China Display Optoelectronics Technology Holdings Limited — Proxy Solicitation & Information Statement 2005

May 20, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, 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 SW Kingsway Capital Holdings Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale 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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SW KINGSWAY CAPITAL HOLDINGS LIMITED 㶅富金融控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 188)

MAJOR TRANSACTION ACQUISITION OF PROPERTY

20 May 2005

* For identification purpose only

CONTENTS

		Page
Responsibility Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		ii
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
2.	The Sale and Purchase Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
3.	Reasons for and Effects of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
4.	Written Shareholders’ Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
5.	Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
6.	Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix I	— Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix II — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . .		14
Appendix III — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		104

— i —

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Company. The directors of the Company 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.

— ii —

DEFINITIONS

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

“Acquisition”	the acquisition of the Property by the Purchasers from
	the Vendor pursuant to the Sale and Purchase Agreements
	which will be classified as an investment property
	grouped under fixed assets
“Board”	the board of Directors
“Company”	SW Kingsway Capital Holdings Limited, a company
	incorporated in Bermuda with limited liability, the shares
	of which are listed on the main board of the Stock
	Exchange
“Consideration”	the aggregate consideration of RMB236,182,869
	(equivalent to approximately HK$222,898,140 (based
	upon the exchange rate at 1.0596 as at 13 April 2005))
	for the Acquisition
“Director(s)”	the director(s) (including executive directors, non-
	executive directors and independent non-executive
	directors) of the Company
“Group”	The Company and its subsidiaries
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Latest Practicable Date”	18 May 2005, being the latest practicable date prior to
	the printing of this circular for ascertaining certain
	information in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“OBL”	Overseas Billion Limited, an indirect wholly-owned
	subsidiary of the Company, which is incorporated in
	Hong Kong with limited liability
“PRC”	The People’s Republic of China

— 1 —

	DEFINITIONS
“Property”	3rd Floor to 25th Floor (both floors inclusive) of Block
	E, Ocean Express, B2, North Road, East Third Ring
	Road, Chaoyang District, Beijing, The People’s Republic
	of China
“Purchasers”	OBL and WTL (and individually, a “Purchaser”)
“Sale and Purchase Agreements”	the two sale and purchase agreements entered into
	between the respective Purchaser and the Vendor on 14
	April 2005 in relation to the Acquisition
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Valuer”	Sallmanns (Far East) Limited
“Vendor”	北京林達華夏房地產開發有限公司(Beijing Lin Da
	Hua Xia Real Estate Development Company Limited), a
	company incorporated in PRC with limited liability,
	which and whose ultimate beneficial owner(s) and their
	respective associates (as defined in the Listing Rules)
	are, to the best of the Directors’ knowledge, information
	and belief having made all reasonable enquiry, third
	parties independent of the Company and its connected
	persons (as defined in the Listing Rules)
“WTL”	Well Talent Limited, an indirect wholly-owned subsidiary
	of the Company, which is incorporated in Hong Kong
	with limited liability

— 2 —

LETTER FROM THE BOARD

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SW KINGSWAY CAPITAL HOLDINGS LIMITED 㶅富金融控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 188)

Directors:

• Mr. Jonathan Koon Shum Choi (Chairman)

• Mr. William Ka Chung Lam (Chief Executive Officer and Executive Director)

• Mr. Michael Koon Ming Choi (Executive Director)

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

• Ms. Rebecca Yuk Fung Lau (Executive Director)

Mr. Patrick Sun (Executive Director)

• Mr. Michael Wai Chung Wu (Non-executive Director)

• Mr. Robert Tsai To Sze

(Independent Non-executive Director)

• Dr. Raymond Wai Yung Wu

(Independent Non-executive Director)

• Mr. Stanley Kam Chuen Ko

Principal Place of

Business in Hong Kong: 5th Floor Hutchison House 10 Harcourt Road Central Hong Kong

(Independent Non-executive Director)

Company Secretary:

20 May 2005

• Mr. Vincent Wai Shun Lai

To the shareholders

Dear Sir/Madam,

MAJOR TRANSACTION ACQUISITION OF PROPERTY

1. INTRODUCTION

On 15 April 2005, the Board announced that the Purchasers, two indirect wholly-owned subsidiaries of the Company, entered into the Sale and Purchase Agreements with the Vendor on 14 April 2005 in relation to the acquisition of the Property for an aggregate consideration of RMB236,182,869 (equivalent to approximately HK$222,898,140 (based upon the exchange rate at 1.0596 as at 13 April 2005)).

• For identification purpose only

— 3 —

LETTER FROM THE BOARD

After considering all relevant size tests, the Acquisition constitutes a major transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to shareholders’ approval in accordance with Chapter 14 of the Listing Rules as the value of the Property of RMB236,182,869 (equivalent to approximately HK$222,898,140 (based upon the exchange rate at 1.0596 as at 13 April 2005)) amounts to approximately 30% of the total assets of the Company of HK$787,073,315 as at 31 December 2004 (based on the information as disclosed in the latest published interim report of the Company for the six months ended 31 December 2004 and adjusted for interim dividend as announced in the same report). The purpose of this circular is to provide the Shareholders with further information regarding the Acquisition.

2. THE SALE AND PURCHASE AGREEMENTS

Details of the Sale and Purchase Agreements are set out below:

(a) Date:

14 April 2005

(b) Parties:

Vendor: 北京林達華夏房地產開發有限公司 (Beijing Lin Da Hua Xia Real Estate Development Company Limited), a company incorporated in PRC with limited liability which and whose ultimate beneficial owner(s) and their respective associates (as defined in the Listing Rules) are, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, third parties independent of the Company and its connected persons (as defined in the Listing Rules).

The Company has been informed by the Vendor that the Vendor is engaged in property investments.

Purchasers: Overseas Billion Limited, an indirect wholly-owned subsidiary of the Company; and

Well Talent Limited, an indirect wholly-owned subsidiary of the Company.

— 4 —

LETTER FROM THE BOARD

(c) Property:

3rd Floor to 25th Floor (both floors inclusive) of Block E, Ocean Express, B2, North Road, East Third Ring Road, Chaoyang District, Beijing, The People’s Republic of China, a new residential property in the Ocean Express complex which is being developed by Beijing Lin Da Hua Xia Real Estate Development Co. Ltd. The Property produces no current source of revenue, is currently under construction and is scheduled to be completed on or before 31 October 2005.

Overseas Billion Limited shall acquire the 3rd Floor to the 12th Floor (both floors inclusive) of the Property occupying a total gross floor area of 10,727.30 square meter.

Well Talent Limited shall acquire the 13th Floor to the 25th Floor (both floors inclusive) of the Property occupying a total gross floor area of 9,459.27 square meter.

(d) Completion:

On or before 31 October 2005.

(e) Consideration:

The aggregate Consideration is RMB236,182,869 (equivalent to approximately HK$222,898,140 (based upon the exchange rate at 1.0596 as at 13 April 2005)) which has been or will be paid by the Purchasers to the Vendor in cash in the following manner:

• (i) An aggregate of RMB12,000,000 (equivalent to approximately HK$11,325,028 (based upon the exchange rate at 1.0596 as at 13 April 2005)) has been paid by the Purchasers as an initial deposit and part payment of the Consideration on 14 April 2005.

• (ii) An aggregate of RMB47,045,717 (equivalent to approximately HK$44,399,507 (based upon the exchange rate at 1.0596 as at 13 April 2005)) (item (i) and item (ii) collectively, representing 25% of the Consideration) will be paid by the Purchasers as a further deposit and part payment of the Consideration within 40 days upon signing of the Sale and Purchase Agreements.

— 5 —

LETTER FROM THE BOARD

• (iii) An aggregate of RMB59,045,717 (equivalent to approximately HK$55,724,535 (based upon the exchange rate at 1.0596 as at 13 April 2005)), representing 25% of the Consideration, will be paid by the Purchasers as a further deposit and part payment of the Consideration within 80 days upon signing of the Sale and Purchase Agreements.

• (iv) An aggregate of RMB94,473,148 (equivalent to approximately HK$89,159,256 (based upon the exchange rate at 1.0596 as at 13 April 2005)), representing 40% of the Consideration, will be paid by the Purchasers as a further deposit and part payment of the Consideration within 120 days upon signing of the Sale and Purchase Agreements.

• (v) The balance of the Consideration in the sum of RMB23,618,287 (equivalent to approximately HK$22,289,814 (based upon the exchange rate at 1.0596 as at 13 April 2005)) will be paid within 3 days after completion of the Acquisition.

The Company plans to finance approximately 50% of the Consideration by bank mortgage loan and the remaining balance of the Consideration by internal resources of the Group. The Company is negotiating with various banks as to the terms to be offered by them for such banking facilities (including the securities required), which terms have not been agreed as of the date of this circular. It is expected that such banking facilities will be secured by a legal charge on the Property.

The Property was valued at RMB242,000,000 (equivalent to approximately HK$228,388,070 (based upon the exchange rate at 1.0596 as at 13 April 2005)) as at 31 March 2005 by the Valuer, an independent valuer. The basis of the valuation of the Property is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

The Consideration was arrived at after arm’s length negotiation with the Vendor after taking into account the valuation of the property provided by the Valuer.

(f) Conditions:

Completion of the Acquisition is conditional upon the consent or approval as required under the Listing Rules or such other regulatory requirements being obtained where applicable.

— 6 —

LETTER FROM THE BOARD

In the event that the Purchasers are not able to complete the Acquisition (other than due to the Vendor’s default in whole or in part), all deposits paid by the Purchasers will be forfeited to the Vendor, whereupon none of the parties thereto will have any further claims against each other.

3. REASONS FOR AND EFFECTS OF THE ACQUISITION

One of the principal business activities of the Group is proprietary investment. Given that the property market in Beijing, PRC is on the upward trend, the Directors consider that the Acquisition not only meet the investment objectives of the Group but also represents an opportunity for the Group to expand its assets base and diversify its investment portfolio. Additionally, the Property could be used by the Group for the creation of a real estate investment fund. The Directors are of the view that the terms of the Acquisition are fair and reasonable. The Directors consider that the Acquisition is in the interest of the Company and the shareholders of the Company as a whole.

As disclosed in the announcement dated 15 April 2005, the Acquisition will be financed approximately 50% of the Consideration by bank mortgage loan and the remaining balance by internal resources of the Group. As at 30 June 2004, the gearing ratio calculated as a percentage of bank borrowings over shareholders’ fund was approximately 2%. Based on pro forma assets and liabilities statement of the Group set out in section 6 of Appendix II, which has been prepared on an as-if basis assuming that the Acquisition had taken place as at 30 June 2004, the gearing ratio calculated as a percentage of bank borrowings over shareholders’ fund will be approximately 21%. However, there will be no significant impact on the Group’s net asset value.

4. WRITTEN SHAREHOLDERS’ APPROVAL

After considering all relevant size tests, the Acquisition constitutes a major transaction of the Company under Chapter 14 of the Listing Rules and is therefore subject to the shareholders’ approval in accordance with Chapter 14 of the Listing Rules as the value of the Property of RMB236,182,869 (equivalent to approximately HK$222,898,140 (based upon the exchange rate at 1.0596 as at 13 April 2005)) amounts to approximately 30% of the total assets of the Company of HK$787,073,315 as at 31 December 2004 (based on the information as disclosed in the latest published interim report of the Company for the six months ended 31 December 2004 and adjusted for interim dividend as announced in the same report). Pursuant to Rule 14.44 of the Listing Rules, shareholders’ approval for a major transaction shall be given by a majority vote at a general meeting of the shareholders of the listed issuer unless all the following conditions are met, in which case written shareholders’ approval may be accepted in lieu of holding a general meeting:

• (1) no shareholder of the listed issuer is required to abstain from voting if the listed issuer were to convene a general meeting for the approval of the transaction; and

— 7 —

LETTER FROM THE BOARD

• (2) the written shareholders’ approval has been obtained from a shareholder or a closely allied group of shareholders who together hold more than 50% in nominal value of the securities of the listed issuer giving the right to attend and vote at that general meeting to approve the transaction.

As no shareholder of the Company has a material interest in the Acquisition, no shareholder of the Company is required to abstain from voting if the Company were to convene an extraordinary general meeting for the approval of the Acquisition. In addition, a written approval for the Acquisition has been obtained by the Company from Kingsway International Holdings Limited, the controlling shareholder of the Company holding 2,411,661,327 shares in the issued capital of the Company which represent approximately 74.3% of the nominal value of the shares of the Company as at the date of this circular and which give the right to such shareholder to attend and vote at the general meeting for the approval of the Acquisition. Accordingly, all the conditions as set out in Rule 14.44 of the Listing Rules are met by the Company and, therefore, the Company shall not be required to hold an extraordinary general meeting for the shareholders’ approval of the Acquisition.

5. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendix I — Property Valuation, Appendix II — Financial Information of the Group and Appendix III — General Information to this circular.

As the Property is currently under construction and is not scheduled to be completed until on or before 31 October 2005, there is no identifiable income stream and therefore the Company is unable to provide a profit and loss statement for any preceding period in relation to the Property.

6. DIRECTORS

As at the date of this circular, the directors of the Company comprise Jonathan Koon Shum Choi as Chairman , William Ka Chung Lam as Chief Executive Officer and Executive Director , Michael Koon Ming Choi, Rebecca Yuk Fung Lau and Patrick Sun as Executive Directors , Michael Wai Chung Wu as Non-Executive Director and Robert Tsai To Sze, Raymond Wai Yung Wu and Stanley Kam Chuen Ko as Independent NonExecutive Directors .

Yours faithfully,

On behalf of the Board

William Ka Chung Lam Chief Executive Officer

— 8 —

PROPERTY VALUATION

APPENDIX I

The following is the text of a letter, summary of value and valuation certificate, prepared for the purpose of incorporation in this circular received from Sallmanns (Far East) Limited, an independent valuer, in connection with its valuations as at 31 March 2005 of the property interest contracted to be acquired by two indirect wholly-owned subsidiaries of the Company.

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Corporate valuation and consultancy www.sallmanns.com

22nd Floor, Siu On Centre 188 Lockhart Road Wanchai Hong Kong Tel: (852) 2169 6000 Fax: (852) 2528 5079

20 May 2005

The Board of Directors

SW Kingsway Capital Holdings Limited

5/F, Hutchison House 10 Harcourt Road Central Hong Kong

Dear Sirs,

In accordance with your instructions to value the property in which two indirect whollyowned subsidiaries of SW Kingsway Capital Holdings Limited (“the Company”) intend to acquire in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital value of the property interest as at 31 March 2005 (the “date of valuation”).

Our valuation of the property interest represents the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”.

We have valued the property interest by the direct comparison approach assuming sale of the property interest in its existing state with the benefit of immediate vacant possession and by making reference to comparable sale transactions as available in the relevant market.

Our valuation has been made on the assumption that the seller sells the property interest on the open market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the value of the property interest.

— 9 —

PROPERTY VALUATION

APPENDIX I

No allowance has been made in our report for any charges, mortgages or amounts owing on the property interest valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature, which could affect its value.

In valuing the property interest, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the RICS Appraisal and Valuation Standards (5th Edition) published by the Royal Institution of Chartered Surveyors and effective from May 2003; and the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors and effective from January 2005.

We have relied to a very considerable extent on the information given by the Company’s PRC legal adviser and have accepted information given to us on such matters as tenure, planning approvals, statutory notices, easements, and particulars of occupancy, lettings, and all other relevant matters.

We have been shown copies of various title documents including State-owned Land Use Rights Certificates and official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing titles to the property interest in the PRC and any material encumbrances that might be attached to the property interest.

We have relied on the opinion given by the Company’s PRC legal adviser — Lei Jie Law Office concerning the legal status of the property.

We have not carried out detailed site measurements to verify the correctness of the site area in respect of the property but have assumed that the site areas shown on the documents and official site plan handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the property. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the property is free of rot, infestation or any other structural defects. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have been advised by the Company that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

— 10 —

PROPERTY VALUATION

APPENDIX I

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB).

Our valuation is summarized below and the valuation certificate is attached.

Yours faithfully, for and on behalf of

Sallmanns (Far East) Limited

Paul L. Brown B.Sc. FRICS FHKIS Director

Note: Paul L. Brown is a Chartered Surveyor who has 22 years’ experience in the valuation of properties in the PRC and 25 years of property valuation experience in Hong Kong, the United Kingdom and the AsiaPacific region.

— 11 —

PROPERTY VALUATION

APPENDIX I

SUMMARY OF VALUE

Property interest to be acquired by two indirect wholly-owned subsidiaries of the Company in the PRC

No. Property 1. 158 residential units 3rd Floor to 25th Floor (both inclusive) Block E Ocean Express B2, North Road East Third Ring Road Chaoyang District Beijing The PRC (to be completed in 2005) Total:	Capital value in existing state as at 31 March 2005 RMB 242,000,000
	242,000,000

— 12 —

PROPERTY VALUATION

APPENDIX I

VALUATION CERTIFICATE

Property interest to be acquired by two indirect wholly-owned subsidiaries of the Company in the PRC

				Capital value
		Description and	Particulars of	in existing state
No.	Property	tenure	Occupancy	as at 31 March 2005
				RMB
1.	158 residential units	The property comprises	The property is	242,000,000
	3rd Floor to 25th Floor	158 residential units on	currently under
	(both inclusive)	3rd Floor to 25th Floor	construction and
	Block E	of a 25-storey	vacant.
	Ocean Express	apartment to be
	B2, North Road	completed in 2005.
	East Third Ring Road
	Chaoyang District	The units have a total
	Beijing	saleable area of
	The PRC	approximately
		20,186.57 sq.m.
		The land use rights of
		the property have been
		granted for various
		terms with the latest
		date expiring on 23
		April 2073.

Notes:

1. As advised by the Company, two indirect wholly-owned subsidiaries of the Company proposed to purchase the property from Beijing Lin Da Hua Xia Real Estate Development Co., Ltd. (the Developer of the property).

2. Pursuant to a State-owned Land Use Rights Certificate — Jing Chao Guo Yong (2003 Chu) Zi No. 0473, the land use rights of a parcel of land on the site of the property, comprising a site area of 27,470.99 sq.m., have been granted to Beijing Lin Da Hua Xia Real Estate Development Co., Ltd. (“Beijing Lin Da”) for various terms expiring on 23 April 2043 for ancillary commercial uses, 23 April 2053 for underground parking uses and 23 April 2073 for residential uses.

3. Pursuant to a Commercial Property Presale Permit — Jing Fang Shou Zheng Zi No. (2004) 499, Beijing Lin Da has been approved to sell Block E of Ocean Express located at B2, North Road, East Third Ring Road, Chaoyang District, Beijing, the PRC.

4. The opinion of the Company’s PRC legal adviser states that:

5. a. Beijing Lin Da has obtained the relevant approval for development, construction and selling of the property; and

6. b. Beijing Lin Da has the right to lease, mortgage, transfer and handle the property.

