Offers.

– 180 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

Non-current assets Property, plant and equipment Prepaid lease payments Investment property Available-for-sale investments Goodwill Intangible assets Other assets Loan receivables Deferred tax assets Current assets Inventories Account receivables Loan receivables Prepayments, deposit and other receivables Receivable for disposal of an associate Amounts due from associates Listed investment held for trading Bank deposits under conditions Bank balances – trust and segregated accounts Bank balances (general accounts) and cash	Audited as at 31 Dec 2006 The Group Note 1 HK$’000 98,750 16,378 5,000 33,392 212,027 68,712 16,241 656 1,575 452,731 49,624 782,181 19,275 58,454 76,187 373 49,325 78,075 574,577 168,569 1,856,640	Unaudited pro Pro forma forma balance adjustment of the Group Note 2 HK$’000 HK$’000 98,750 16,378 5,000 33,392 11,490 223,517 68,712 16,241 656 1,575 11,490 464,221 49,624 782,181 19,275 58,454 76,187 373 49,325 78,075 574,577 (145,101) 23,468 (145,101) 1,711,539	Unaudited pro Pro forma forma balance adjustment of the Group Note 2 HK$’000 HK$’000 98,750 16,378 5,000 33,392 11,490 223,517 68,712 16,241 656 1,575 11,490 464,221 49,624 782,181 19,275 58,454 76,187 373 49,325 78,075 574,577 (145,101) 23,468 (145,101) 1,711,539
			464,221 49,624 782,181 19,275 58,454 76,187 373 49,325 78,075 574,577 23,468
			1,711,539

– 181 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

Current liabilities Account payables Deferred revenue Accrued liabilities and other payables Payable for acquisition of subsidiaries Taxation payable Obligations under finance leases – amount due within one year Borrowings – amount due within one year Net current assets Non current liabilities Obligations under finance lease – amount due after one year Deferred tax liabilities Borrowings – amount due after one year Net assets Notes:	1,071,830 8,027 109,467 100,590 4,869 756 405,189 1,700,728 155,912 541 8,494 32,277 41,312 567,331 Audited as at 31 Dec 2006 The Group Note 1 HK$’000	1,071,830 8,027 109,467 100,590 4,869 756 405,189 1,700,728 (145,101) 10,811 541 8,494 32,277 41,312 (133,611) 433,720 Unaudited pro Pro forma forma balance adjustment of the Group Note 2 HK$’000 HK$’000	1,071,830 8,027 109,467 100,590 4,869 756 405,189 1,700,728 (145,101) 10,811 541 8,494 32,277 41,312 (133,611) 433,720 Unaudited pro Pro forma forma balance adjustment of the Group Note 2 HK$’000 HK$’000
			1,700,728 10,811
			541 8,494 32,277
			41,312
			433,720

(1) Figures are extracted from 2006 annual report of the Company.

(2) As detailed on page 13 of this circular, as at the Latest Practicable Date, the Offeror will acquire a maximum of 381,845,466 CFSG Shares under the Share Offer after taking into account the undertakings from CFSG Directors (other than those who are also Directors), ARTAR and certain CFSG Shareholders for a total of 260,912,000 CFSG Shares that they will not accept the Share Offer and the undertakings from each of the CFSG Option Holders that they will not exercise the CFSG Options before the close of the Offers.

The adjustment reflects the recognition of goodwill arising from the acquisition of 381,845,466 CFSG Shares on the basis as mentioned above. Goodwill is determined as the difference between the consideration and the carrying value of the net assets of CFSG acquired by the Company.

– 182 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

B. REPORT FROM DELOITTE TOUCHE TOHMATSU

The following is the text of a report from Deloitte Touche Tohmatsu, the auditors and reporting accountants of Celestial Asia Securities Holdings Limited, in connection with the unaudited financial information of the Company and its subsidiaries.

==> picture [74 x 56] intentionally omitted <==

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

TO THE DIRECTORS OF CELESTIAL ASIA SECURITIES HOLDINGS LIMITED

We report on the unaudited pro forma financial information of Celestial Asia Securities Holdings Limited (“Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the Directors of the Company for illustrative purposes only, to provide information about how the possible major transaction relating to unconditional mandatory cash offers with regard to CASH Financial Services Group Limited might have affected the financial information presented, for inclusion in Appendix III of the circular dated 29 June 2007 (“Circular”). The basis of preparation of the unaudited pro forma financial information is set out on pages 180 to 182 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.