7. We have relied on the aforesaid legal opinion and prepared our valuation on the following assumptions:

8. a. Beijing Lin Da is in possession of a proper legal title to the property and is entitled to transfer the property; and

9. b. The property can be legally acquired by two indirect wholly-owned subsidiaries of the Company and the two subsidiaries can legally own, transfer, sublet and mortgage the property after fully paying the purchase money in accordance with the purchase contract and paying relevant tax, fees and duties in accordance with PRC laws and regulations and obtaining relevant title certificate.

— 13 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. SUMMARY OF FINANCIAL INFORMATION

• 1.1 Unaudited interim results of the Group for the 6 months ended 31 December 2004 and the audited consolidated results of the Group for the 3 years ended 30 June

Consolidated Profit and Loss Account

For the six months ended 31 December 2004 (Unaudited) HK$ Turnover Trading gain/(loss) on investments 60,061,167 Commission and fee income 31,179,041 Interest and dividend income 5,544,577 96,784,785 Other revenue 8,418,349 105,203,134 Operating expenses Commission expenses (7,514,305) General and administrative expenses (48,409,395) Deficit on revaluation of land and building — Surplus on revaluation of investment property — Loss on disposal of long term investments — Impairment losses — Profit/(loss) from operations 49,279,434 Finance costs (412,413) 48,867,021

For the year ended 30 June 2004 2003 2002 (Audited) (Audited) (Audited) HK$ HK$ HK$ 108,549,450 (197,446,561) 86,269,781 74,346,130 49,665,042 77,707,988 15,565,776 27,705,239 28,248,956 198,461,356 (120,076,280) 192,226,725 1,206,515 711,646 472,064 199,667,871 (119,364,634) 192,698,789 (11,710,295) (7,498,996) (13,754,126) (98,403,525) (95,857,501) (90,337,249) — (4,582,449) — 5,000,000 — — — (7,785,142) — (25,047,783) (45,167,739) — 69,506,268 (280,256,461) 88,607,414 (1,658,492) (3,253,676) (280,462) 67,847,776 (283,510,137) 88,326,952

— 14 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the six months ended 31 December 2004 (Unaudited) HK$ Share of results of associates 3,181,321 Share of results of jointly controlled entity (72,000) Profit/(loss) from ordinary activities before taxation 51,976,342 Income tax 8,641,234 Profit/(loss) from ordinary activities after taxation 60,617,576 Minority interests 70,110 Profit/(loss) attributable to shareholders 60,687,686 Dividends attributable to the year: Interim dividend announced in results announcement/ paid during the year 10,719,139 Final dividend proposed after the balance sheet date — 10,719,139 Earnings/(loss) per share Basic 1.87 cents Diluted 1.86 cents

For the year ended 30 June 2004 2003 2002 (Audited) (Audited) (Audited) HK$ HK$ HK$ 985,119 241,642 (171,099) (228,000) — — 68,604,895 (283,268,495) 88,155,853 12,843,856 7,555,198 (11,455,797) 81,448,751 (275,713,297) 76,700,056 (16,666) (82,315) 88,628 81,432,085 (275,795,612) 76,788,684 10,324,863 10,410,441 11,432,565 21,694,894 10,322,784 20,818,082 32,019,757 20,733,225 32,250,647 2.59 cents (8.8)cents 2.5 cents 2.55 cents N/A 2.4 cents

— 15 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Balance Sheet

As at 31 December 2004 (Unaudited) HK$ Non-current assets Intangible assets 2,158,089 Fixed assets 5,570,983 Other assets 5,802,021 Interest in associates 39,563,896 Interest in jointly controlled entity — Long term investments 1,794,100 Long term portion of loans receivable — 54,889,089 Current assets Cash and cash equivalents 177,499,649 Pledged bank balances — Marketable securities 372,256,475 Other investments 71,699,940 Accounts, loans and other receivables 121,429,449 Amounts due from related companies 17,852 742,903,365 Current liabilities Short term bank loans and overdrafts 55,566,201 Short positions in marketable securities — Accounts payable and accruals 73,010,693 Taxation 17,859,499 146,436,393	2004 (Audited) HK$ 2,349,743 18,392,325 5,137,578 36,807,900 72,000 1,794,100 — 64,553,646 126,088,238 — 325,554,229 12,100,000 153,248,701 18,279 617,009,447 10,917,065 — 33,963,388 27,159,674 72,040,127	As at 30 June 2003 2002 (Audited) (Audited) HK$ HK$ 7,149,935 8,195,774 14,092,865 21,178,788 3,951,260 3,426,198 37,057,913 36,819,945 — — 30,864,100 58,874,100 — 21,250,000 93,116,073 149,744,805 56,980,192 119,285,087 — 1,573,238 283,246,322 468,456,914 15,468,817 11,492,963 202,016,175 158,187,976 80,585 35,476 557,792,091 759,031,654 43,500,000 1,503,521 15,688,640 — 75,531,821 81,432,471 41,693,332 45,093,200 176,413,793 128,029,192	As at 30 June 2003 2002 (Audited) (Audited) HK$ HK$ 7,149,935 8,195,774 14,092,865 21,178,788 3,951,260 3,426,198 37,057,913 36,819,945 — — 30,864,100 58,874,100 — 21,250,000 93,116,073 149,744,805 56,980,192 119,285,087 — 1,573,238 283,246,322 468,456,914 15,468,817 11,492,963 202,016,175 158,187,976 80,585 35,476 557,792,091 759,031,654 43,500,000 1,503,521 15,688,640 — 75,531,821 81,432,471 41,693,332 45,093,200 176,413,793 128,029,192
			149,744,805
			119,285,087 1,573,238 468,456,914 11,492,963 158,187,976 35,476
			759,031,654
			1,503,521 — 81,432,471 45,093,200
			128,029,192

— 16 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

As at 31 December 2004 (Unaudited) HK$ Net current assets 596,466,972 Total assets less current liabilities 651,356,061 Non-current liability Deferred taxation 391,130 Minority interests 34,491,938 NET ASSETS 616,472,993 CAPITAL AND RESERVES Share capital 324,822,391 Reserves 291,650,602 616,472,993	2004 (Audited) HK$ 544,969,320 609,522,966 391,130 34,415,048 574,716,788 323,619,291 251,097,497 574,716,788	As at 30 June 2003 2002 (Audited) (Audited) HK$ HK$ 381,378,298 631,002,462 474,494,371 780,747,267 652,779 8,152,779 1,500,664 1,413,168 472,340,928 771,181,320 312,584,633 104,063,411 159,756,295 667,117,909 472,340,928 771,181,320	As at 30 June 2003 2002 (Audited) (Audited) HK$ HK$ 381,378,298 631,002,462 474,494,371 780,747,267 652,779 8,152,779 1,500,664 1,413,168 472,340,928 771,181,320 312,584,633 104,063,411 159,756,295 667,117,909 472,340,928 771,181,320
			780,747,267 8,152,779 1,413,168
			771,181,320
			104,063,411 667,117,909
			771,181,320

— 17 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Balance Sheet

As at 31 December 2004 (Unaudited) HK$ Non-current assets Investment in subsidiaries 529,920,393 Current assets Cash and cash equivalents 39,801,214 Accounts receivable and prepayments 1,356,000 41,157,214 Current liabilities Short term bank loan 15,000,000 Accounts payable and accruals 737,953 15,737,953 Net current assets/ (liabilities) 25,419,261 NET ASSETS 555,339,654 CAPITAL AND RESERVES Share capital 324,822,391 Reserves 230,517,263 555,339,654	2004 (Audited) HK$ 580,780,664 70,751,514 178,000 70,929,514 5,000,000 71,476,775 76,476,775 (5,547,261) 575,233,403 323,619,291 251,614,112 575,233,403	As at 30 June 2003 2002 (Audited) (Audited) HK$ HK$ 472,308,208 574,053,249 275,329 73,934 180,000 86,002 455,329 159,936 — — 672,155 466,080 672,155 466,080 (216,826) (306,144) 472,091,382 573,747,105 312,584,633 104,063,411 159,506,749 469,683,694 472,091,382 573,747,105

— 18 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Statement of Changes in Equity

For the six months ended 31 December 2004 (Unaudited) HK$ At the beginning of the period 574,716,788 Exercise of share options 2,828,432 Share issue — Exchange differences arising on translation of accounts of overseas subsidiaries (2,843) Profit/(loss) attributable to shareholders 60,687,686 Capital reserve released upon disposal of subsidiaries — Impairment of goodwill previously taken directly to reserves — Dividends paid (21,757,070) At the end of the period 616,472,993

For the year ended 30 June 2004 2003 2002 (Audited) (Audited) (Audited) HK$ HK$ HK$ 472,340,928 771,181,320 718,055,077 1,858,710 920,176 3,898,575 39,000,000 — 4,552,238 (13,987) (3,172) (9,309) 81,432,085 (275,795,612) 76,788,684 (27,348) — — 774,377 7,267,739 — (20,647,977) (31,229,523) (32,103,945) 574,716,788 472,340,928 771,181,320

— 19 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated Cash Flow Statement

For the six months ended 31 December 2004 (Unaudited) HK$ Operating activities Net cash inflow/(outflow) from operations 24,543,307 Interest paid (412,413) Hong Kong Profits Tax paid (233,616) Hong Kong Profits Tax refunded — Overseas tax paid — Net cash from/(used in) operating activities 23,897,278 Investing activities Payment for purchase of fixed assets (753,365) Proceeds from sale of fixed assets 2,400,000 Payment for purchase of long term investments — Proceeds from sale of long term investments — Net cash outflow from acquisition of subsidiaries — Net cash outflow from disposal of subsidiaries — Purchase of minority interest in subsidiaries — Acquisition of associates — Purchase of trading rights and exchange seats — Dividend income from associates — Payment for acquisition of jointly controlled entity —

For the year ended 30 June 2004 2003 2002 (Audited) (Audited) (Audited) HK$ HK$ HK$ 53,842,450 (72,984,895) (199,379,127) (1,658,492) (3,253,676) (116,489) (1,886,319) (3,271,923) (14,560,125) — — 93,657 — (69,073) (44,244) 50,297,639 (79,579,567) (214,006,328) (2,432,804) (1,312,797) (2,062,475) 130,000 2,241 — (280,000) (550,000) (9,352,454) — 5,874,858 6,000,000 — — (403,876) (1,502,969) — (1,162,348) — — (1,196,546) — — (30,498,862) — — (586,013) 1,170,000 — — (300,000) — —

— 20 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

For the six months ended 31 December 2004 (Unaudited) HK$ Net cash from/(used in) investing activities 1,646,635 Financing activities Capital contribution from minority shareholders 147,000 (Repayment)/drawdown of short term bank loan — Decrease/(increase) in pledged bank deposits — Proceeds from share issue — Proceeds from shares issued on exercise of share options 2,828,432 Dividends paid (21,757,070) Net cash (used in)/from financing activities (18,781,638) Net increase/(decrease) in cash and cash equivalents 6,762,275 Cash and cash equivalents at the beginning of the period 115,171,173 Cash and cash equivalents at the end of the period 121,933,448 Analysis of the balances of cash and cash equivalents: Bank balances and cash 177,499,649 _Less:_short term bank loans and overdrafts (55,566,201) 121,933,448

For the year ended 30 June 2004 2003 2002 (Audited) (Audited) (Audited) HK$ HK$ HK$ (3,215,773) 4,014,302 (39,262,574) 34,398,382 — — — (1,503,521) 1,503,521 — 1,573,238 (1,573,238) 39,000,000 — — 1,858,710 920,176 3,898,575 (20,647,977) (31,229,523) (32,103,945) 54,609,115 (30,239,630) (28,275,087) 101,690,981 (105,804,895) (281,543,989) 13,480,192 119,285,087 400,829,076 115,171,173 13,480,192 119,285,087 126,088,238 56,980,192 119,285,087 (10,917,065) (43,500,000) — 115,171,173 13,480,192 119,285,087

— 21 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1.2 Extract of audited financial statements for year ended 30 June 2004

Consolidated profit and loss account

for the year ended 30 June 2004

Note Turnover Trading gain/(loss) on investments 3 Commission and fee income 3 Interest and dividend income 3 Other revenue 4 Operating expenses Commission expenses General and administrative expenses Deficit on revaluation of land and building Surplus on revaluation of investment property 14 Loss on disposal of long term investments Impairment losses 5 Profit/(loss) from operations Finance costs 6 Share of results of associates Share of results of jointly controlled entity Profit/(loss) from ordinary activities before taxation 6 Income tax 7(a) Profit/(loss) from ordinary activities after taxation Minority interests Profit/(loss) attributable to shareholders 9 Dividends attributable to the year: 10(a) Interim dividend paid during the year Final dividend proposed after the balance sheet date Earnings/(loss) per share 11 Basic Diluted	2004 HK$ 108,549,450 74,346,130 15,565,776 198,461,356 1,206,515 199,667,871 (11,710,295) (98,403,525) — 5,000,000 — (25,047,783) 69,506,268 (1,658,492) 67,847,776 985,119 (228,000) 68,604,895 12,843,856 81,448,751 (16,666) 81,432,085 10,324,863 21,694,894 32,019,757 2.59 cents 2.55 cents	2003 HK$ (197,446,561) 49,665,042 27,705,239 (120,076,280) 711,646 (119,364,634) (7,498,996) (95,857,501) (4,582,449) — (7,785,142) (45,167,739) (280,256,461) (3,253,676) (283,510,137) 241,642 — (283,268,495) 7,555,198 (275,713,297) (82,315) (275,795,612) 10,410,441 10,322,784 20,733,225 (8.8) cents N/A

— 22 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated balance sheet

at 30 June 2004

Note Non-current assets Intangible assets 13 Fixed assets 14 Other assets 15 Interest in associates 17 Interest in jointly controlled entity 18 Long term investments 19 Current assets Cash and cash equivalents 20 Marketable securities 21 Other investments 22 Accounts, loans and other receivables 23 Amounts due from related companies 24 Current liabilities Short term bank loans and overdrafts 25 Short positions in marketable securities 26 Accounts payable and accruals 27 Taxation Net current assets Total assets less current liabilities Non-current liability Deferred taxation 28 Minority interests NET ASSETS CAPITAL AND RESERVES Share capital 29 Reserves 30	2004 HK$ 2,349,743 18,392,325 5,137,578 36,807,900 72,000 1,794,100 64,553,646 --------------- 126,088,238 325,554,229 12,100,000 153,248,701 18,279 617,009,447 --------------- 10,917,065 — 33,963,388 27,159,674 72,040,127 --------------- 544,969,320 --------------- 609,522,966 391,130 34,415,048 574,716,788 323,619,291 251,097,497 574,716,788	2003 HK$ 7,149,935 14,092,865 3,951,260 37,057,913 — 30,864,100
		93,116,073 --------------- 56,980,192 283,246,322 15,468,817 202,016,175 80,585
		557,792,091 --------------- 43,500,000 15,688,640 75,531,821 41,693,332
		176,413,793 ---------------
		381,378,298 ---------------
		474,494,371 652,779 1,500,664
		472,340,928
		312,584,633 159,756,295
		472,340,928

— 23 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Balance sheet

at 30 June 2004 Note Non-current assets Investment in subsidiaries 16 Current assets Cash and cash equivalents Prepayments 23 Current liabilities Short term bank loan 25 Accounts payable and accruals 27 Net current liabilities NET ASSETS CAPITAL AND RESERVES Share capital 29 Reserves 30	2004 HK$ 580,780,664 --------------- 70,751,514 178,000 70,929,514 --------------- 5,000,000 71,476,775 76,476,775 --------------- (5,547,261) --------------- 575,233,403 323,619,291 251,614,112 575,233,403	2003 HK$ 472,308,208 --------------- 275,329 180,000 455,329 --------------- — 672,155 672,155 --------------- (216,826) --------------- 472,091,382 312,584,633 159,506,749 472,091,382

— 24 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated cash flow statement

for the year ended 30 June 2004

Note Operating activities Net cash inflow/(outflow) from operations 33(a) Interest paid Hong Kong Profits Tax paid Overseas tax paid Net cash from/(used in) operating activities Investing activities Payment for purchase of fixed assets Proceeds from sale of fixed assets Payment for purchase of long term investments Proceeds from sale of long term investments Net cash outflow from disposal of subsidiaries 33(c) Dividend income from associates Payment for acquisition of jointly controlled entity Net cash (used in)/from investing activities Financing activities Capital contribution from minority shareholders Repayment of short term bank loan Decrease in pledged bank deposits Proceeds from share issue Proceeds from shares issued on exercise of share options Dividends paid Net cash from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Cash and cash equivalents at 30 June Analysis of the balances of cash and cash equivalents: Bank balances and cash _Less:_short term bank loans and overdrafts	2004 HK$ 53,842,450 (1,658,492) (1,886,319) — 50,297,639 --------------- (2,432,804) 130,000 (280,000) — (1,502,969) 1,170,000 (300,000) (3,215,773) --------------- 34,398,382 — — 39,000,000 1,858,710 (20,647,977) 54,609,115 --------------- 101,690,981 13,480,192 115,171,173 126,088,238 (10,917,065) 115,171,173	2003 HK$ (72,984,895) (3,253,676) (3,271,923) (69,073) (79,579,567) --------------- (1,312,797) 2,241 (550,000) 5,874,858 — — — 4,014,302 --------------- — (1,503,521) 1,573,238 — 920,176 (31,229,523) (30,239,630) --------------- (105,804,895) 119,285,087 13,480,192 56,980,192 (43,500,000) 13,480,192

— 25 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Consolidated statement of changes in equity

for the year ended 30 June 2004

Note At 1 July Exercise of share options Share issue Exchange differences arising on translation of accounts of overseas subsidiaries Profit/(loss) attributable to shareholders Capital reserve released upon disposal of subsidiaries Impairment of goodwill previously taken directly to reserves 5 Dividends paid At 30 June	2004 HK$ 472,340,928 1,858,710 39,000,000 (13,987) 81,432,085 (27,348) 774,377 (20,647,977) 574,716,788	2003 HK$ 771,181,320 920,176 — (3,172) (275,795,612) — 7,267,739 (31,229,523) 472,340,928

— 26 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to the accounts

1. Corporate information

The Company was incorporated in Bermuda under the Companies Act as an exempted company with limited liability on 17 May 2000. Pursuant to a group reorganisation completed on 10 August 2000 (the “Reorganisation”) to rationalise the Company and its subsidiaries in preparation for the listing of the Company’s shares on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the Company issued shares in exchange for the entire share capital of SW Kingsway Capital Group Limited and thereby became the holding company of the Group. The Company’s shares were successfully listed on the Stock Exchange on 15 September 2000.

2. Significant accounting policies

(a) Statement of compliance

These accounts have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (which includes all applicable Statements of Standard Accounting Practice and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. These accounts also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange. A summary of the significant accounting policies adopted by the Group is set out below.

(b) Basis of preparation of the accounts

The accounts have been prepared under the historical cost convention except that, as disclosed in the accounting policies below, property and investments in marketable securities and other investments are stated at fair value.