– 183 –

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE NEW GROUP

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 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 2006 or any future date.

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

29 June 2007

– 184 –

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 or 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) as recorded in the register required to be kept under section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies were as follows:

A. The Company

1. Long positions in the ordinary Shares

Name Capacity Kwan Pak Hoo Bankee Founder of a discretionary trust Law Ping Wah Bernard Beneficial owner	Number of	Shares Other interest 246,042,564* – 246,042,564	Shareholding (%) 37.49 1.16
	Personal – 7,644,300 7,644,300
			38.65

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 section headed “Substantial Shareholders” below.

2. Long positions in the underlying Shares – options under share option schemes

Exercise price Name Date of grant Exercise period per Share (HK$) Kwan Pak Hoo Bankee 13/11/2006 13/11/2006 – 12/11/2008 0.323 6/6/2007 6/6/2007 – 31/5/2009 0.490 Law Ping Wah Bernard 13/11/2006 13/11/2006 – 12/11/2008 0.323 6/6/2007 6/6/2007 – 31/5/2009 0.490 Wong Kin Yick Kenneth 13/11/2006 13/11/2006 – 12/11/2008 0.323 6/6/2007 6/6/2007 – 31/5/2009 0.490 Lin Che Chu George 13/11/2006 13/11/2006 – 12/11/2008 0.323 6/6/2007 6/6/2007 – 31/5/2009 0.490	Number of options outstanding 4,000,000 2,500,000 4,000,000 2,500,000 4,000,000 2,500,000 4,000,000 2,500,000 26,000,000	Percentage to issued Shares (%) 0.61 0.38 0.61 0.38 0.61 0.38 0.61 0.38
		3.96

– 185 –

GENERAL INFORMATION

APPENDIX IV

B. Associated corporations (within the meaning of the SFO)

(1) CFSG

(a) Long positions in the ordinary shares

Name Capacity Kwan Pak Hoo Bankee Founder of a discretionary trust Law Ping Wah Bernard Beneficial owner Wong Kin Yick Kenneth Beneficial owner Lin Che Chu George Beneficial owner	Number of CFSG Shares Personal Other interest – 711,710,044* 17,264,000 – 10,860,000 – 280,000 – 28,404,000 711,710,044	Shareholding (%) 51.46 1.25 0.79 0.02
	Personal – 17,264,000 10,860,000 280,000 28,404,000
		53.52

The CFSG Shares were held as to 671,318,044 CFSG Shares by CIGL and as to 40,392,000 CFSG Shares by Cash Guardian. Mr Kwan was deemed to be interested in all these CFSG Shares as a result of his interests in the Company through Cash Guardian as disclosed in disclosed in the section headed “Substantial Shareholders” below.
(b) Long positions in the underlying CFSG Shares – options under share option scheme of CFSG

Exercise price Date of per CFSG Name grant Exercise period Share (HK$) Kwan Pak Hoo Bankee 7/7/2006 7/7/2006 – 31/7/2008 0.296 Wong Kin Yick Kenneth 7/7/2006 7/7/2006 – 31/7/2008 0.296 Law Ping Wah Bernard 7/7/2006 7/7/2006 – 31/7/2008 0.296 Lin Che Chu George 7/7/2006 7/7/2006 – 31/7/2008 0.296	Number of outstanding CFSG options 6,000,000 5,000,000 6,000,000 13,800,000 30,800,000	Percentage to issued CFSG Shares (%) 0.43 0.36 0.43 0.99
		2.21

– 186 –

GENERAL INFORMATION

APPENDIX IV

(2) Long positions in the ordinary shares of Netfield Technology Limited (“Netfield”)

On 1 June 2007, Mr Lin Che Chu George (an executive Director) was granted of an option to acquire from the Group 10 shares of US$1 each (representing 10% of the issued share capital) in Netfield at a consideration of HK$1.2 million per share pursuant to an option deed dated 9 January 2007 (as amended on 22 January 2007). The option is exercisable during the 12-month period immediately before and after the securities of Netfield or its holding company become listed on any recognised stock exchange, in whole or in part by Mr Lin.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executive or their associates had any personal, family, corporate or other beneficial interests or 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).