In the current year, the Group has adopted the Statements of Standard Accounting Practice (“SSAP”) No. 12 (Revised) “Income Taxes” issued by the HKICPA. The principal effect of implementation of SSAP 12 (Revised) is in relation to deferred tax. In prior years, partial provision was made for deferred tax using the profit and loss account liability method, i.e. a liability was recognised in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amount of the assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. This represents a change in accounting policy which requires retrospective application. However, the effect of this change is not material to the Group’s results in prior years and therefore the opening balances and comparative figures presented herein have not been restated.

(c) Basis of consolidation

• (i) The Group has adopted merger accounting for the Reorganisation as detailed in Note 1. The consolidated accounts have been prepared as if the group structure as at 10 August 2000, the date that the Company became the holding company of the companies comprising the Group, had been in existence prior to 10 August 2000.

— 27 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(ii)

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 30 June. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill/negative goodwill, or goodwill/ negative goodwill taken to capital reserve and which was not previously charged or recognised in the consolidated profit and loss account together with any related accumulated foreign exchange translation reserve.

Minority interests represent the interests of third parties outside the Group in the results and net assets of the Group.

Where losses attributable to the minority exceed the minority interest in the net assets of a subsidiary, the excess, and any further losses attributable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. All subsequent profits of the subsidiary are allocated to the Group until the minority’s share of losses previously absorbed by the Group has been recovered.

(d) Subsidiaries

A subsidiary, in accordance with the Hong Kong Companies Ordinance, is a company in which the Group, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. Subsidiaries are considered to be controlled if the company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from their activities.

Investments in subsidiaries in the Company’s balance sheet are stated at cost less any provisions for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(e) Associates and jointly controlled entity

An associate is a company, not being a subsidiary, in which its equity interest is held for the long-term and significant influence is exercised in its management.

A jointly controlled entity is an entity which operates under a contractual arrangement between the Group and other parties, where the contractual arrangement establishes that the Group and one or more of the other parties share joint control over the economic activity of the entity.

The consolidated profit and loss account includes the Group’s share of the postacquisition results of associates and jointly controlled entity for the year. The consolidated balance sheet includes the Group’s share of the net assets of the associates and jointly controlled entity and also goodwill/negative goodwill (net of accumulated amortisation/accumulated amount recognised as income) on acquisition.

— 28 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Equity accounting is discontinued when the carrying amount of the investment in an associate or jointly controlled entity reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associate or jointly controlled entity.

(f) Revenue recognition

Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the profit and loss account as follows:

• (i) Brokerage and commission income is recognised on a trade date basis. Underwriting and sub-underwriting commission is recognised once the corresponding underwriting exposure has ceased. Corporate finance advisory, asset management, loan arrangement, secretarial and other service fees are recognised upon such services being rendered. Transactions of investment in securities and related revenues are recorded on a trade date basis.

• (ii) Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

• (iii) Dividend income is recognised when the right to receive payment is established.

• (iv) Payments received under operating leases net of any incentives paid to the lessee are recognised as rental income on a straight-line basis.

(g) Intangible assets

(i) Trading rights and exchange seats

The trading rights of Hong Kong Exchanges and Clearing Limited, the B- Shares Special Seat of Shenzhen Stock Exchange and the B-Shares Tangible Trading Seat of Shanghai Stock Exchange are recognised as intangible assets on the balance sheet.

These rights and seats are stated at cost less accumulated amortisation and accumulated impairment losses, and are amortised on a straight-line basis over ten years.

(ii) Goodwill/negative goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets acquired at the date of acquisition. Goodwill on acquisitions occurring on or after 1 July 2001 is included as intangible assets and is amortised using the straight-line basis over its estimated useful life. Goodwill on acquisitions that occurred prior to 1 July 2001 was taken to capital reserve. Any impairment arising on such goodwill is accounted for in the profit and loss account.

Negative goodwill represents the excess of the fair value of the Group’s share of the net assets acquired over the cost of acquisition. Negative goodwill on acquisitions occurring on or after 1 July 2001 is presented in the same balance sheet classification as goodwill. To the extent that negative goodwill

— 29 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

relates to expectations of future losses and expenses that are identified in the Group’s plan for the acquisition and can be measured reliably, but which do not represent identifiable liabilities at the date of acquisition, that portion of negative goodwill is recognised in the consolidated profit and loss account when the future losses and expenses are recognised. Any remaining negative goodwill not exceeding the fair values of the non-monetary assets acquired is recognised in the consolidated profit and loss account over the remaining weighted average useful life of those assets; negative goodwill in excess of the fair values of those non-monetary assets is recognised in the consolidated profit and loss account immediately.

Negative goodwill on acquisitions that occurred prior to 1 July 2001 was taken to capital reserve.

(h) Fixed assets

(i) Investment property

Investment property is interest in land and building in respect of which construction work and development has been completed and which is held for its investment potential, any rental income being negotiated at arm’s length.

Investment property is stated in the balance sheet at its open market value which is valued annually by independent qualified valuers. Separate values are not attributed to land and building. Increases in valuation are credited to the investment property revaluation reserve. Decreases in valuation are first set off against increases on earlier valuations and thereafter are debited to profit and loss account. Any subsequent increases are credited to the profit and loss account up to the amount previously debited.

Upon the disposal of an investment property, the relevant portion of the revaluation reserve realised in respect of previous valuations is released from the investment property revaluation reserve to the profit and loss account.

(ii) Land and buildings

Land and buildings are stated in the balance sheet at revaluation amount less subsequent accumulated depreciation and accumulated impairment loss. Revaluation is performed with sufficient regularity to ensure that the carrying amount of land and buildings does not differ materially from that which would be determined using fair value at the balance sheet date. Increase in valuation is credited to the revaluation reserve. Decrease in valuation is firstly offset against increase on earlier valuations in respect of the same land and buildings and is thereafter debited to the profit and loss account. Any subsequent increase is credited to the profit and loss account up to the amount previously debited. Upon the disposal of land and buildings, the relevant portion of the realised revaluation reserve in respect of previous valuations is transferred from the revaluation reserve to the retained profits.

— 30 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(iii) Other fixed assets

Other fixed assets, comprising leasehold improvements, furniture and fixtures, office equipment and motor vehicles are stated at cost less accumulated depreciation and accumulated impairment losses.

The gain or loss on disposal of other fixed assets is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account.

(iv) Depreciation

Fixed assets other than investment property are stated at cost or valuation less accumulated depreciation and accumulated impairment losses, and are depreciated at rates sufficient to write off their costs over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Land and buildings	2%
Leasehold improvements	Shorter of the unexpired lease terms
	or 5 years
Furniture and fixtures	20%
Office equipment	20%
Motor vehicles	20%

Major costs incurred in restoring fixed assets to their normal working condition are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Group.

(i) Impairment

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 these 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. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

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

(j) Investments

(i) Long term investments

Long term investments include club debentures, membership, equity securities and held-to-maturity debt securities which are intended to be held on a continuing basis for identified long term purposes.

— 31 —

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

Long term investments other than held-to-maturity debt securities are stated at cost less provision for impairment losses. The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amounts of such investments will be reduced to their fair value. The impairment loss is recognised as an expense in the profit and loss account. This impairment loss is written back to the profit and loss account when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

Held-to-maturity debt securities are stated in the balance sheet at cost plus/ less any discount/premium amortised to date. The discount/premium is amortised over the period to maturity and included as interest income/expense in the profit and loss account.

The carrying amounts of individual held-to-maturity securities or holdings of the same securities are reviewed at the balance sheet date in order to assess the credit risk and whether the carrying amounts are expected to be recovered. Provisions are made when the carrying amounts are not expected to be recovered and are recognised in the profit and loss account as an expense immediately.

(ii) Marketable securities

Marketable securities are listed securities and are carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of marketable securities are included in trading gain/ loss on investments and recognised in the profit and loss account. Profits or losses on disposal of marketable securities, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

(iii) Other investments

Other investments represent investments other than long term investments and marketable securities. Other investments are carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of other investments are included in trading gain/loss on investments and recognised in the profit and loss account. Profits or losses on disposal of other investments, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

(iv) Fair value

Fair values for listed or quoted investments are determined based on quoted market prices less liquidity or other discounts as considered appropriate by the directors whereas fair values for unlisted or unquoted investments are estimated by the directors based on a number of factors such as financial position, industry and management analysis, results and expected cash flows, and transactions taken by third parties or an appraisal carried out by an independent appraiser.

— 32 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(k) Provisions, contingent liabilities and contingent assets

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes on the accounts. When a change in the probability of an outflow occurs so that the outflow is probable, it will be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. A contingent asset is not recognised but is disclosed in the notes on the accounts when an inflow of economic benefits is probable. When the inflow is virtually certain, an asset is recognised.

(l) Employee benefits

(i) Employee leave entitlements

Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.

(ii) Bonus plans

The expected cost of bonus payments are recognised as a liability when the Group has a present legal or constructive obligation as a result of services rendered by employees and a reliable estimate of the obligation can be made.

Liabilities for bonus payments are expected to be settled within 12 months and are measured at the amounts expected to be paid when they are settled.

(iii) Pension obligations

The Group operates a defined-contribution pension scheme (“MPF Scheme”) since 1 December 2000 under the rules and regulations of the Hong Kong Mandatory Provident Fund (“MPF”) Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group has chosen to follow the minimum statutory contribution requirement of 5% of eligible employees’ relevant aggregate income subject to the relevant monthly income cap of $20,000 imposed by the MPF Schemes Ordinance. The contributions are charged to the profit and loss account as incurred.

— 33 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(iv) Share options

The financial impact of share options granted by the Company is not recorded in these accounts until such time as the share options are exercised. Upon the exercise of the share options, proceeds from the resulting shares issued are recorded by the Company in the share capital and share premium account as appropriate.

(m) Income tax

(i) Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the profit and loss account except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.

• (ii) Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

• (iii) Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, negative goodwill treated as deferred income, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

— 34 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

(iv) Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities if, and only if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

• in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

• in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

• the same taxable entity; or

• different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(n) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The balance sheet of subsidiaries expressed in foreign currency are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss account is translated at an average exchange rate for the year. Such exchange differences are dealt with as a movement in reserves.

(o) Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease term.

— 35 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(p) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and short term deposits with banks, less bank overdrafts and short term bank loans which form an integral part of the Group’s cash management.

(q) Segment reporting

The Group has disclosed segment revenues and results as defined under SSAP 26 “Segment Reporting”. In accordance with the Group’s internal financial reporting, the Group has determined that business segments be presented as the primary reporting format. No geographical analysis is provided as less than 10% of the consolidated turnover, consolidated operating results and consolidated total assets of the Group are attributable to markets outside Hong Kong.

Segment assets comprise intangible assets, fixed assets, investments (excluding investments in subsidiaries), receivables, operating cash and other assets. Segment liabilities comprise operating liabilities but exclude taxation. Balances of non-interest bearing inter-segment current accounts which are employed by the Group for capital allocation purposes are excluded from segment assets and liabilities.

(r) Related parties

For the purposes of these accounts, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

3. Turnover

The principal activities of the Group are investment in securities, stock and futures brokerage, provision of financial advisory services, asset management, money lending and other securities related financial services.

Trading gain/(loss) on investments — marketable securities — other investments Commission and fee income on — stock and futures brokerage — underwriting and placements in equity capital market — corporate finance — asset management — loan arrangement — miscellaneous fee income	2004 HK$ 110,200,710 (1,651,260) 108,549,450 ------------ 25,008,315 30,171,382 12,333,141 2,236,170 8,000 4,589,122 74,346,130 ------------	2003 HK$ (194,199,396) (3,247,165) (197,446,561) ------------ 10,777,714 12,110,203 18,920,538 2,544,893 83,500 5,228,194 49,665,042 ------------

— 36 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Interest and dividend income — interest from — bank deposits — margin financing — other financing — unlisted debt securities — others — dividends from listed equity securities	2004 HK$ 348,034 8,725,757 1,881,805 381,815 6,669 4,221,696 15,565,776 ------------ 198,461,356	2003 HK$ 1,299,528 12,662,793 5,311,290 774,235 5,629 7,651,764
		27,705,239 ------------
		(120,076,280)

4. Other revenue Rental income from land and building Gain on disposal of subsidiaries Negative goodwill on acquisition of a subsidiary 5. Impairment losses	2004 HK$ 479,472 25,043 702,000 1,206,515	2003 HK$ 711,646 — —
		711,646

Impairment of — long term investments — intangible assets — goodwill previously taken directly to reserves_(Note 30)_	2004 HK$ 20,250,000 4,023,406 774,377 25,047,783	2003 HK$ 37,900,000 — 7,267,739
		45,167,739

— 37 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6. Profit/(loss) from ordinary activities before taxation

Profit/(loss) from ordinary activities before taxation is arrived at after charging:

(a) Finance costs: Interest on: — short term bank loans and overdrafts — other accounts payable (b) Staff costs: Salaries and other allowances Pension costs — defined contribution plan Termination benefits (c) Other items: Amortisation of intangible assets Provision for doubtful debts (net) Operating leases — land and buildings — office equipment Depreciation Net loss on disposal of fixed assets Auditors’ remuneration	2004 HK$ 1,146,149 512,343 1,658,492 60,134,680 1,159,875 — 61,294,555 776,786 2,413,204 2,331,203 430,400 3,308,586 362,420 1,494,319	2003 HK$ 1,543,209 1,710,467
		3,253,676
		53,145,664 1,157,555 408,337
		54,711,556
		1,045,839 7,238,139 4,854,771 388,000 3,444,658 368,968 1,122,090

7. Income tax in the consolidated profit and loss account

(a) Taxation in the consolidated profit and loss account represents:

Hong Kong Profits Tax has been provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits for the year. Overseas taxation is charged at the appropriate current rates of taxation ruling in the relevant country.

Current tax — Provision for Hong Kong Profits Tax Tax for the year Over-provision in prior years	2004 HK$ 2,426,098 (15,073,437) (12,647,339) ------------	2003 HK$ 14,615 (142,560)
		(127,945) ------------

— 38 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

		2004		2003
		HK$		HK$
	Current tax — Overseas
	Tax for the year	—		69,073
		------------		------------
	Deferred tax
	Origination and reversal of temporary differences	(261,649)		(7,500,000)
		------------		------------
	Share of associates’ taxation	65,132		3,674
		------------		------------
		(12,843,856)		(7,555,198)
(b)	Reconciliation between tax credit and accounting profit/(loss) at applicable tax
	rates:
		2004		2003
		HK$		HK$
	Profit/(loss) before tax	68,604,895		(283,268,495)
	Tax at the domestic income tax rate of 17.5%	12,005,857		(49,571,987)
	Effect on opening deferred tax balances resulting
	from an increase in tax rate during the year	—		764,323
	Effect of different tax rates of subsidiaries
	operating in other jurisdictions	(7,163,212)		20,596,548
	Tax effect of non-deductible expenses	1,542,365		26,400,408
	Tax effect of non-taxable revenue	(28,446,234)		(1,152,648)
	Tax effect of utilisation of tax losses not
	previously recognised	(2,582,585)		(8,390,763)
	Tax effect of tax losses not recognised	26,897,825		3,974,453
	Over-provision in prior years	(15,073,437)		(142,560)
	Others	(24,435)		(32,972)
	Actual tax credit	(12,843,856)		(7,555,198)

8. Directors’ and management’s emoluments

(a) Directors’ emoluments

The aggregate amounts of emoluments paid and payable to directors of the Company during the year are as follows:

Fees Salaries, commissions and other allowances Inducement fee Bonuses Retirement scheme contributions	2004 HK$ 3,260,000 7,930,620 — 2,045,910 47,000 13,283,530	2003 HK$ 1,780,833 4,343,356 3,000,000 — 43,000
		9,167,189

— 39 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Included in the directors’ emoluments were fees of $260,000 (2003: $418,333) paid to the independent non-executive directors during the year.

In addition to the above emoluments, certain directors were granted share options under the Company’s share option scheme. The details of these benefits in kind are disclosed under the section “Share options” in the report of directors. None of the directors has exercised any share options during the year.

The emoluments of the directors is within the following bands:

	2004	2003
	Number of	Number of
	directors	directors
$Nil — $1,000,000	5	7
$1,000,001 — $1,500,000	1	—
$1,500,001 — $2,000,000	1	—
$2,500,001 — $3,000,000	1	1
$4,000,001 — $4,500,000	—	1
$7,000,001 — $7,500,000	1	—

Details of the emoluments of the directors are as follows:

Jonathan Koon Shum Choi William Ka Chung Lam Mary Yuk Sin Lam Michael Wai Chung Wu Michael Koon Ming Choi Douglas Ching Shan Hui Richard Yingneng Yin Robert Tsai To Sze Raymond Wai Yung Wu	2004 HK$ — 2,942,000 7,009,287 1,844,333 1,227,910 — — 160,000 100,000 13,283,530	2003 HK$ — 787,000 2,755,356 4,215,333 612,000 — 587,500 160,000 50,000
		9,167,189

(b) Management’s emoluments (excluding commissions)

The five individuals whose emoluments (excluding commissions) were the highest in the Group for the year include 1 (2003: 1) director whose emoluments (excluding commissions) are reflected in the analysis presented above. The emoluments (excluding commissions) payable to the remaining 4 (2003: 4) individuals during the year are as follows:

Salaries, other allowances and benefits in kind Bonuses Retirement scheme contributions	2004 HK$ 6,221,053 6,700,000 46,000 12,967,053	2003 HK$ 6,559,970 1,385,333 48,000
		7,993,303

— 40 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The emoluments is within the following bands:

		2004	2003
		Number of	Number of
		individuals	individuals
$1,500,001	— $2,000,000	—	2
$2,000,001	— $2,500,000	—	2
$2,500,001	— $3,000,000	1	—
$3,000,001	— $3,500,000	1	—
$3,500,001	— $4,000,000	2	—

9. Profit/(loss) attributable to shareholders

The consolidated profit/(loss) attributable to shareholders includes a profit of $82,931,288 (2003: loss of $71,346,376) which has been dealt with in the accounts of the Company.

10. Dividends

(a) Dividends attributable to the year

		2004		2003
		HK$		HK$
	Interim dividend paid of 0.33 cents per share
	(2003: 0.33 cents per share)	10,324,863		10,410,441
	Final dividend proposed after the balance
	sheet date of 0.67 cents per share (2003:
	0.33 cents per share)	21,694,894		10,322,784
		32,019,757		20,733,225
	The final dividend proposed after the balance sheet date has not been			recognised as
	a liability at the balance sheet date.
(b)	Dividends attributable to the previous financial	year, approved and paid during
	the year
		2004		2003
		HK$		HK$
	Final dividend in respect of the previous
	financial year, approved and paid during
	the year, of 0.33 cents per share
	(2003: 0.67 cents per share)	10,323,114		20,819,082

— 41 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

11. Earnings/(loss) per share

The calculation of basic and diluted earnings/(loss) per share is based on the Group’s profit attributable to shareholders of $81,432,085 (2003: loss of $275,795,612).

The basic earnings/(loss) per share is calculated based on the weighted average of 3,143,599,518 (2003: 3,123,217,827) ordinary shares in issue during the year. The diluted earnings per share for the current year is calculated based on 3,197,820,861 ordinary shares which is the weighted average number of ordinary shares in issue during the year plus the weighted average number of 54,221,343 ordinary shares deemed to be issued at no consideration if all outstanding options had been exercised. The diluted loss per share for last year is not presented because the effect of exercising all the outstanding share options is anti-dilutive.

12. Segment reporting

The Group’s activities are organised under the following business segments:

Investment in securities	:	Proprietary trading in securities
Brokerage and equity capital market	:	Provision of stock and futures brokerage
		services, and margin financing to those
		brokerage clients, and acting as underwriting
		and placing agent in the equity capital market
Corporate finance	:	Provision of financial advisory services to
		corporate clients in relation to the requirements
		and other matters relating to the Rules
		Governing the Listing of Securities on the
		Stock Exchange
Asset management	:	Provision of asset management and related
		advisory services to private equity funds and
		private clients, and wealth management
		services to authorised unit trusts and
		Mandatory Provident Funds
Financing	:	Provision of money lending and financing
		services other than margin financing
Others	:	Include the operations in People’s Republic
		of China (the “PRC”) and provision of
		corporate services

Inter-segment revenues are charged among segments at an agreed rate with reference to the rate normally charged to third party customers, the nature of services or the costs incurred.

No geographical analysis is provided as less than 10% of the consolidated turnover, consolidated operating results and consolidated total assets of the Group are attributable to markets outside Hong Kong.

— 42 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Segmental profit and loss account Revenues Turnover Inter-segment revenues Other revenues Eliminations Total revenues Segment results Share of results of associates Share of results of jointly controlled entity Profit before taxation Taxation credit Profit after taxation Minority interests Profit attributable to shareholders	Investment in securities HK$ 113,454,015 1,534,018 — 114,988,033 56,553,332 — —	Brokerage and equity capital market HK$ 65,670,690 6,754,939 — 72,425,629 5,986,522 577,283 —	Corporate finance HK$ 12,502,130 9,848,682 — 22,350,812 1,538,182 — —	2004 Asset management HK$ 3,531,416 19,897,066 — 23,428,482 11,359,635 (44,069 ) —	Financing HK$ 1,891,331 — — 1,891,331 1,704,588 — —	Others Consolidated HK$ HK$ 1,411,774 198,461,356 9,747,233 47,781,938 1,206,515 1,206,515 12,365,522 247,449,809 (47,781,938 ) 199,667,871 (9,294,483 ) 67,847,776 451,905 985,119 (228,000 ) (228,000 ) 68,604,895 12,843,856 81,448,751 (16,666 ) 81,432,085

— 43 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Segment assets and liabilities Segment assets Interest in associates Interest in jointly controlled entity Eliminations Total assets Segment liabilities Unallocated liabilities Eliminations Total liabilities Other segmental information Depreciation and amortisation of tangible and intangible assets for the year Impairment loss recognised in the profit and loss account Capital expenditure incurred during the year	Investment in securities HK$ 386,560,121 — — 19,943,322 — 20,070,000 —	Brokerage and equity capital market HK$ 161,029,996 6,856,598 — 33,550,726 2,406,564 4,023,406 270,783	Corporate finance HK$ 6,512,745 — — 964,293 332,376 180,000 —	2004 Asset management HK$ 8,761,246 510,597 — 958,412 272,509 — 138,000	Financing HK$ 5,258,261 — — 5,614,121 — — —	Others Consolidated HK$ HK$ 102,597,909 670,720,278 29,440,705 36,807,900 72,000 72,000 707,600,178 (26,037,085 ) 681,563,093 9,886,664 70,917,538 27,550,804 98,468,342 (26,037,085 ) 72,431,257 1,073,923 4,085,372 774,377 25,047,783 2,692,665 3,101,448

— 44 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Segmental profit and loss account Revenues Turnover Inter-segment revenues Other revenues Eliminations Total revenues Segment results Share of results of associates Loss before taxation Taxation credit Loss after taxation Minority interests Loss attributable to shareholders Segment assets and liabilities Segment assets Interest in associates Eliminations Total assets Segment liabilities Unallocated liabilities Eliminations Total liabilities	Investment in securities HK$ (188,997,904 ) 380,100 — (188,617,804 ) (257,966,845 ) — 332,967,753 — 25,791,431	Brokerage and equity capital market HK$ 37,187,712 16,561,941 — 53,749,653 2,243,143 (18,220 ) 189,814,820 6,344,447 81,495,591	Corporate finance HK$ 19,551,545 1,837,616 — 21,389,161 1,079,774 — 6,320,750 — 3,637,924	2003 Asset management HK$ 3,634,442 16,976,732 — 20,611,174 (11,527,624 ) 101,062 7,675,882 554,666 39,553,649	Financing HK$ 5,413,289 — — 5,413,289 1,258,045 — 73,935,238 — 88,740	Others Consolidated HK$ HK$ 3,134,636 (120,076,280 ) 8,949,261 44,705,650 711,646 711,646 12,795,543 (74,658,984 ) (44,705,650 ) (119,364,634 ) (18,596,630 ) (283,510,137 ) 158,800 241,642 (283,268,495 ) 7,555,198 (275,713,297 ) (82,315 ) (275,795,612 ) 24,027,500 634,741,943 30,158,800 37,057,913 671,799,856 (20,891,692 ) 650,908,164 5,044,818 155,612,153 42,346,111 197,958,264 (20,891,692 ) 177,066,572

— 45 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Brokerage and equity Investment capital Corporate in securities market finance HK$ HK$ HK$ Other segmental information Depreciation and amortisation of tangible and intangible assets for the year — 2,959,312 348,607 Impairment loss recognised in the profit and loss account 37,900,000 156,589 — Capital expenditure incurred during the year — 622,560 60,548 13. Intangible assets Trading rights of Hong Kong Exchanges and Clearing Limited B-Shares Tangible Trading Seat of Shanghai Stock Exchange B-Shares Special Seat of Shenzhen Stock Exchange Negative goodwill	2003 Asset management Financing HK$ HK$ 434,318 — 7,111,150 — 30,332 — 2004 HK$ 1,500,000 429,743 420,000 — 2,349,743	2003 Asset management Financing HK$ HK$ 434,318 — 7,111,150 — 30,332 — 2004 HK$ 1,500,000 429,743 420,000 — 2,349,743	Financing HK$ — — — 2004 HK$ 1,500,000 429,743 420,000 —	Others Consolidated HK$ HK$ 748,260 4,490,497 — 45,167,739 599,357 1,312,797 Group 2003 HK$ 6,181,591 488,344 480,000 — 7,149,935	Others Consolidated HK$ HK$ 748,260 4,490,497 — 45,167,739 599,357 1,312,797 Group 2003 HK$ 6,181,591 488,344 480,000 — 7,149,935
		2,349,743			7,149,935

— 46 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Movements in intangible assets are as follows:

Cost: At 1 July 2003 Addition At 30 June 2004 Negative goodwill recognised as income/ accumulated amortisation: At 1 July 2003 Recognised for the year Impairment Charge for the year At 30 June 2004 Net book value: At 30 June 2004 At 30 June 2003	Trading rights Negative and exchange goodwill seats HK$ HK$ (180,000) 9,897,318 (702,000) — (882,000) 9,897,318 ------------ ------------ (180,000) 2,747,383 (702,000) — — 4,023,406 — 776,786 (882,000) 7,547,575 ------------ ------------ — 2,349,743 — 7,149,935	Trading rights Negative and exchange goodwill seats HK$ HK$ (180,000) 9,897,318 (702,000) — (882,000) 9,897,318 ------------ ------------ (180,000) 2,747,383 (702,000) — — 4,023,406 — 776,786 (882,000) 7,547,575 ------------ ------------ — 2,349,743 — 7,149,935
		9,897,318 ------------ 2,747,383 — 4,023,406 776,786
		7,547,575 ------------
		2,349,743
		7,149,935

— 47 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

14. Fixed assets

Cost or valuation: At 1 July 2003 Additions Disposals Revaluation At 30 June 2004 Accumulated depreciation: At 1 July 2003 Exchange adjustment Charge for the year Disposals At 30 June 2004 Net book value: At 30 June 2004 At 30 June 2003 The analysis of cost or valuation at 30 June 2004 of the above assets is as follows: At cost At valuation	Investment Leasehold property improvements HK$ HK$ 7,000,000 4,611,859 — 875,079 — (72,581) 5,000,000 — 12,000,000 5,414,357 --------- --------- — 2,636,859 — 873 — 1,287,939 — — — 3,925,671 --------- --------- 12,000,000 1,488,686 7,000,000 1,975,000 — 5,414,357 12,000,000 — 12,000,000 5,414,357	Group Furniture Office and fixtures equipment HK$ HK$ 2,088,100 9,269,495 18,240 496,707 (153,586) (471,324) — — 1,952,754 9,294,878 --------- --------- 1,178,162 5,539,607 — 64 401,208 1,451,947 (71,102) (133,969) 1,508,268 6,857,649 --------- --------- 444,486 2,437,229 909,938 3,729,888 1,952,754 9,294,878 — — 1,952,754 9,294,878	Motor vehicles HK$ 2,159,185 1,711,422 (979,000) — 2,891,607 --------- 1,681,146 45 167,492 (979,000) 869,683 --------- 2,021,924 478,039 2,891,607 — 2,891,607	Total HK$ 25,128,639 3,101,448 (1,676,491) 5,000,000 31,553,596 --------- 11,035,774 982 3,308,586 (1,184,071) 13,161,271 --------- 18,392,325 14,092,865 19,553,596 12,000,000 31,553,596

The Group’s interest in investment property represents a property located in Hong Kong which is held on a long lease of more than 50 years. The property was revalued at 30 June 2004 by Knight Frank Hong Kong Limited, an independent firm of chartered surveyors employed by the Group, on the basis of open market value. The revaluation surplus of $5,000,000 was credited to the profit and loss account.

As at 30 June 2004, such property was pledged against the Group’s bank overdraft facilities totalling $5,600,000 (2003: $5,600,000) of which $5,597,068 (Note 25) had been utilised as at 30 June 2004 (2003: $Nil).

— 48 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

15. Other assets

Statutory deposits Others 16. Investment in subsidiaries	Group 2004 2003 HK$ HK$ 4,059,453 3,895,062 1,078,125 56,198 5,137,578 3,951,260	Group 2004 2003 HK$ HK$ 4,059,453 3,895,062 1,078,125 56,198 5,137,578 3,951,260
		3,951,260

Unlisted shares, at cost Amounts due from subsidiaries _Less:_Provision for doubtful debts	Company 2004 2003 HK$ HK$ 271,222,358 271,222,358 ------------ ------------ 384,558,306 276,085,850 (75,000,000) (75,000,000) 309,558,306 201,085,850 ------------ ------------ 580,780,664 472,308,208	Company 2004 2003 HK$ HK$ 271,222,358 271,222,358 ------------ ------------ 384,558,306 276,085,850 (75,000,000) (75,000,000) 309,558,306 201,085,850 ------------ ------------ 580,780,664 472,308,208
		201,085,850 ------------
		472,308,208

The amounts due from subsidiaries are unsecured, interest free and have no fixed terms of repayment.

Particulars of the principal subsidiaries of the Group are set out in note 35.

17. Interest in associates

		Group
	2004		2003
	HK$		HK$
Share of net assets	36,807,900		37,057,913

— 49 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

The following is a list of the principal associates, all of which are unlisted corporate entities, of the Group as at 30 June 2004:

		Place of			Particulars Interest
		incorporation/	Principal		of issued indirectly
	Name	operations	activities		shares held
	KCG Capital	British Virgin	Investment		20,000,000 30%
	Holdings Limited,	Islands	holding		ordinary shares
	and its subsidiary				of $1 each
	— KCG Securities	Hong Kong	Securities		20,000,000 30%
	Asia Limited		brokerage		ordinary shares
					of $1 each
	Sinochem Kingsway	Cayman	Asset		70,000 50%
	Asset Management	Islands/	management		ordinary shares
	Limited	Hong Kong			of US$1 each
	Sinochem Kingsway	Cayman	Investment		100,000 30%
	Capital Inc.	Islands	holding		ordinary shares
					of $0.1 each
18.	Interest in jointly controlled entity
					Group
					2004 2003
					HK$ HK$
	Share of net assets				72,000 —
	Details of the Group’s	interest in the jointly	controlled entity are as follows:

	Place of		Particulars	Interest
	incorporation/	Principal	of issued	indirectly
Name	operations	activities	shares	held
ZJ Kingsway	Hong Kong	Provision of	1,000,000	30%
Finance Holdings		corporate	ordinary
Company Limited		consultancy	shares of
		services	$1 each

— 50 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

19. Long term investments

Unlisted held-to-maturity convertible bonds, at amortised cost_(Note (a)) _Less:_Impairment Listed equity securities in Hong Kong(Note (b))_ _Less:_Impairment Unlisted equity securities, at cost The Chinese Gold and Silver Exchange Society Membership Club debentures, at cost _Less:_Impairment Market value of listed securities	Group 2004 2003 HK$ HK$ 40,070,000 44,070,000 (40,070,000) (20,000,000) — 24,070,000 ------------ ------------ — 23,000,000 — (17,900,000) — 5,100,000 ------------ ------------ 100 100 ------------ ------------ 280,000 — ------------ ------------ 1,694,000 1,694,000 (180,000) — 1,514,000 1,694,000 ------------ ------------ 1,794,100 30,864,100 — 5,100,000

Notes:

(a) During the year, certain convertible bonds held by the Group were exchanged prior to their maturity for new convertible bonds issued by the same issuer. The Group has received incentives in the form of cash and listed securities from the issuer for the exchange. The amortised cost of the exchanged convertible bonds at the date of exchange net of the cash incentives received were considered by the Group to be the cost of those newly acquired convertible bonds. No value has been attributed to the listed securities received in these accounts as those listed securities have been suspended from trading for over 6 months.

During the prior year, certain convertible bonds held by the Group were exchanged prior to their maturity for new convertible bonds issued by the same issuer. The amortised cost of the exchanged convertible bonds at the date of exchange was taken by the Group to be the cost of these newly acquired convertible bonds.

— 51 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

• (b) During the year, these shares were transferred from long term investments to marketable securities upon the change of the Group’s intention for holding such investments. In accordance with the Group’s accounting policy, marketable securities are stated at fair value at the balance sheet date. The net unrealised gains or losses arising from the change in fair value are included in trading gain/loss on investments and recognised in the profit and loss account. As a result of the aforementioned transfer, the Group has recorded a net gain on investment in marketable securities of HK$24,400,000 for the year.

20. Cash and cash equivalents

The Group maintains segregated clients’ trust accounts with a licensed bank to hold clients’ monies arising from normal business transactions in connection with the Group’s brokerage and asset management activities. As at 30 June 2004, trust accounts not otherwise dealt with in these accounts amounted to $155,259,734 (2003: $188,680,765).

21. Marketable securities

Listed equity securities, at fair value — in Hong Kong — outside Hong Kong_(Note)_ Market value of listed equity securities	Group 2004 2003 HK$ HK$ 310,377,617 283,246,322 15,176,612 — 325,554,229 283,246,322 339,849,421 284,296,079	Group 2004 2003 HK$ HK$ 310,377,617 283,246,322 15,176,612 — 325,554,229 283,246,322 339,849,421 284,296,079
		283,246,322
		284,296,079

As at 30 June 2003, the carrying amount of interests in the following company exceeded 10% of total assets of the Group:

			Particulars
	Place of	Principal	of issued	Interest
Name	incorporation	activities	shares held	held
Shenzhen	Hong Kong	Property development and	Ordinary	4%
Investment		investment, provision of	shares
Limited		transportation services,
		investment in infrastructure
		businesses and provision
		of services in relation to
		information technology

Note: Included in this balance is an amount of $7,950,614 (2003: $Nil) of equity securities listed outside Hong Kong placed with an escrow agent as a deposit for a potential investment, details of which are disclosed in Note 32(b) on the accounts.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

22. Other investments

Unlisted investments, at fair value — equity securities_(Note)_ — debt securities	Group 2004 2003 HK$ HK$ 2,100,000 12,011,617 10,000,000 3,457,200 12,100,000 15,468,817	Group 2004 2003 HK$ HK$ 2,100,000 12,011,617 10,000,000 3,457,200 12,100,000 15,468,817
		15,468,817

Note: Included in this balance is an amount of $2,100,000 (2003: $Nil) of unlisted warrants placed with an escrow agent as a deposit for a potential investment, details of which are disclosed in Note 32(b) on the accounts.

23. Accounts, loans and other receivables

Note Accounts and loans receivable, net of provisions Amounts due from brokers and clearing houses (a) Amounts due from margin clients (b) Amounts due from cash clients (c) Loans receivable (d) Others Prepayments, deposits and other receivables (e)	2004 HK$ 5,953,450 91,259,685 3,776,459 5,256,420 4,883,767 111,129,781 42,118,920 153,248,701	Group 2003 HK$ 359,341 107,445,168 7,504,277 69,501,046 10,603,730 195,413,562 6,602,613 202,016,175	Company 2004 2003 HK$ HK$ — — — — — — — — — — — — 178,000 180,000 178,000 180,000	Company 2004 2003 HK$ HK$ — — — — — — — — — — — — 178,000 180,000 178,000 180,000
				— 180,000
				180,000

The ageing analysis of accounts and loans receivable is as follows:

Current and within one month More than one month and less than three months More than three months	2004 HK$ 108,082,434 395,689 2,651,658 111,129,781	Group 2003 HK$ 184,686,776 8,733,155 1,993,631 195,413,562	Company 2004 2003 HK$ HK$ — — — — — — — —	Company 2004 2003 HK$ HK$ — — — — — — — —
				—

— 53 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes:

• (a) Amounts due from brokers and clearing houses are required to be settled on the settlement day determined under the relevant market practices or exchange rules.

The Group maintains clients’ monies arising from the ordinary course of business of dealing in options and futures contracts in trust with HKFE Clearing Corporation Limited (“HKFECC”). At 30 June 2004, the Group held $2,781,419 (2003: $707,376) with HKFECC in trust for clients which was not dealt with in these accounts.

• (b) Margin clients of the stock brokerage division are required to pledge securities collateral to the Group in order to obtain the credit facilities for securities trading. The amount of credit facilities granted to them is determined by the discounted value of securities accepted by the Group. The amounts due from margin clients are repayable on demand and bear interest at commercial rates.

• (c) There are no credit facilities granted to cash clients of the stock brokerage division. They are required to settle their securities trading balances on the settlement day determined under the relevant market practices or exchange rules.

• (d) The credit terms for loans granted by the Group’s financing division are set by management with reference to the financial background and the value and nature of collaterals pledged by the borrower.

• (e) Included in this balance is an amount of $35,838,862 (2003: $Nil) placed with an escrow agent as a deposit for a potential investment, details of which are disclosed in Note 32(b) on the accounts.

24. Amounts due from related companies

The amounts due from related companies are unsecured, interest free and repayable on demand.