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the persons/companies, other than a Director or chief executive of the Company, who had interests or short positions in the ordinary Shares and underlying Shares as recorded in the register required to be kept under section 336 of the SFO were as follows:

Name	Capacity	Number of Shares	Shareholding
			(%)
Jeffnet Inc (“Jeffnet”)(Note 1)	Trustee of a	246,042,564	37.49
	discretionary trust
Cash Guardian_(Note 1)_	Beneficial owner	246,042,564	37.49
Mr Al-Rashid, Abdulrahman Saad	Interest in a controlled	103,000,000	15.70
(“Mr Al-Rashid”)(Note 2)	corporation
Abdulrahman Saad Al-Rashid &	Beneficial owner	103,000,000	15.70
Sons Company Limited
(“ARTAR”)(Note 2)

– 187 –

GENERAL INFORMATION

APPENDIX IV

Notes:

(1) This refers to the same number of Shares held by Cash Guardian (which is 100% beneficially owned by Jeffnet). Jeffnet 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. Pursuant to the SFO, Mr Kwan Pak Hoo Bankee and Jeffnet were deemed to be interested in the Shares held by Cash Guardian.
(2) This refers to the same number of Shares were held by ARTAR, which 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.

Save as disclosed above, as at the Latest Practicable Date, no other parties were recorded in the register required by the SFO to be kept as having an interest of 5% or more of the issued share capital of the Company.

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 Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)).

6. INTEREST OF DIRECTORS IN GROUP’S ASSETS

(i) 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 Group since 31 December 2006 (the date to which the latest published audited accounts of the Group have been made up).
(ii) No Director was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

– 188 –

GENERAL INFORMATION

APPENDIX IV

7. LITIGATION

(a) During the year ended 31 December 2005, Theodore J Marr (“Marr”) filed a crosssummons with the California court in the United States of America against the Company and others alleging breaches of fiduciary duties and/or fraudulent conveyances. Marr’s claims in the cross-summons against the Company included US$900,000 arising out of an employment contract between Marr and ILUX Corporation (“ILUX”), a subsidiary of the Company, US$15,000,000 arising out of the dissolution of ILUX, exemplary and punitive damages of not less than US$5,000,000 in respect of each of Marr’s causes of action against the crosscomplainants, and interest. In August 2006, the Company made an application to the California court for the breach of fiduciary duties cause of action against the Company to be dismissed on the ground that Marr lacks standing to assert this cause of action, and in September 2006 the California court dismissed the breach of fiduciary duty claim against the Company. No court decision has been rendered yet in respect of Marr’s other causes of action against the Company.
(b) On 11 May 2006, Hallmark Cards, Incorporated (“Petitioner”) filed a petition for a winding-up order against Cosmos Global Limited (“CGL”), a subsidiary of the Company (HCCW 231/06), under which the Petitioner claimed that CGL was indebted to the Petitioner for a sum of US$41,591.23 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 CGL on the same date and CGL is now in the process of liquidation. CGL is a dormant company and the winding up of CGL will not have any material impact to the operation of the Group.
(c) In 2003, Ka Chee Company Limited sued against Celestial (International) Securities & Investment Limited (“CISI”), a non-wholly-owned subsidiary of the Company, (HCCW 317/2005) for an amount of HK$1,662,598.31. The nature of claim is windup petition. A winding-up order was made by the court, the liquidator has been appointed, and the winding-up procedure is still in progress. Provision, which in the opinion of the Directors is adequate, has already been made for the claim. CISI is a dormant company and the winding up of CISI will not have any material impact to the operation of the Group.

– 189 –

GENERAL INFORMATION

APPENDIX IV

(d) On 29 August 2002, Pang Po King Cannie (“Pang”) filed a statement of claim against Celestial Securities Limited (“CSL”), a non-wholly-owned subsidiary of the Company, alleging that CSL, without knowledge or authority of or instructions from Pang, had misused the account opened by Pang with CSL to buy 1,046,000 shares in Takson Holdings Limited. The Directors confirmed that the subject transactions were made with knowledge of and authority from Pang. The Directors do not envisage the claim by Pang will be held valid. The case was in progress and the date of trial is fixed from 8 to 11 and 14 January 2008.