25. Short term bank loans and overdrafts

Unsecured bank overdraft Secured bank overdraft_(Note 14) Unsecured bank loan Secured bank loan(Note)_	2004 HK$ 319,997 5,597,068 5,000,000 — 10,917,065	Group 2003 HK$ — — — 43,500,000 43,500,000	Company 2004 2003 HK$ HK$ — — — — 5,000,000 — — — 5,000,000 —	Company 2004 2003 HK$ HK$ — — — — 5,000,000 — — — 5,000,000 —
				—

Note: Certain banking facilities of the Group were secured by securities collateral from the Group’s margin clients and the Group’s marketable securities with market value of $246,040,824 (2003: $263,530,176) and $15,370,000 (2003: $7,400,000) respectively. These facilities were not utilised as at 30 June 2004.

— 54 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

26. Short positions in marketable securities

Listed equity securities_(Note)_ — in Hong Kong Market value of listed equity securities	Group 2004 2003 HK$ HK$ — 15,688,640 — 15,688,640	Group 2004 2003 HK$ HK$ — 15,688,640 — 15,688,640
		15,688,640

Note: In connection with a placing transaction where the Group acted as a placing agent, the issuer granted to the Group a call option which fully covers the Group’s short positions arising from the over-allotment of the underlying securities. As at 30 June 2003, the Group recognised such short positions at the lower of the fair value of the underlying securities or the consideration payable by the Group upon exercising the call option. During the current year, such short positions were settled.

27. Accounts payable and accruals

Accounts payable within one month Amounts due to brokers and clearing houses Clients’ accounts payable (net of bank and clearing house balances in trust accounts) Others Other creditors and accruals Amounts due to subsidiaries	2004 HK$ 59,670 17,079,578 5,418,071 22,557,319 11,406,069 — 33,963,388	Group 2003 HK$ 19,116,073 — 42,919,884 62,035,957 13,495,864 — 75,531,821	Company 2004 2003 HK$ HK$ — — — — — — — — 1,231,203 672,155 70,245,572 — 71,476,775 672,155	Company 2004 2003 HK$ HK$ — — — — — — — — 1,231,203 672,155 70,245,572 — 71,476,775 672,155
				— 672,155 —
				672,155

The amounts due to subsidiaries are unsecured, interest free and have no fixed terms of repayment.

— 55 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

28. Deferred taxation

At 1 July 2002 Credited to profit and loss account At 30 June 2003 and 1 July 2003 Credited to profit and loss account At 30 June 2004	Group Accelerated Unrealised depreciation trading gain in allowances investments 652,779 7,500,000 — (7,500,000) 652,779 — (261,649) — 391,130 —	Total 8,152,779 (7,500,000)
		652,779 (261,649)
		391,130

The Group has not recognised deferred tax assets in respect of tax losses of $208 million (2003: $86 million). The tax losses do not expire under current tax regulation.

29. Share capital

Authorised: At 1 July 2002 Increase of authorised share capital pursuant to resolution passed on 25 March 2003 At 30 June 2003 and 30 June 2004 Issued and fully paid: At 1 July 2002 Exercise of share options before bonus issue Bonus issue Exercise of share options after bonus issue At 30 June 2003 and 1 July 2003 Exercise of share options_(Note (a)) Share issue(Note (b))_ At 30 June 2004	Ordinary shares of $0.1 each No. of shares Amount HK$ 2,000,000,000 200,000,000 2,000,000,000 200,000,000 4,000,000,000 400,000,000 1,040,634,109 104,063,411 410,000 41,000 1,041,044,109 104,104,411 2,082,088,218 208,208,822 2,714,000 271,400 3,125,846,327 312,584,633 7,715,000 771,500 102,631,579 10,263,158 3,236,192,906 323,619,291	Ordinary shares of $0.1 each No. of shares Amount HK$ 2,000,000,000 200,000,000 2,000,000,000 200,000,000 4,000,000,000 400,000,000 1,040,634,109 104,063,411 410,000 41,000 1,041,044,109 104,104,411 2,082,088,218 208,208,822 2,714,000 271,400 3,125,846,327 312,584,633 7,715,000 771,500 102,631,579 10,263,158 3,236,192,906 323,619,291
		400,000,000
		104,063,411 41,000
		104,104,411 208,208,822 271,400
		312,584,633 771,500 10,263,158
		323,619,291

Notes:

(a) During the year, an aggregate of 7,715,000 ordinary shares were issued by the Company to the grantees upon their exercising of share options. The total cash proceeds received by the company was $1,858,710. These shares rank pari passu with the existing shares.

— 56 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Details of the equity compensation benefits are as follows:

The Company has a share option scheme which was adopted on 23 August 2000 whereby the directors of the Company are authorised, at their discretion, to invite full-time employees, including executive directors of the Company and its subsidiaries, to take up options to subscribe for shares of the Company. For options granted before 1 September 2001, the exercise price of options was determined by the board and was not less than 80% of the average of the closing prices of the shares on the Stock Exchange for the five trading days immediately preceding the date of the offer. For options granted on or after 1 September 2001, the exercise price of options is the highest of the nominal value of the shares, the closing price of the shares on the Stock Exchange on the date of grant and the average closing price of the shares on the Stock Exchange for the five business days immediately preceding the date of grant. Details of the share option scheme are disclosed under the section “Share Options” in the report of the directors.

(i) Movements in share options

At 1 July Issued Exercised Lapsed Bonus issue At 30 June Options vested at 30 June	2004 Number 228,040,000 30,200,000 (7,715,000) (1,290,000) — 249,235,000 219,035,000	2003 Number 77,031,000 35,000,000 (3,124,000) (49,899,000) 169,032,000
		228,040,000
		171,040,000

(ii) Terms of unexpired and unexercised share options at balance sheet date

		Exercise
Date of share	Exercise	price per	2004	2003
options granted	period	share	Number	Number
		HK$
Directors:
28 September 2000	29 March 2001	0.2333	121,500,000	121,500,000
	to 8 October 2004
31 August 2001	1 March 2002	0.3233	19,500,000	19,500,000
	to 31 August 2005
20 December 2002	2 December 2003	0.3833	30,000,000	30,000,000
	to 1 June 2007

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Exercise Date of share Exercise price per options granted period share HK$ Employees: 28 September 2000 28 March 2001 0.2333 to 27 March 2005 22 June 2001 22 December 2001 0.3433 to 21 December 2005 31 August 2001 1 March 2002 0.3233 to 28 February 2006 20 December 2002 2 October 2003 0.3833 to 1 April 2007 4 April 2003 5 October 2003 0.363 to 4 April 2007 11 March 2004 24 September 2004 0.43 to 7 April 2008 Total	2004 Number 14,135,000 1,500,000 5,400,000 3,000,000 24,000,000 30,200,000 249,235,000	2003 Number 22,300,000 1,740,000 6,000,000 3,000,000 24,000,000 —
		228,040,000

(iii) Details of share options granted during the year, all of which were granted for $1 consideration

		2004	2003
Exercise period	Exercise price	Number	Number
	HK$
24 September 2004 to	0.43	30,200,000	—
7 April 2008
5 October 2003 to	0.363	—	24,000,000
4 April 2007
2 October 2003 to	1.15	—	1,000,000
1 April 2007_(Note)_
2 December 2003 to	1.15	—	10,000,000
1 June 2007_(Note)_

Note: These share options were granted before the Company’s bonus issue on the basis of 2 bonus shares for every 1 share on 28 March 2003.

— 58 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(iv) Details of share options exercised during the year

Exercise date Exercise price HK$ 10 July 2003 0.2333 21 July 2003 0.2333 4 August 2003 0.2333 21 August 2003 0.2333 1 September 2003 0.2333 8 September 2003 0.2333 15 September 2003 0.3233 25 September 2003 0.2333 3 October 2003 0.2333 6 October 2003 0.2333 17 November 2003 0.2333 15 January 2004 0.2333 16 January 2004 0.3233 1 March 2004 0.2333 1 March 2004 0.3433 12 March 2004 0.2333 16 April 2004 0.2333 19 April 2004 0.3233 6 May 2004 0.2333 3 June 2004 0.2333 Total	Proceeds received HK$ 76,989 104,985 55,992 34,995 148,145 27,996 38,796 27,996 13,998 10,499 23,330 34,995 38,796 4,666 82,392 34,995 10,499 38,796 524,925 524,925 1,858,710	2004 Number 330,000 450,000 240,000 150,000 635,000 120,000 120,000 120,000 60,000 45,000 100,000 150,000 120,000 20,000 240,000 150,000 45,000 120,000 2,250,000 2,250,000
		7,715,000

(b) On 7 May 2004, 102,631,579 shares of $0.1 each were issued at a premium of $0.28 each to increase the general working capital of the Company. These shares rank pari passu with the existing shares.

— 59 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

30. Reserves

At 1 July 2002 Share premium arising on exercise of share options Bonus issue Exchange differences on translation of accounts of overseas subsidiaries Loss attributable to shareholders Impairment of goodwill previously taken directly to reserves (Note 5) Dividends paid — 2002, final — 2003, interim At 30 June 2003 Attributable to: — the Company and its subsidiaries — associated companies At 30 June 2003	Share premium (Note (a)) HK$ 168,250,352 607,776 (168,496,352) — — — — — 361,776 361,776 — 361,776	Special reserve (Note (b)) HK$ 39,800,000 — — — — — — — 39,800,000 39,800,000 — 39,800,000	Group Capital reserve on Exchange consolidation reserve (Note (c)) (Note (e)) HK$ HK$ 55,376,772 43 — — — — — (3,172) — — 7,267,739 — — — — — 62,644,511 (3,129) 62,644,511 (3,129) — — 62,644,511 (3,129)	Retained profits HK$ 403,690,742 — (39,712,470) — (275,795,612) — (20,819,082) (10,410,441) (Note (f)) 56,953,137 56,946,200 6,937 56,953,137	Total HK$ 667,117,909 607,776 (208,208,822) (3,172) (275,795,612) 7,267,739 (20,819,082) (10,410,441) 159,756,295 159,749,358 6,937 159,756,295

— 60 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

At 1 July 2003 Share premium arising on — exercise of share options — share issue Impairment of goodwill previously taken directly to reserves_(Note 5) Exchange differences on translation of accounts of overseas subsidiaries Released upon disposal of subsidiaries Profit attributable to shareholders Dividends paid — 2003, final(Note (d))_ — 2004, interim At 30 June 2004 Attributable to: — the Company and its subsidiaries — associates — jointly controlled entity At 30 June 2004	Share premium (Note (a)) HK$ 361,776 1,087,210 28,736,842 — — — — — — 30,185,828 30,185,828 — — 30,185,828	Special reserve (Note (b)) HK$ 39,800,000 — — — — — — — — 39,800,000 39,800,000 — — 39,800,000	Group Capital reserve on Exchange consolidation reserve (Note (c)) (Note (e)) HK$ HK$ 62,644,511 (3,129) — — — — 774,377 — — (13,987) (27,348) — — — — — — — 63,391,540 (17,116) 63,391,540 (17,116) — — — — 63,391,540 (17,116)	Retained profits HK$ 56,953,137 — — — — — 81,432,085 (10,323,114) (10,324,863) (Note (f)) 117,737,245 117,656,208 309,037 (228,000) 117,737,245	Total HK$ 159,756,295 1,087,210 28,736,842 774,377 (13,987) (27,348) 81,432,085 (10,323,114) (10,324,863) 251,097,497 251,016,460 309,037 (228,000) 251,097,497

— 61 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

At 1 July 2002 Share premium arising on exercise of share options Bonus issue Loss for the year Dividends paid — 2002, final — 2003, interim At 30 June 2003 At 1 July 2003 Share premium arising on — exercise of share options — share issue Profit for the year Dividends paid — 2003, final_(Note (d))_ — 2004, interim At 30 June 2004	Contributed surplus (Note (g)) HK$ 271,022,350 — (39,712,470) — — — 231,309,880 231,309,880 — — — (10,323,114) — 220,986,766	Company Retained profits/ Share (accumulated premium losses) (Note (a)) HK$ HK$ 168,250,352 30,410,992 607,776 — (168,496,352) — — (71,346,376) — (20,819,082) — (10,410,441) (Note (f)) 361,776 (72,164,907) 361,776 (72,164,907) 1,087,210 — 28,736,842 — — 82,931,288 — — — (10,324,863) (Note (f)) 30,185,828 441,518	Total HK$ 469,683,694 607,776 (208,208,822) (71,346,376) (20,819,082) (10,410,441) 159,506,749 159,506,749 1,087,210 28,736,842 82,931,288 (10,323,114) (10,324,863) 251,614,112

Notes:

• (a) The application of share premium account is governed by Section 40 of the Companies Act 1981 of Bermuda.

• (b) The special reserve of the Group represents the difference between the aggregate of the nominal value and the share premium of the shares of SW Kingsway Capital Group Limited at the date of acquisition by the Company and the nominal value of the shares of the Company issued for the acquisition at the time of the Reorganisation on 10 August 2000.

• (c) The capital reserve on consolidation of the Group represents goodwill and negative goodwill arising from acquisitions prior to 1 July 2001. As at 30 June 2004, the balance comprises no goodwill (2003: $774,377) and negative goodwill of $63,391,540 (2003: $63,418,888). During the year, goodwill of $774,377 (2003: $7,267,739) were impaired and negative goodwill of $27,348 (2003: $Nil) were released upon disposal of subsidiary.

— 62 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

• (d) On 12 December 2003, final dividend for the year ended 30 June 2003 of $0.33 HK cents per ordinary share totalling $10,323,114 was paid to shareholders. The amount comprised prior year’s proposed final dividend of $10,322,784 plus an additional final dividend of $330 paid for those shares issued on the exercise of share options during the period from 14 October 2003 to 26 November 2003.

• (e) The exchange reserve has been set up and will be dealt with in accordance with the accounting policies adopted for foreign currency translation.

• (f) Retained profits/(accumulated losses) represent:

2004 proposed final dividend_(Note (g)) 2003 proposed final dividend(Note (g))_ Others	2004 HK$ 21,694,894 — 96,042,351 117,737,245	Group 2003 HK$ — 10,322,784 46,630,353 56,953,137	Company 2004 2003 HK$ HK$ — — — — 441,518 (72,164,907) 441,518 (72,164,907)	Company 2004 2003 HK$ HK$ — — — — 441,518 (72,164,907) 441,518 (72,164,907)
				(72,164,907)

• (g) The contributed surplus of the Company represents the difference of $271,022,350 between the fair value of the shares of the subsidiary acquired pursuant to the Reorganisation on 10 August 2000 over the nominal value of the Company’s shares issued in exchange for, net of $39,712,470 which was capitalised as a result of the bonus issue in prior year.

Under the Companies Act 1981 of Bermuda, a company may make distributions to its shareholders out of contributed surplus in accordance with section 54 thereof.

At 30 June, the Company’s contributed surplus represented:

2004 proposed final dividend_(Note (f)) 2003 proposed final dividend(Note (f))_ Others 31. Contingent liabilities Guarantees for banking facilities to subsidiaries	2004 2003 HK$ HK$ 21,694,894 — — 10,322,784 199,291,872 220,987,096 220,986,766 231,309,880 Company 2004 2003 HK$ HK$ 247,200,000 252,200,000	2003 HK$ — 10,322,784 220,987,096
		231,309,880

— 63 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

32. Commitments

(a) Commitments under operating leases

(i) As lessee

As at 30 June 2004, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

Land and buildings 2004 2003 HK$ HK$ Not later than 1 year 3,646,676 5,977,941 Later than 1 year and not later than 5 years 3,064,761 10,953,329 6,711,437 16,931,270	Office 2004 HK$ 441,600 1,619,200 2,060,800	equipment 2003 HK$ 408,000 1,496,000
		1,904,000

The lease terms for land and buildings exceeding 3 years usually contain clauses allowing rental reviews after the lapse of certain initial periods to reflect subsequent changes in market rentals. During the current year, the Group has agreed with the landlord to reduce the monthly operating lease expenses for the land and buildings pursuant to the aforementioned rental review arrangement.

(ii) As lessor

As at 30 June 2004, the Group had future minimum lease payments receivable under non-cancellable operating lease as follows:

Not later than 1 year Later than 1 year but not late than 5 years	2004 HK$ 321,200 — 321,200	2003 HK$ 262,800 350,400
		613,200

(b) Other commitments

(i) The Group has entered into agreements with a company for subscription to its shares and warrants. The subscription is conditional on the company being successfully listed on the Toronto Stock Exchange on or before 29 December 2004 and fulfilling other conditions as set out in the agreements. The deadline can be extended to 29 April 2005 if certain conditions are met. The consideration for subscription comprised listed shares and unlisted warrants of a company listed on the Toronto Stock Exchange and cash. The consideration shares, warrants and cash were held by third party lawyers as escrow agents until the conditions for subscription are fully satisfied.

— 64 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

• (ii) The Group has entered into an agreement with a PRC property developer for purchase of an office premise located in the PRC. The Group has committed to pay the remaining balance of RMB5,910,000 (approximately HK$5.5 million equivalent) representing 60% of the total purchase consideration.

• (iii) The Group has entered into an agreement with Shanxi Securities Company Limited and China Gaoxin Investment Group Corporation to establish a fund management business in the PRC market. Pursuant to the agreement, an application has been submitted to China Securities Regulatory Commission to set up a joint venture fund management company (“JV Company”) based in Shanghai. The Group is committed to inject an equivalent of RMB33 million for a 33% equity interest in the JV Company.

33. Notes to the consolidated cash flow statement

(a) Reconciliation of profit/(loss) from operations to net cash inflow/(outflow) from operations

Profit/(loss) from operations Interest income Interest received Amortisation of intangible assets Depreciation Deficit on revaluation of land and building Surplus on revaluation of investment property Loss on disposal of long term investments Impairment losses Gain on disposal of subsidiaries Net loss on disposal of fixed assets Provision for doubtful debts (net) Profit/(loss) from operations before working capital changes Increase in other assets (Increase)/decrease in marketable securities Decrease/(increase) in other investments Decrease/(increase) in accounts, loans and other receivables Decrease/(increase) in amounts due from related companies Decrease in accounts payable and accruals (Decrease)/increase in short positions in marketable securities Effect of foreign exchange changes Net cash inflow/(outflow) from operations	2004 HK$ 69,506,268 (11,344,080) 58,162,188 11,344,080 776,786 3,308,586 — (5,000,000) — 25,047,783 (25,043) 362,420 2,413,204 96,390,004 (108,193) (35,739,087) 1,899,997 44,607,501 62,306 (37,568,433) (15,688,640) (13,005) 53,842,450	2003 HK$ (280,256,461) (20,053,475) (300,309,936) 20,053,475 1,045,839 3,444,658 4,582,449 — 7,785,142 45,167,739 — 368,968 7,238,139 (210,623,527) (525,062) 162,210,592 (3,975,854) (29,816,298) (45,109) (5,900,650) 15,688,640 2,373 (72,984,895)

— 65 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

(b)	Disposal of subsidiaries
		Group
		2004
		HK$
	Cash consideration received	1,559,611
		---------------
	_Less:_Net assets disposed of:
	Bank balances and cash	(3,062,580)
		---------------
	_Add:_Minority interest	1,500,664
	Negative goodwill	27,348
		---------------
		1,528,012
	Gain on disposal of subsidiaries	25,043
(c)	Analysis of net cash outflow in respect of the disposal of subsidiaries
		Group
		2004
		HK$
	Consideration received in cash	1,559,611
	Bank balances and cash disposed of	(3,062,580)
	Net cash outflow in respect of the disposal
	of subsidiaries	(1,502,969)
(d)	Major non-cash transactions

During the year, the Group has exchanged certain convertible bonds for new convertible bonds issued by the same issuer (Note 19(a)) .

In the prior year, the Company issued 2,082,088,218 new shares of $0.1 each pursuant to the bonus issue. In addition, the Group exchanged certain convertible bonds for new convertible bonds issued by the same issuer.

— 66 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

34. Related party and connected party transactions

In addition to those disclosed elsewhere in the accounts, the following is a summary of significant related party and connected party (as defined in the Rules Governing the Listing of Securities on the Stock Exchange) transactions which were carried out in the normal course of the Group’s business:

		2004	2003
	Note	HK$	HK$
Brokerage commission earned on
securities dealing	(a)	857,977	255,099
Common office expenses recharged	(b)	317,557	433,135
Rental income earned	(c)	—	426,681
Consultancy and management fees received	(d)	1,296,000	1,044,000
Secretarial fee earned	(e)	182,148	250,940
Management fee paid	(f)	(315,000)	—
Consultancy fee paid	(g)	(72,000)	(468,000)
Purchase of fixed assets	(h)	(52,500)	(836,281)

Notes:

• (a) Brokerage commission was received from fellow subsidiaries, the Group’s directors and their associates in the ordinary course of the Group’s business of dealing in securities. Commission rates are set at the same level as those normally offered to third party clients.

• (b) Amounts represent recharge of office overheads and rental expenses to the ultimate holding company, fellow subsidiaries and an associated company. The allocation of office overheads and rental expenses is primarily based on the percentage of floor area occupied by each company.

• (c) A subsidiary has entered into a lease agreement with a fellow subsidiary and received rental income on normal commercial terms with reference to market prices. Such agreement was terminated in prior year.

• (d) Consultancy and management fees were received from an associated company for the provision of management and administrative services. The fees mainly comprised a fixed monthly charge as agreed between the parties involved.

• (e) Secretarial fee was received from associated companies, fellow subsidiaries and associated companies of one of the Group’s director for corporate secretarial services provided. The fee was charged at rates similar to those normally charged to third party clients.

• (f) Management fee was paid to fellow subsidiaries for the provision of management and administrative services at a rate mutually agreed between the parties involved.

• (g) Consultancy fee in relation to the provision of information technology advisory services was paid to fellow subsidiaries at a rate mutually agreed between the parties involved.

• (h) The Group acquired certain fixed assets from fellow subsidiaries at considerations which were either based on the net book value of the fixed assets at the date of acquisition or at rates similar to those normally charged to third party clients.

— 67 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

35. Particulars of subsidiaries

The following is a list of the significant subsidiaries as at 30 June 2004:

	Place of	Issued and		% of ordinary shares	% of ordinary shares
	incorporation/	fully paid	Principal	held by the	Company
Name	operations	share capital	activities	Directly	Indirectly
Bill Lam & Associates	Hong Kong	Ordinary shares	Provision of	—	100%
Limited *		$20	corporate
			services
Billion On Development	Hong Kong	Ordinary shares	Property holding	—	100%
Limited *		$10,000
Festival Development	British Virgin	Ordinary share	Investment	—	100%
Limited	Islands	US$1	holding
Kingsway Asset	British Virgin	Ordinary share	Provision of	—	100%
Management	Islands	US$1	consultancy
Limited			and asset
			management
			services
Kingsway Capital	Hong Kong	Ordinary shares	Provision of	—	100%
Limited		$10,779,002	financial
			advisory
			services
Kingsway China	British Virgin	Ordinary share	Investment	100%	—
Holdings Limited	Islands	US$1	holding
Kingsway China	Hong Kong/	Ordinary shares	Investment	—	100%
Investments	People’s	$2	holding
Limited *	Republic
	of China
Kingsway Creanex	British Virgin	Ordinary shares	Securities	—	100%
Limited	Islands	US$100	investment
Kingsway E-Services	Hong Kong	Ordinary shares	Electronic	—	100%
Limited		$10,000,000	securities
			brokerage
Kingsway Financial	Hong Kong	Ordinary shares	Securities	—	100%
Services Group		$300,000,000	brokerage
Limited (formerly
known as Kingsway
SW Securities Limited)
Kingsway Fund	Hong Kong	Ordinary shares	Fund	—	100%
Management Limited		$47,000,000	management

— 68 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

	Place of	Issued and		% of ordinary shares	% of ordinary shares
	incorporation/	fully paid	Principal	held by the	Company
Name	operations	share capital	activities	Directly	Indirectly
Kingsway Lion Spur	British Virgin	Ordinary share	Securities	—	100%
Technology Limited	Islands/	US$1	investment
	Hong Kong
Kingsway SBF	British Virgin	Ordinary shares	Securities	—	51%
Investment Company	Islands	US$10,000	investment
Limited
Kingsway SBF	British Virgin	Ordinary share	Provision of	—	51%
Investment	Islands/	US$100	investment
Management	Hong Kong		advisory services
Company Limited
Kingsway SW Asset	British Virgin	Ordinary shares	Provision of	—	100%
Management	Islands/	US$375,000	investment
Limited	Hong Kong		advisory services
Kingsway SW Finance	Hong Kong	Ordinary shares	Provision of	—	100%
Limited *		$50,000	loan services
			and financing
Kingsway SW Futures	Hong Kong	Ordinary shares	Futures and	—	100%
Limited		$8,000,000	commodities
			brokerage
On-Year Profits Limited	British Virgin	Ordinary share	Securities	—	100%
	Islands	US$1	investment
Opal Dragon Investments	British Virgin	Ordinary share	Securities	—	100%
Limited	Islands	US$1	investment
Overachiever Limited	British Virgin	Ordinary share	Securities	—	100%
	Islands	US$1	investment
Rich Global Investments	British Virgin	Ordinary share	Securities	—	100%
Limited	Islands	US$1	investment
SW Kingsway Capital	British Virgin	Ordinary shares	Investment	100%	—
Group Limited	Islands	US$38,750,000	holding

• Companies not audited by KPMG. The aggregate total assets and profit before taxation of these subsidiaries contributed to approximately 8% and 3% of the Group’s total assets and profit before taxation respectively.

36. Ultimate holding company

The directors regard Kingsway International Holdings Limited, a company incorporated in Bermuda and listed on the Toronto Stock Exchange, as being the ultimate holding company.

— 69 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1.3 Extract of unaudited interim results for period ended 31 December 2004

The Board of Directors of SW Kingsway Capital Holdings Limited (the “Company”) is pleased to present the interim report and unaudited condensed accounts of the Company and its subsidiaries (the “Group”) for the six months ended 31 December 2004 together with comparative figures for the corresponding period last year as follows:

Condensed consolidated profit and loss account

for the six months ended 31 December 2004 (Expressed in Hong Kong dollars)

Note Turnover 2 Trading gain on investments Commission and fee income Interest and dividend income Other revenue 2 Operating expenses Commission expenses General and administrative expenses Impairment losses of long term investments Profit from operations Finance costs	Unaudited Six months ended 31 December 2004 2003 $ $ 60,061,167 122,578,524 31,179,041 36,478,258 5,544,577 10,064,306 96,784,785 169,121,088 8,418,349 247,885 105,203,134 169,368,973 (7,514,305) (5,358,623) (48,409,395) (46,137,327) — (10,000,000) 49,279,434 107,873,023 (412,413) (1,223,564) 48,867,021 106,649,459

— 70 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Note Share of results of associates 2 Share of results of a jointly controlled entity 2 Profit from ordinary activities before taxation 3 Income tax 4 Profit from ordinary activities after taxation Minority interests Profit attributable to shareholders Interim dividend 5(a) Earnings per share 6 Basic Diluted	Unaudited Six months ended 31 December 2004 2003 $ $ 3,181,321 634,830 (72,000) — 51,976,342 107,284,289 8,641,234 (1,949,260) 60,617,576 105,335,029 70,110 — 60,687,686 105,335,029 10,719,139 10,324,005 1.87 cents 3.4 cents 1.86 cents 3.3 cents

— 71 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Condensed consolidated balance sheet

as at 31 December 2004 (Expressed in Hong Kong dollars) Unaudited 31 December 2004 Note $ Non-current assets Intangible assets 2,158,089 Fixed assets 5,570,983 Other assets 5,802,021 Interests in associates 39,563,896 Interests in jointly controlled entity — Long term investments 1,794,100 54,889,089 ---------------- Current assets Cash and cash equivalents 7 177,499,649 Marketable securities 8 372,256,475 Other investments 9 71,699,940 Accounts, loans and other receivables 10 121,429,449 Amounts due from related companies 17,852 742,903,365 Current liabilities Short term bank loans and overdrafts 11 55,566,201 Accounts payable and accruals 12 73,010,693 Taxation 17,859,499 146,436,393 ---------------- Net current assets 596,466,972 ---------------- Total assets less current liabilities 651,356,061	Audited 30 June 2004 $ 2,349,743 18,392,325 5,137,578 36,807,900 72,000 1,794,100
	64,553,646 ---------------- 126,088,238 325,554,229 12,100,000 153,248,701 18,279
	617,009,447
	10,917,065 33,963,388 27,159,674
	72,040,127 ----------------
	544,969,320 ----------------
	609,522,966

— 72 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Unaudited 31 December 2004 Note $ Non-current liability Deferred taxation 391,130 Minority interests 34,491,938 NET ASSETS 616,472,993 CAPITAL AND RESERVES Share capital 13 324,822,391 Reserves 291,650,602 616,472,993	Audited 30 June 2004 $ 391,130 34,415,048
	574,716,788
	323,619,291 251,097,497
	574,716,788

— 73 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Condensed consolidated cash flow statement

for the six months ended 31 December 2004 (Expressed in Hong Kong dollars)

	Unaudited	Unaudited
	Six months ended
	31 December
	2004	2003
	$	$
Net cash from operating activities	23,897,278	47,139,891
Net cash from/(used in) investing activities	1,646,635	(2,037,218)
Net cash used in financing activities	(18,781,638)	(9,759,393)
Increase in cash and cash equivalents	6,762,275	35,343,280
Cash and cash equivalents at 1 July	115,171,173	13,480,192
Cash and cash equivalents at 31 December	121,933,448	48,823,472
Analysis of balances of cash and cash equivalents:
Bank balances and cash	177,499,649	48,823,472
_Less:_Short term bank loans and overdrafts	(55,566,201)	—
	121,933,448	48,823,472

— 74 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Condensed consolidated statement of changes in equity

for the six months ended 31 December 2004 (Expressed in Hong Kong dollars)

Note At 1 July 2004 Exercise of share options 13 Exchange differences on translation of accounts of overseas subsidiaries Profit attributable to shareholders 2004 final dividend paid 5(b) At 31 December 2004 At 1 July 2003 Exercise of share options Exchange differences on translation of accounts of overseas subsidiaries Reserve released upon disposal of a subsidiary Profit attributable to shareholders 2003 final dividend paid At 31 December 2003	Share capital $ 323,619,291 1,203,100 — — — 324,822,391 312,584,633 237,000 — — — — 312,821,633	Share premium $ 30,185,828 1,625,332 — — — 31,811,160 361,776 326,721 — — — — 688,497	Special reserve $ 39,800,000 — — — — 39,800,000 39,800,000 — — — — — 39,800,000	Unaudited Capital reserve on Exchange consolidation reserve $ $ 63,391,540 (17,116) — — — (2,843) — — — — 63,391,540 (19,959) 62,644,511 (3,129) — — — (2,150) (27,348) — — — — — 62,617,163 (5,279)	Retained profits (Note 14) $ 117,737,245 — — 60,687,686 (21,757,070) 156,667,861 56,953,137 — — — 105,335,029 (10,323,114) 151,965,052	Total $ 574,716,788 2,828,432 (2,843) 60,687,686 (21,757,070)
						616,472,993
						472,340,928 563,721 (2,150) (27,348) 105,335,029 (10,323,114)
						567,887,066

— 75 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Notes to condensed interim accounts

(Expressed in Hong Kong dollars)

1. Basis of preparation

These unaudited condensed consolidated interim accounts (“interim accounts”) are prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 25, “Interim Financial Reporting” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). These interim accounts should be read in conjunction with the annual accounts for the year ended 30 June 2004 (“last audited accounts”).

The accounting policies and methods of computation used in the preparation of these interim accounts are consistent with those used in the last audited accounts, except that the Group has changed the identification of segments for disclosure of segment information and prior period segment information has been restated for comparative purposes. The directors consider that these changes result in a more appropriate presentation of events and transactions in the interim accounts.

2. Segment information

The Group’s activities are organised under the following business segments:

Investment in securities	:	Investment in securities for treasury and liquidity
		management
Merchant banking	:	Investment in structured deals including listed and unlisted
		equity and debt securities
Brokerage	:	Provision of stock and futures brokerage services, margin
		and other financing, and other related services
Investment banking	:	Provision of financial advisory services to corporate clients
		in connection with the Rules Governing the Listing of
		Securities on The Stock Exchange of Hong Kong Limited
		(the “Listing Rules”) and acting as underwriting and
		placing agent in the equity capital market
Private equity	:	Provision of asset management and related advisory
		services to private equity funds and private clients
Wealth management	:	Provision of wealth management services to authorised
		unit trusts, Mandatory Provident Funds (“MPF”) and
		private clients

Inter-segment revenues are charged among segments at an agreed rate with reference to the rate normally charged to third party customers, the nature of services or the costs incurred.

No geographical analysis is provided as less than 10% of the consolidated turnover, consolidated operating results and consolidated total assets of the Group are attributable to markets outside Hong Kong.

— 76 —

APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

Investment in securities $ Revenues Turnover 38,086,409 Inter-segment revenues 960 Other revenue — 38,087,369 Eliminations Total revenues Segment results 20,969,964 Share of results of associates — Share of results of a jointly controlled entity — Profit before taxation Investment in securities $ Revenues Turnover 63,314,353 Inter-segment revenues 283 Other revenue — 63,314,636 Eliminations Total revenues Segment results 34,761,670 Share of results of associates — Profit before taxation	Merchant banking $ 25,321,625 — 4,112,269 29,433,894 25,985,656 3,195,670 — Merchant banking $ 62,790,174 — — 62,790,174 57,629,761 455,861	Six months ended Investment Brokerage banking $ $ 19,471,246 10,641,519 2,509,338 300,000 — — 21,980,584 10,941,519 2,516,489 (362,665) (75,192) — — — Six months ended Investment Brokerage banking $ $ 21,796,407 19,094,083 887,521 3,100,000 — — 22,683,928 22,194,083 3,627,139 7,174,911 461,512 —	31 December 2004 Private Wealth equity management $ $ 492,429 994,493 — 9,421,518 — — 492,429 10,416,011 (619,477) 6,172,084 60,843 — — — 31 December 2003 Private Wealth equity management $ $ 819,048 752,988 265,000 14,489,664 — — 1,084,048 15,242,652 32,893 11,354,136 (282,543) —	Others Consolidated $ $ 1,777,064 96,784,785 3,822,600 16,054,416 4,306,080 8,418,349 9,905,744 121,257,550 (16,054,416) 105,203,134 (5,795,030) 48,867,021 — 3,181,321 (72,000) (72,000) 51,976,342 Others Consolidated $ $ 554,035 169,121,088 3,024,120 21,766,588 247,885 247,885 3,826,040 191,135,561 (21,766,588) 169,368,973 (7,931,051) 106,649,459 — 634,830 107,284,289	Others Consolidated $ $ 1,777,064 96,784,785 3,822,600 16,054,416 4,306,080 8,418,349 9,905,744 121,257,550 (16,054,416) 105,203,134 (5,795,030) 48,867,021 — 3,181,321 (72,000) (72,000) 51,976,342 Others Consolidated $ $ 554,035 169,121,088 3,024,120 21,766,588 247,885 247,885 3,826,040 191,135,561 (21,766,588) 169,368,973 (7,931,051) 106,649,459 — 634,830 107,284,289
					191,135,561 (21,766,588)
					169,368,973
					106,649,459 634,830
					107,284,289

— 77 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

3. Profit from ordinary activities before taxation

Profit from ordinary activities before taxation is stated after crediting/(charging) the following:

	Six months ended	31 December
	2004	2003
	$	$
Net gain on investment in marketable securities	51,359,200	115,829,784
Net gain on other investments	8,701,967	6,748,740
Dividend income from
— listed securities	1,584,931	1,957,944
— unlisted securities	—	1,170,000
Rental income from land and buildings	226,080	222,842
Interest income from unlisted debt securities	320,822	241,815
Profit on disposal of an investment property	4,000,000	—
Net gain on disposal of fixed assets	80,000	—
Net exchange gain	4,112,269	—
Staff costs	(34,526,646)	(30,166,579)
Operating leases — land and buildings	(1,135,106)	(1,175,766)
Depreciation of owned fixed assets	(1,574,223)	(1,536,536)
Amortisation of intangible assets	(191,654)	(533,829)
Interest expenses on
— bank loans and overdrafts	(412,413)	(711,364)
— others	—	(512,200)
Net loss on disposal of fixed assets	—	(403,250)
Net exchange loss	—	(5,456)

4. Income tax

Hong Kong profits tax has been provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits for the period. Overseas taxation is charged at the appropriate current rates of taxation ruling in the relevant countries. The amount of taxation charged to the consolidated profit and loss account represents:

	Six months ended 31 December	Six months ended 31 December
	2004	2003
	$	$
Current tax:
— Hong Kong profits tax	—	2,000,000
— (Over)/underprovision in prior periods	(9,066,559)	210,909
	(9,066,559)	2,210,909
Deferred taxation	—	(261,649)
Share of taxation attributable to associates	425,325	—
Taxation (credit)/charge	(8,641,234)	1,949,260

The Group has not recognised deferred tax assets in respect of tax losses of $219 million (30 June 2004: $208 million). The tax losses do not expire under current tax regulation.

— 78 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

5. Dividends

(a) Dividends attributable to the interim period

	Six months ended 31 December	Six months ended 31 December
	2004	2003
	$	$
Interim dividend of 0.33 cents
(2003: 0.33 cents) per ordinary share	10,719,139	10,324,005

At a meeting held on 8 February 2005, the directors declared an interim dividend of 0.33 cents per ordinary share, totalling $10,719,139 (note 14) based on the number of shares in issue at 8 February 2005. This dividend is not reflected as a dividend payable in these interim accounts.

(b) Final dividend attributable to the financial year ended 30 June 2004

At a meeting held on 21 September 2004, the directors proposed a final dividend of 0.67 cents per ordinary shares for the year ended 30 June 2004, totalling $21,694,894 (note 14) based on the number of shares in issue at 21 September 2004. On 10 December 2004, a final dividend of $21,757,070 was paid to shareholders and has been reflected as an appropriation of retained profits in the current period.

6. Earnings per share

The calculations of basic and diluted earnings per share are based on the Group’s profit attributable to shareholders of $60,687,686 (2003: $105,335,029) for the interim period.