Save as disclosed above, neither the Company nor any other company in the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against either the Company or any other company in the Group.

8. 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 Company or its subsidiaries within two years preceding the Latest Practicable Date:

(a) the placing agreement dated 24 August 2005 entered into between CRMG and CSL, a non-wholly-owned subsidiary of the Group, in relation to the proposed placing of 45,000,000 shares in CRMG at a placing price of HK$0.45 each;
(b) the sale and purchase agreement dated 15 September 2005 entered into between Vantage Giant Limited, a non-wholly-owned subsidiary of the Company, as vendor and Mr Lin Che Chu George as purchaser in relation to the acquisition of 100% interest in Netfield Technology Limited including all the outstanding loans due from Netfield Technology Limited at a consideration of HK$110,000,000;
(c) the placing agreement dated 15 September 2005 entered into between CFSG and CSL in relation to the proposed placing of 155,000,000 CFSG Shares at a placing price of HK$0.40 each;
(d) the agreement dated 15 September 2005 entered into between CFSG and CIGL, in relation to the proposed issue of 120,000,000 new subscription CFSG Shares at the subscription price of HK$0.40 each to CIGL;

– 190 –

GENERAL INFORMATION

APPENDIX IV

(e) the place down and top-up agreement dated 22 September 2005 entered into among CFSG, CIGL and CSL in relation to (i) the place down by CSL on behalf of CIGL of 145,000,000 CFSG Shares at a placing price of HK$0.40 each, and (ii) a top up by CIGL of 145,000,000 new CFSG Shares at a subscription price of HK$0.40 each;
(f) the sale and purchase agreement dated 20 February 2006 entered into between CIGL and CRMG on 20 February 2006 in relation to acquisition by CIGL and the sale by CRMG of 100% equity interest in the Retail Group;
(g) the sale and purchase agreement dated 11 August 2006 (as amended on 25 August 2006) and the supplemental agreement dated 25 August 2006 entered into between, among others, Fit Top Investments Limited and CIGL in relation to the disposal of a 27% shareholding in CRMG;
(h) the underwriting agreement dated 10 October 2006 entered into between the Company and Celestial Capital, a non-wholly-owned subsidiary of the Company, in relation to the underwriting for a 2-for-1 rights issue of the Company at a subscription price of HK$0.28 each;
(i) the sale and purchase agreement dated 9 January 2007 entered into between CIGL as the purchaser and Vantage Giant Limited, as vendor in relation to the acquisition by Group of 100% interest in Netfield Technology Limited including all the outstanding loans due from Netfield Technology Limited at a consideration of the higher of HK$120 million or the valuation of the online game business operated by the Netfield Group as at 31 December 2006;
(j) the option deed dated 9 January 2007 (as amended on 22 January 2007) and the supplemental deed dated 22 January 2007 both entered into between CIGL and Mr Lin Che Chu George in relation to the grant of the right to acquire shares in Netfield Technology Limited; and
(k) the S&P Agreements.

– 191 –

GENERAL INFORMATION

APPENDIX IV

9. EXPERT

The following is the qualification of the expert who has given opinion or advice which are contained in this circular:–

Name

Qualification

Deloitte Touche Tohmatsu

Certified Public Accountants

As at the Latest Practicable Date, the Accountants were not interested beneficially in the shares in any member of the 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 Group.

As at the Latest Practicable Date, 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 Company or its subsidiaries or are proposed to be acquired or disposed of by or leased to the Company or its subsidiaries since 31 December 2006, being the date up to which the latest published audited consolidated accounts of the Company were made up.

The Accountants have given and have not withdrawn its written consent to the issue of this circular with the inclusion of and reference to their name in the form and context in which it appears.