The basic earnings per share is calculated based on the weighted average of 3,242,106,989 (2003: 3,127,457,994) ordinary shares in issue during the period.

The diluted earnings per share for the current period is calculated based on 3,266,470,651 (2003: 3,175,746,774) ordinary shares which is the weighted average number of ordinary shares in issue during the period plus the weighted average number of 24,363,662 (2003: 48,288,780) ordinary shares deemed to be issued at no consideration if all outstanding options had been exercised.

7. Cash and cash equivalents

The Group maintains segregated clients’ trust accounts with licensed banks to hold clients’ monies arising from normal business transactions in connection with the Group’s brokerage and asset management activities. As at 31 December 2004, trust accounts not otherwise dealt with in these interim accounts amounted to $139,975,390 (30 June 2004: $155,259,734).

8. Marketable securities

Included in this balance is an amount of $13,698,700 (30 June 2004: $7,950,614) of equity securities listed outside Hong Kong placed with an escrow agent as a deposit for a potential investment, details of which are disclosed in note 15(b) on the accounts.

— 79 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

9. Other investments

Included in this balance is an amount of $7,240,000 (30 June 2004: $2,100,000) of unlisted warrants placed with an escrow agent as a deposit for a potential investment, details of which are disclosed in note 15(b) on the accounts.

10. Accounts, loans and other receivables

31 December 2004 Note $ Accounts and loans receivable, net of provisions: Amounts due from brokers and clearing houses (a) 492,302 Amounts due from margin clients (b) 58,019,244 Amounts due from cash clients (c) 25,777,917 Loan receivables (d) 2,881,902 Others 4,627,879 91,799,244 Prepayments, deposits and other receivables (e) 29,630,205 121,429,449 The ageing analysis of accounts and loans receivable is as follows: 31 December 2004 $ Current and within one month 91,142,738 More than one month and less than three months 326,442 More than three months 330,064 91,799,244	30 June 2004 $ 5,953,450 91,259,685 3,776,459 5,256,420 4,883,767
	111,129,781 42,118,920
	153,248,701
	30 June 2004 $ 108,082,434 395,689 2,651,658
	111,129,781

Notes:

• (a) Amounts due from brokers and clearing houses are required to be settled on the settlement day under the relevant market practices or exchange rules.

The Group maintains clients’ monies arising from the ordinary course of business of dealing in options and futures contracts in trust with HKFE Clearing Corporation Limited (“HKFECC”). At 31 December 2004, the Group held $2,684,088 (30 June 2004: $2,781,419) with HKFECC in trust for clients which was not dealt with in these accounts.

• (b) Margin clients of the stock brokerage division are required to pledge securities collateral to the Group in order to obtain the credit facilities for securities trading. The amount of credit facilities granted to them is determined by the discounted value of securities accepted by the Group. The amounts due from margin clients are repayable on demand and bear interest at commercial rates.

— 80 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

• (c) There are no credit facilities granted to cash clients of the stock brokerage division. They are required to settle their securities trading balances on the settlement day under the relevant market practices or exchange rules.

• (d) The credit terms for loans granted by the Group’s financing division are set by management with reference to the financial background and the value and nature of collateral pledged by the borrowers.

• (e) Included in this balance is an amount of $8,849,955 (30 June 2004: $35,838,862) placed with an escrow agent as a deposit for a potential investment, details of which are disclosed in note 15(b) on the accounts.

• Included in this balance is an amount of $13,600,000 (30 June 2004: $Nil) which represents the remaining sales proceeds receivable from a third party in relation to the disposal of the Group’s investment property with a carrying value of $12,000,000 as at 30 June 2004. The total consideration of the sales was $16,000,000.

11. Short term bank loans and overdrafts

31 December 2004 $ Unsecured bank overdraft — Secured bank overdraft_(Note (a)) 5,566,201 Unsecured bank loan 15,000,000 Secured bank loan(Note (b))_ 35,000,000 55,566,201	30 June 2004 $ 319,997 5,597,068 5,000,000 —
	10,917,065

Notes:

• (a) As at 30 June 2004, the Group’s investment property with a carrying value of $12,000,000 has been pledged as security for the Group’s bank overdraft facilities. Such investment property was disposed of to a third party on 22 December 2004 and its legal title will be transferred to the purchaser on the date of completion in May 2005.

• (b) Certain banking facilities of the Group were secured by securities collateral from the Group’s margin clients and the Group’s marketable securities with market value of $203,468,488 (30 June 2004: $246,040,824) and $12,544,000 (30 June 2004: $15,370,000) respectively.

— 81 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

12. Accounts payable and accruals

Accounts payable within one month: Amounts due to brokers and clearing houses Clients’ accounts payable (net of bank and clearing house balances in trust accounts) Others Other creditors and accruals 13. Share capital Authorised: At 1 July 2003, 30 June 2004 and 31 December 2004 Issued and fully paid: At 1 July 2003 Exercise of share options Share issue At 30 June 2004 and 1 July 2004 Exercise of share options At 31 December 2004	31 December 2004 $ 19,488,667 38,709,281 4,134,387 62,332,335 10,678,358 73,010,693 Ordinary shares No. of shares 4,000,000,000	31 December 2004 $ 19,488,667 38,709,281 4,134,387 62,332,335 10,678,358 73,010,693 Ordinary shares No. of shares 4,000,000,000	30 June 2004 $ 59,670 17,079,578 5,418,071
			22,557,319 11,406,069
			33,963,388
			of $0.1 each Amount $ 400,000,000
	3,125,846,327 7,715,000 102,631,579		312,584,633 771,500 10,263,158
	3,236,192,906 12,031,000		323,619,291 1,203,100
	3,248,223,906		324,822,391

During the six months ended 31 December 2004, an aggregate of 12,031,000 share options were exercised to subscribe for 12,031,000 ordinary shares of the Company. The total cash proceeds received by the Company was $2,828,432. Details of the share options outstanding as at 31 December 2004 are disclosed under the section “Share options” as contain in the relevant annual report.

14. Retained profits

31 December 2004 $ 2005 interim dividend_(Note 5(a)) 10,719,139 2004 proposed final dividend(Note 5(b))_ — Others 145,948,722 156,667,861	30 June 2004 $ — 21,694,894 96,042,351
	117,737,245

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

15. Commitments

(a) Commitments under operating leases

• (i) As lessee

As at 31 December 2004, the Group had future aggregate minimum lease payments under non-cancellable operating leases as follows:

	Land and	buildings	Office equipment	Office equipment
	31 December	30 June 31 December		30	June
	2004	2004	2004		2004
	$	$	$		$
Not later than 1 year	3,345,081	3,646,676	441,600	441,600
Later than 1 year
and not later
than 5 years	1,500,000	3,064,761	1,398,400	1,619,200
	4,845,081	6,711,437	1,840,000	2,060,800

(ii) As lessor

As at 31 December 2004, the Group had future minimum lease payments receivable under non-cancellable operating leases as follows:

				Land and	buildings
			31	December	30 June
				2004	2004
				$	$
Not later than	1	year		146,000	321,200

(b) Other commitments

(i) The Group has entered into agreements with a company for subscription to its shares and warrants. The subscription is conditional on the company being successfully listed on the Toronto Stock Exchange on or before 29 December 2004 and fulfilling other conditions as set out in the agreements. The deadline can be extended to 29 April 2005 if certain conditions are met. The consideration for subscription comprised listed shares and unlisted warrants of a company listed on the Toronto Stock Exchange and cash. The consideration shares, warrants and cash were held by third party lawyers as escrow agents until the conditions for subscription are fully satisfied.

In December 2004, the company proposed to revise the terms of the agreement and extend the completion deadline. Instead of seeking a direct listing, the company will enter into a scheme of arrangement to exchange shares with another company listed on the TSX Ventures Exchange in Canada. The scheme of arrangement is subject to the approval of the shareholders of the other company and a number of conditions. Investors were offered an option to withdraw their commitments. The Group has decided to withdraw part of the commitment and the cash deposit balance has been reduced accordingly.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

• (ii)

• During the year ended 30 June 2004, the Group entered into an agreement with a PRC property developer for purchase of office premises located in Beijing, PRC. At 31 December 2004, the Group has a commitment to pay the remaining balance of $5.5 million representing 60% of the total purchase consideration.

During the six months ended 31 December 2004, the Group has entered into another agreement with a PRC property developer for purchase of office premises located in Shenzhen, PRC. At 31 December 2004, the Group has a commitment to pay the remaining balance of $1.6 million representing 60% of the total purchase consideration.

• (iii) During the year ended 30 June 2004, the Group has entered into an agreement with Shanxi Securities Company Limited and China Gaoxin Investment Group Corporation to establish a fund management business in the PRC market. Pursuant to the agreement, an application has been submitted to China Securities Regulatory Commission to set up a joint venture fund management company (“JV Company”) based in Shanghai. As at 31 December 2004 and 30 June 2004, the Group has a commitment to inject an equivalent of RMB33 million for a 33% equity interest in the JV Company.

16. Related party and connected party transactions

Significant related party and connected party transactions which were carried out in the normal course of the Group’s business are as follows:

		Six months	ended
		31 December
		2004	2003
	Note	$	$
Brokerage commission earned on securities dealing	(a)	1,133,677	216,093
Common office expenses recharged	(b)	129,180	131,492
Consultancy and management fee received	(c)	492,000	744,000

Notes:

• (a) Brokerage commission was received from fellow subsidiaries, the Group’s directors and their associates in the ordinary course of the Group’s business of dealing in securities. Commission rates are set at the same level as those normally offered to third party clients.

• (b) Amounts represent recharge of office overheads and rental expenses to the ultimate holding company, fellow subsidiaries and an associated company. The allocation of office overheads and rental expenses is primarily based on the percentage of floor area occupied by each company.

• (c) Consultancy and management fee were received from an associated company for the provision of management and administrative services. The fees mainly comprised a fixed monthly charge as agreed between the parties involved.

17. Recently issued accounting standards

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the interim accounts for the period ended 31 December 2004.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. STATEMENT OF INDEBTEDNESS

Borrowings

At the close of business on 31 March 2005 (being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular), the Group had total outstanding borrowings of approximately HK$15,600,000.

The borrowings comprised of a secured short-term bank loan of approximately HK$14,000,000 and a mortgage on a property located in the PRC of approximately HK$1,600,000.

Securities and Guarantees

As at 31 March 2005, the Group had total available banking facilities of approximately HK$218,763,000.

Certain banking facilities were secured by securities collateral from the Group’s margin clients and the Group’s marketable securities with market value of approximately HK$298,160,000 and HK$Nil respectively.

Commitment and contingent liabilities

The Group has entered into an agreement with Shanxi Securities Company Limited and China Goaxin Investment Group Corporation to establish a fund management business in the PRC market. Pursuant to the agreement, an application has been submitted to China Securities Regulatory Commission to set up a joint venture management company (“JV Company”) based in Shanghai. The Group is committed to inject an equivalent of RMB33 million for a 33% equity interest in the JV Company.

Save as aforesaid and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debenture, loan capital, debt securities (whether issued or outstanding, authorized or otherwise created but unissued), term loans and overdrafts or other similar indebtedness, finance leases or hire purchase commitment, liabilities under acceptances or acceptance credits, other borrowing or indebtedness in the nature of borrowings or any guarantees or other material contingent liabilities as at close of business on 31 March 2005.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

There has been no adverse change in the indebtedness or contingent liabilities of the Group since 30 June 2004, the date to which the latest audited consolidated financial statement of the Group were made up.

3. WORKING CAPITAL

The Directors are of the opinion that, after taking into account internal resources available to the Group and the proposed facilities to finance the Acquisition and in the absence of unforeseen circumstances, the Group will have sufficient working capital for its present requirements for the next twelve months from the date of this circular.

4. MATERIAL ADVERSE CHANGE

Up to the Latest Practicable Date, the Board is not aware of any material adverse change in financial or trading position of the Group since 30 June 2004, the date to which the latest audited consolidated financial statement of the Group were made up.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

5. REPORT ON UNAUDITED PRO FORMA ASSETS AND LIABILITIES STATEMENT

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the auditors, KPMG, Certified Public Accountants, Hong Kong.

8th Floor

Prince’s Building 10 Chater Road Central Hong Kong

20 May 2005

The Board of Directors

SW Kingsway Capital Holdings Limited

Dear Sirs,

We report on the unaudited pro forma assets and liabilities statement of SW Kingsway Capital Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on pages 89 to 92 in section 6 of Appendix II to the circular dated 20 May 2005 (the “Circular”), which has been prepared by the Company, solely for illustration purposes, to provide information about how the proposed acquisition of the whole of 3rd Floor to 25th Floor (both floors inclusive) of Block E, Ocean Express, B2, North Road, East Third Ring Road, Chaoyang District, Beijing, The People’s Republic of China (the “Acquisition of Property”) might have affected the assets and liabilities of the Group on a pro forma basis as at 30 June 2004.

The unaudited pro forma assets and liabilities statement is derived from the audited historical financial information of the Group as set out in section 1.2 of Appendix II to the Circular. The basis of preparation of the unaudited pro forma assets and liabilities statement is set out in the introduction and notes to the unaudited pro forma assets and liabilities statement of the Group in section 6 of Appendix II to the Circular.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma assets and liabilities statement in accordance with Paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the unaudited pro forma assets and liabilities statement 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 assets and liabilities statement beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Basis of opinion

We conducted our work in accordance with the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma assets and liabilities statement with the directors of the Company.

Our work did not constitute an audit or review made in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such audit or review assurance on the unaudited pro forma assets and liabilities statement.

The unaudited pro forma assets and liabilities statement is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position or results of:

• the Group, had the Acquisition of Property actually occurred on 30 June 2004; or

• the Group at any future date or for any future periods.

Opinion

In our opinion:

• (a) the accompanying unaudited pro forma assets and liabilities statement has been properly compiled on the basis stated;

• (b) such basis is consistent with the accounting policies of the Company; and

• (c) the adjustments are appropriate for the purpose of the unaudited pro forma assets and liabilities statement as disclosed pursuant to Paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

KPMG

Certified Public Accountants

Hong Kong

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

6. UNAUDITED PRO FORMA ASSETS AND LIABILITIES STATEMENT

Introduction to the unaudited pro forma assets and liabilities statement

The unaudited pro forma assets and liabilities statement of the Group has been prepared to demonstrate the effect of the Group’s proposed acquisition (the “Acquisition”) of the whole of 3rd Floor to 25th Floor (both floors inclusive) of Block E, Ocean Express, B2, North Road, East Third Ring Road, Chaoyang District, Beijing, The Peoples’s Republic of China (the “Property”) at a cash consideration of RMB236,182,869 as if the Acquisition had taken place on 30 June 2004.

In connection with the Acquisition of the Property, the Group will be required to incur incidental costs including stamp duty and legal costs. The amount payable for deed and stamp duty will be approximately HK$6,798,000. Legal and professional fees, commission and other costs as incurred will be approximately HK$5,011,000.

The unaudited pro forma assets and liabilities statement of the Group has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Acquisition of the Property as if the Acquisition had taken place on 30 June 2004.

The unaudited pro forma assets and liabilities statement of the Group is based upon the audited consolidated net assets of the Group as at 30 June 2004, which has been extracted from the Annual Report of the Group for the year ended 30 June 2004, adjusted only to reflect the effect of transactions set out in the notes below. A narrative description of the pro forma adjustments of the Acquisition of the Property that are (i) directly attributable to the transaction; and (ii) factually supportable, are summarised in the accompanying notes.

The unaudited pro forma assets and liabilities statement of the Group is based on a number of assumptions, estimates and uncertainties as stated above. Accordingly, the accompanying unaudited pro forma assets and liabilities statement of the Group does not purport to describe the actual financial position of the Group that would have been attained had the Acquisition of the Property been completed on 30 June 2004. The unaudited pro forma assets and liabilities statement of the Group does not purport to predict the future financial position of the Group.

The unaudited pro forma assets and liabilities statement of the Group should be read in conjunction with the historical financial information of the Company as set out in the Annual Report of the Group for the year ended 30 June 2004 and other financial information included in section 1 Appendix II of this circular.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Unaudited pro forma assets and liabilities statement

ASSETS Non-current assets Intangible assets Fixed assets Other assets Interest in associates Interest in jointly controlled entity Long term investments Current assets Cash and cash equivalents Marketable securities Other investments Accounts, loans and other receivables Amounts due from related companies Total assets	As at 30.6.2004 Pro forma (audited) adjustments Notes HK$’000 HK$’000 2,350 18,392 234,707 1 5,138 36,808 72 1,794 64,554 As at 30.6.2004 Pro forma (audited) adjustments Notes HK$’000 HK$’000 126,088 (76,258) 4,5 325,554 (47,000) 4 12,100 153,249 18 617,009 681,563	Adjusted Balance HK$’000 2,350 253,099 5,138 36,808 72 1,794
		299,261
		Adjusted Balance HK$’000 49,830 278,554 12,100 153,249 18
		493,751
		793,012

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

LIABILITIES Current liabilities Short term bank loans and overdraft Accounts payable and accruals Taxation Non-current liabilities Mortgage Loan Deferred taxation Total liabilities Total assets less total liabilities Minority interests Net assets	As at 30.6.2004 (audited) HK$’000 10,917 33,963 27,160 72,040 — 391 391 72,431 609,132 34,415 574,717	Pro forma adjustments Notes HK$’000 111,449 3 —	Adjusted Balance HK$’000 10,917 33,963 27,160
			72,040
			111,449 391
			111,840
			183,880
			609,132
			34,415
			574,717

This statement has been prepared for illustrative purposes only and because of its nature, it may not give a true picture of financial position of the Group following completion of the Acquisition of the Property.

Notes:

1. The Group will acquire the Property at a consideration of approximately RMB236,183,000 or equivalent to approximately HK$222,898,000. In connection with the Acquisition of the Property, the Group will be required to incur incidental costs including deed and stamp duties of approximately HK$6,798,000 and legal and professional fees, commission and other costs of approximately HK$5,011,000. The unaudited pro forma assets and liabilities statement adjustments reflect the increase in the carrying amount of property of approximately HK$234,707,000 as a result of the Acquisition of the Property as if the Acquisition had taken place on 30 June 2004.

2. The consideration for the Acquisition will be settled partly in cash, partly from proceeds on the disposal of marketable securities between 30 June 2004 and 31 March 2005 and partly by a mortgage loan.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

1. It is assumed that approximately HK$111,449,000, representing 50% of the purchase price of the property, will be financed by the mortgage loan. However, the Group is still in negotiation with its bankers and has not received any confirmed offer.

2. The pro forma adjustment of approximately HK$47,000,000 represents the deployment of financial resources released from the sale of marketable securities by the Group.

3. The balance of the consideration of approximately HK$76,258,000 will be financed from internal resources.

4. The audited consolidated balance sheet of the Group as at 30 June 2004 is extracted from the Group’s annual report for the year ended 30 June 2004.