10. MISCELLANEOUS

(a) The qualified accountant of the Company is Mr Yuen Pak Lau Raymond, a fellow member of Association of Chartered Certified Accountants and an associate member of Hong Kong Institute of Certified Public Accountants.
(b) The company secretary of the Company is Ms Luke Wing Sheung Suzanne, a fellow member of the Institute of Chartered Secretaries and Administrators.
(c) The head office and the principal place of business of the Company in Hong Kong are at 21/F The Center, 99 Queen’s Road Central, Hong Kong. The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(d) The principal share registrars and transfer office of the Company in Bermuda is 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 Standard Registrars Limited at 26/F Tesbury Centre, 28 Queen’s Road, Wanchai, Hong Kong.
(e) The English text of this circular shall prevail over the Chinese text.

– 192 –

GENERAL INFORMATION

APPENDIX IV

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at 21/F The Center, 99 Queen’s Road Central, Hong Kong during normal business hours on any day up to and including 13 July 2007:–

(a) the memorandum of association and bye-laws of the Company;
(b) the material contracts referred to in paragraph 8 above;
(c) the letter from the Accountants in respect of the pro forma financial statement of the assets and liabilities of the New Group as set out in Appendix III to this circular;
(d) the letter of consent from the Accountants referred to in paragraph 9 above;
(e) the audited financial statements of the Group for the two financial years ended 31 December 2005 and 31 December 2006; and
(f) the circular of the Company respectively dated 1 March 2007 in relation to connected transactions for grant of financial assistance to connected clients, dated 29 March 2007 in relation to a discloseable transaction for disposals of share investment, dated 4 April 2007 in relation to a connected and major transaction for proposed acquisition of entire issued share capital of Netfield Technology Limited and a connected and possible discloseable transaction in relation to the grant of call option, and the composite offer document issued by the Company, CIGL and CFSG dated 7 June 2007 relating to the Offers.

– 193 –

AI assistant

Celestial Asia Securities Holdings Limited — Proxy Solicitation & Information Statement 2007

49646_rns_2007-06-28_2e7717f2-52ea-476a-afef-26d14954b399.pdf

CELESTIAL ASIA SECURITIES HOLDINGS LIMITED

POSSIBLE MAJOR TRANSACTION

RELATING TO

UNCONDITIONAL MANDATORY CASH OFFERS WITH REGARD TO CASH FINANCIAL SERVICES GROUP LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

CELESTIAL ASIA SECURITIES HOLDINGS LIMITED

Board of Directors:

Registered office:

Independent non-executive:

POSSIBLE MAJOR TRANSACTION

RELATING TO

UNCONDITIONAL MANDATORY CASH OFFERS WITH REGARD TO CASH FINANCIAL SERVICES GROUP LIMITED

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE S&P AGREEMENTS

LETTER FROM THE BOARD

FINANCIAL INFORMATION ON CFSG

REASONS FOR THE ACQUISITION AND THE OFFERS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

FINANCIAL INFORMATION ON THE GROUP

INFORMATION OF THE OFFEROR

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF CFSG

LETTER FROM THE BOARD

THE OFFERS

LETTER FROM THE BOARD

POSSIBLE MAJOR ACQUISITION OF THE COMPANY

FINANCIAL AND TRADING PROSPECTS OF THE GROUP

Financial prospects

LETTER FROM THE BOARD

Trading prospects

LETTER FROM THE BOARD

Material acquisitions and disposals of the Group

LETTER FROM THE BOARD

Employee information

BUSINESS, DISCUSSION AND ANALYSIS OF THE CFSG GROUP

Business and financial review for the year ended 31 December 2004

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Employee information

Business and financial review for the year ended 31 December 2005

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Employee information

Business and financial review for the year ended 31 December 2006

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Employee information

LETTER FROM THE BOARD

EFFECTS OF THE OFFERS ON THE EARNINGS, ASSETS AND LIABILITIES OF THE GROUP

Earnings

Net assets

ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION

A. SUMMARY OF FINANCIAL RESULTS FOR THE THREE YEARS ENDED 31 DECEMBER 2006

Consolidated Profit and Loss Account

Consolidated Assets and Liabilities

B. FINANCIAL INFORMATION FOR THE TWO YEARS ENDED 31 DECEMBER 2006

Consolidated Income Statement

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

APPENDIX I

Consolidated Statement of Changes in Equity

APPENDIX I

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Cash Flow Statement

Celestial Asia Securities Holdings Limited Proxy Solicitation & Information Statement 2007