7. MANAGEMENT DISCUSSION AND ANALYSIS (EXTRACT FROM THE ANNUAL REPORT FOR YEAR ENDED 30 JUNE 2004)

The Market

Improvement of market sentiment in the region, coupled with strong support from the Chinese central government through the launch of the “individual visit” scheme for Mainland tourists and new economic ties under the Closer Economic Partnership Arrangement (“CEPA”), led to Hong Kong’s strong recovery from the atypical pneumonia (“SARS”) epidemic in the second half of 2003. However, concerns over rising interest rates in the United States, the price of crude oil and other natural resources, as well as the anxiety brought about by the macroeconomic austerity measures introduced to adjust the overheated Mainland economy caused the market to retreat in the second quarter of 2004. As a result, both the Hang Seng Index and the market turnover on the Hong Kong Stock Exchange were at a low level close to our financial year end.

The Hang Seng Index increased from 9,577 at the end of June 2003 to 12,576 at the end of December 2003. It rose further to 14,000 in February before falling to 12,286 at the end of June 2004, 2% below the December level. Despite little change in the Hang Seng Index level during this period, higher volatility was noted for individual stocks as investors adjusted their portfolios to reflect the changes in the macroeconomic environment.

Turnover improved substantially during the financial year ended 30 June 2004 (the “Financial Year”) compared with last year. The monthly turnover increased from HK$211 billion in July 2003 to peak at HK$443 billion in January 2004 but gradually fell back to HK$263 billion in June 2004. Moreover, the initial public offerings market remained strong in 2004. Total funds raised from Main Board listings increased from HK$50.4 billion in the second half of 2003 to HK$53.6 billion in the first half of 2004 and increased from HK$1.5 billion to HK$2.3 billion in the GEM Board during the same period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Business Activities

Financial Highlights

The Board of Directors of the Company (the “Board”) is pleased to announce that the Group has recovered from the temporary set back in our 2003 financial year. Profit attributable to shareholders was HK$81.4 million in the Financial Year, which is a marked improvement from 2003. Commission and fee income increased by 50% to HK$74.3 million as a result of the more active market while interest and dividend income dropped by 44% to HK$15.6 million as a result of the reduced level of loan receivables and the low interest rate. The increase in general and administrative expenses by 2.7% to HK$98.4 million was mainly due to an increase in staff related costs in line with the increase in business activity, which was partly offset by the tight cost control measures imposed by management.

The Group adopted the new accounting standard on deferred taxation during the Financial Year. The new standard provides that tax assets should be recognized in the financial statements to the extent that it is probable that future taxable profit will be available against which temporary differences can be utilized. However, as market sentiment has a strong influence over the performance of the Group, management believes it is appropriate not to recognize a tax asset amounting to HK$36 million as at 30 June 2004 in the financial statements.

In February 2004, the Board declared an interim dividend of 0.33 HK cents per share, which was paid in March 2004. The Board has recommended paying a final dividend of 0.67 HK cents per share, subject to the approval of the shareholders at the coming Annual General Meeting.

The subscription for new shares in the Company by Softbank Finance Corporation (“Softbank”) for the aggregate subscription price of HK$39 million, which was completed in May 2004, is an important achievement for the Group. The Group will continue to look for more strategic investors to broaden our shareholder base.

Brokerage and Equity Capital Market (“ECM”)

Investment banking is the strategic focus of the Group and the Brokerage and ECM division is central to this focus. Our strategy of coherent development of the Retail and Institutional business by the Brokerage team and a more proactive ECM team has resulted in some initial success.

Brokerage income increased by 132% to HK$25.0 million in the Financial Year. The ECM team, in co-operation with the Corporate Finance team, participated in over 40 deals and generated gross commissions of HK$30.2 million, an increase of 149% over the same period last year. The division contributed HK$6.0 million to the profit before taxation of the Group.

— 93 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

During the Financial Year, the Group was rated one of the top three HK/China based brokerage houses by The Asset magazine. This demonstrated the market’s recognition of the achievement of the Group’s professional team.

Corporate Finance

With the recovery during the post-SARS period, the Corporate Finance team was able to maintain the revenues and net profit at the levels of the last financial year. Fee income of the division reached approximately HK$22.4 million. During the Financial Year, the team completed 1 initial public offering, 2 merger and acquisition transactions, 2 rights issues and 25 advisory transactions. On top of that, with the active participation of the Corporate Finance team, a total of 18 share placement transactions were completed during the Financial Year by the ECM team. Net income was about HK$1.5 million, which was marginally higher than the previous year.

Our strategy is to become the preferred financial solutions provider in the mid-cap market. To this end, we have been actively pursuing transactions in this market segment. By year end, we were engaged in over 10 initial public offerings for companies in various industries within this sector. Deals in the pipeline include a number of sizeable initial public offerings, with fund raising amount ranging from several hundred million dollars to over a billion dollars.

Looking ahead, we will continue our effort to source additional corporate finance transactions, with a primary focus on medium-sized enterprises that offer meaningful deal sizes. We believe that with our experienced Corporate Finance team, we are in a position to react to and take advantage of the opportunities that may arise in this fastchanging financial market.

Asset Management

The division is comprised of two teams. The Wealth Management team focuses on listed securities portfolio management and the Private Equity team focuses on private equity. During the year under review, the division recorded HK$23.4 million in revenue, of which HK$19.9 million was received from group companies for providing investment advisory and consultancy services. Net contribution to the Group’s results was HK$11.4 million.

Our MPF funds’ assets under management rose 160% on a year-on-year basis. The number of newly signed up MPF scheme participants also increased by 76% over the same period. This tremendous growth was due to the industrious work of the Wealth Management team. At the end of June 2004, the Kingsway Korea Fund, the Kingsway Asia Pacific (ex-Hong Kong) Fund and the Kingsway Hong Kong SAR Fund were all in the first quartile among all 72 MPF equity funds in Hong Kong for the period since inception. In addition, the Kingsway Hong Kong SAR Fund was ranked third among 15 Hong Kong equity funds over the same period (source: Standard & Poor’s Micropal).

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APPENDIX II

FINANCIAL INFORMATION OF THE GROUP

Assets under management for our major authorized unit trusts rose by 20% on a yearon-year basis. The Kingsway SRI Asia Fund achieved the highest growth with an increase of 81% in net asset value. With the increased social awareness in the region, we expect the Kingsway SRI Asia Fund, the first socially responsible fund launched by a Hong Kong based manager, to gain increasing acceptance by the investment community.

In line with the Government initiative to attract foreign investment, the Kingsway Middle Kingdom Fund was approved by the Hong Kong Immigration Department as one of the Eligible Collective Investment Schemes under the Capital Investment Entrant Scheme.

Assets under management for private clients also increased by over 277% on a year-onyear basis. The Wealth Management team will continue to provide high quality dedicated services to its clients to grow the business.

The division is looking beyond Hong Kong into Greater China as the key driver for potential growth. The Group entered into an agreement with Shanxi Securities Company Limited and China Gaoxin Investment Group Corporation in November 2003 to establish a fund management business in the PRC market. Pursuant to the agreement, an application has been submitted to China Securities Regulatory Commission to set up a joint venture fund management company (“JV Company”) based in Shanghai. The Group is committed to inject an equivalent of RMB33 million for a 33% equity interest in the JV Company.

The Private Equity team saw Sinochem Kingsway Asset Management Limited (“SKAM”) achieved respectable returns of approximately 17% on its portfolio under management for the year ended 30 June 2004. SKAM is an associated company jointly established with Sinochem Hong Kong (Holdings) Company Limited. The team also advised a client in acquiring a substantial shareholding of a sino-foreign joint venture steel manufacturing company in China. The team is now reviewing a number of potential projects.

In addition to Softbank’s strategic investments in the Group, the Group also set up a joint venture with Softbank Investment Corporation, an associate of Softbank, for the purpose of providing investment project management services. The joint venture is in the process of applying to the Securities and Futures Commission for a license to engage in regulated asset management activities.

Investment in Securities

The performance of the division has a high correlation with the market. Following an impressive upsurge in the second half of 2003, the division suffered from the market retreat in 2004. None of the division’s pre-IPO investments was listed in the second half of the Financial Year, which also explained the drop in performance in the second half year. Strong performance in the first half of the Financial Year was partly contributed by the gain from the listing of two pre-IPO investments during that period.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Overall, the division contributed HK$115 million of revenue and HK$57 million of net profit to the Group. This is a marked improvement from the previous year.

Reorganization for the Future

In order to meet the challenges ahead and better serve our clients, management has decided to re-group the Group’s business lines from the new financial year into two business groups, the Client Services Group and the Direct Investment Group. The Client Services Group will be further divided into three major divisions namely Investment Banking, Private Equity and Wealth Management. The Investment Banking division will focus on transaction services as well as execution for all institutional and individual clients. The Private Equity division will focus on structuring deals for investment in private companies. The Wealth Management division will focus on managing portfolios of listed securities. The Direct Investment Group will focus on merchant banking and investment in securities. The China operations will be re-grouped under the above mentioned divisions in the Client Services Group. Management believes the above reorganization will enhance our ability to serve our clients.

Important Appointments

During the Financial Year, Kingsway International Holdings Limited, the Company’s ultimate holding company, appointed Mr. Patrick Sun as Chairman of the Global Strategy Committee effective 9 February 2004, to oversee its strategic development.

To strengthen our Board and our business development, the Group will make several key appointments to our Board.

With effect from 22 September 2004, Mr. Stanley Kam Chuen Ko shall become an Independent Non-Executive Director, the Chairman of the Compensation Committee and a Member of the Audit Committee of the Company. Mr. Ko has extensive experience and network in both Hong Kong and the PRC and he also serves actively in the Hong Kong community including being an Executive Committee Member of the Hong Kong Coalition of Service Industries where he was the Chairman for the past 5 years, a Council Member of the Hong Kong Logistics Council, a Member of Hongkong/Japan Business Cooperation Committee, a Director of the Hong Kong Tourist Board and Harvard Business School Association. Mr. Ko is also the Chairman of the China Committee of the British Chamber of Commerce and the Vice Chairman of The Open University of Hong Kong.

In addition, with effect from 22 September 2004, Ms. Rebecca Yuk Fung Lau and Mr. Patrick Sun shall become Executive Directors of the Company.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Ms. Lau will be responsible for overseeing the development of the Group’s wealth management business. In addition to her new role as Executive Director, Ms. Lau remains as the Group’s Chief Operating Officer and Company Secretary. Ms. Lau joined the Group as Legal Counsel in 2000 and was promoted to the Head of Legal and Compliance and Company Secretary in 2001 before she took up the role of Chief Operating Officer in 2003.

In his role as Executive Director, Mr. Sun will be responsible for the strategic development of the Group’s private equity business. Mr. Sun has more than 18 years of experience in the investment banking industry. From 2000 to 2002, he was the Senior Country Officer of JP Morgan Chase in Hong Kong and also the Head of Investment Banking for Hong Kong. Prior to the merger between JP Morgan, Chase and Jardine Fleming, he was the Group Executive Director and Head of Corporate Finance and Capital Markets for the Greater China region of Jardine Fleming. Mr. Sun is also a qualified accountant in the United Kingdom and Hong Kong.

The appointments resulted from a review on how the Group could further enhance the organization structure and improve operational efficiency for the next stage of growth and development.

Liquidity and Financial Resources

Total assets as at the end of June 2004 were HK$682 million, of which approximately 91% was current in nature. Net current assets were HK$545 million and accounted for approximately 95% of the net assets of the Group as at the end of June 2004.

The Group generally finances its operations from internal resources. The Group has drawn approximately HK$11 million of credit facilities. The funding was mainly used for financing the business of the Group. All of the borrowings at the end of June 2004 were short term in nature and were denominated in Hong Kong dollars to match the funding requirements of our business operations. At the year end, the Group’s gearing ratio, calculated as a percentage of bank borrowings over shareholders’ fund, was approximately 2%.

The Group’s investment property and marketable securities with a carrying value of HK$12 million and HK$15 million respectively were pledged as security against bank overdrafts and short term loan facilities granted to the Group.

Foreign Exchange Exposure

The Group’s assets are mainly in Hong Kong and most of the monetary assets and liabilities of the Group are denominated in Hong Kong dollars. The Group does not have material exposure to fluctuation in exchange rates.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Employment, Training and Development Policies

There was a marginal increase in staff resources to match the increased level of activities. The number of full time employees increased from 125 last year to 139 at the end of this Financial Year.

Remuneration and bonuses are based on performance and are reviewed annually in conjunction with the annual employee performance appraisal and with reference to the results of the division to which the employee belongs and the Group as a whole.

The Group provides a full induction program and in-house training courses to all staff and in particular, to professional staff registered with relevant regulatory bodies to meet their mandatory continuous professional training requirements.

The Group also operates an employee share option scheme. The scheme is available to all full time employees of the Group. Details of the scheme are set out in the section “Share options” of the Report of the directors.

Corporate Governance

The Group is committed to conducting our business ethically and in a way that is transparent, accountable to shareholders and the community, and under the governance of an independent and effective board.

We believe our corporate governance practices, as a regulated entity and also as a listed company, are appropriately rigorous and of high standard. As an example, the Group has voluntarily disclosed individual directors’ remuneration in the Annual Report in 2003, one year ahead of the Stock Exchange’s recommendation, to promote greater transparency.

The Group recognizes that sound corporate governance practices are vital to the effective and transparent operations of the Group and contributes significantly to long term corporate performance. Accordingly, as a new measure, the Group has established a Corporate Governance Committee to review and further develop the Group’s corporate governance policies and principles and to supervise the implementation thereof. The committee will initially consist of an executive director, the Chief Operating Officer and an independent non-executive director.

As in previous years, we have included a separate and detailed statement on our corporate governance practices in the Statement of Corporate Governance.

Community

In line with our philosophy of being a responsible corporate citizen, the Group has contributed HK$1.2 million to charitable organizations during the Financial Year. Please refer to our Statement of Social Responsibility in the relevant annual report for further details.

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Outlook

By virtue of its unrivalled geographic proximity and ties with the Mainland, Hong Kong is well positioned to benefit from the rapidly growing economy of the Mainland. As the economy of Hong Kong is more and more integrated with the Mainland economy, the Group will continue to expand its network to key financial centers in the Mainland. In addition to the established Beijing and Shanghai offices, the Group is setting up a third office in Shenzhen to better serve our clients in Southern China. China is the major source for our corporate advisory and private equity projects and the Group is determined to devote more resources to build up a better service network in China.

At the same time, the Group is aware of the uncertainty and volatility brought to the market by the austerity measures introduced in the Mainland. The Group will exercise a prudent approach in expanding the business to achieve a good balance between growth and stability.

The set up of a fund management joint venture in the PRC which focuses on the wealth management business is an important strategic move of the Group to expand our business in the PRC.

The subscription of new shares by Softbank, which was completed in May 2004, is an important milestone in our strategic development. In addition, the Group also set up a joint venture with Softbank with initial paid up capital of approximately HK$70 million to invest in private equity projects in the PRC. The Group will continue to look for strategic partners and alliances to broaden our customer base and provide additional value-added services to customers across a broader geographical area and become the preferred financial solutions provider that is global in reach and local in execution.

8. FINANCIAL AND TRADING PROSPECTS

There are no special trade factors or risks which are unlikely to be known or anticipated by the general public, and which could materially affect the profits of the Group.

Provided below are the extracts from the interim financial statement for the six-month period ended 31 December 2004, which discussed the financial and trading prospects of the Group:

The Market

Concerns over rising interest rates and conflicting economic data in the United States, the price of crude oil and other natural resources, as well as the anxiety brought about by the macroeconomic austerity measures introduced to adjust the overheated economy in the People’s Republic of China (“PRC”) continued to affect the market during the six month interim period ended 31 December 2004 (the “Period”). The markets were sluggish

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FINANCIAL INFORMATION OF THE GROUP

during the Period’s onset; however, investor sentiment and market activity improved gradually, picking up pace in the last quarter. The Initial Public Offerings (“IPOs”) were generally well received in the last three months of 2004, a trend that is expected to continue with more large scale IPOs anticipated for 2005. The market reacted positively to the increasing number of listed companies involved in various businesses in Macau, which led to increased turnover despite higher volatility. The regulators have reassured investors that market activities would be conducted in accordance with the relevant rules and regulations and that any non-compliance would be followed by appropriate enforcement actions.

The Hang Seng Index closed at 14,230 for 2004, compared with an end of June figure of 12,286 and an end of 2003 figure of 12,576. Average monthly turnover on the Main Board during the Period was HK$319 billion. In a press conference in December, the Stock Exchange of Hong Kong announced that the cumulative turnover in the calendar 2004 year had surpassed the historical high last recorded in 1997. In addition, the total market capitalization was also at an all time high in December 2004. However, the primary market was less active than in the comparative periods, although it did gain pace in the last quarter. Funds raised from Main Board listings in the six month period ended December 2004 totaled HK$39.5 billion, which compares with HK$50.4 billion in the previous interim period and HK$53.6 billion recorded for the second half of the 2004 fiscal year. For the GEM Board, total funds raised from new listings was only HK$0.4 billion in the interim period.

Financial Highlights

The Board is pleased to announce that profit attributable to shareholders for the Period was approximately HK$61 million. This compares with a profit of HK$105 million in the six months ended 31 December 2003, during which time Hong Kong was experiencing the peak of its strong post SARS recovery. Many stocks registered substantial appreciation in values alongside a heavy flow of capital market activities in the wake of what had been a long SARS induced drought. Although the market remained strong in 2004, against the relatively high valuations and market activity that characterized the comparable year-over-year period, holding gains generated from the Group’s investment portfolio — inextricably linked to the performance of the Hong Kong stock markets — were inevitably lower.

The Group is in the process of refocusing its operations in order to establish a broader revenue base, which will support our transition from a Hong Kong based investment bank to a Greater China focused mid-market financial services organization. In order to stabilize our earnings and better serve our clients, as outlined in our 2004 annual report, we have reorganized our resources to support the development of our fee generating businesses and improve our ability to capitalize on cross selling opportunities among divisions (and in some instances within divisions) in the future.

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FINANCIAL INFORMATION OF THE GROUP

The Group has made some minor adjustments to the realignment described in our 2004 annual report after further consideration. We are pleased to announce that the current interim results are analyzed according to new segmental classifications. There are now two business groups: The Clients Services Group and the Proprietary Investment Group. The Client Services Group is further divided into four major divisions, including Brokerage, Investment Banking, Private Equity and Wealth Management. Similarly, the Proprietary Investment Group is sub-divided into Merchant Banking and Investment in Securities. The China operations will also be realigned to support the Client Services Group. Management firmly believes that this realignment will enhance our ability to provide clients with innovative and timely products and services.

Brokerage

This division is intently focused on providing its clients with quality execution services. The Institutional Sales team was very successful in soliciting new business from institutional clients. The Retail Sales team was also able to maintain stable business amidst very keen competition in the market after the removal of minimum brokerage. The Group has commenced a project to upgrade its computer trading platform to further improve our capability to serve quality clients.

The division contributed HK$2.5 million in profits to the Group’s results. Interest income from loans dropped as a result of the reallocation of resources to other business activities; however, this was compensated by higher commission income from our brokerage business. As direct costs stemming from the latter activities are higher than those of our lending business, a marginal fall in net income was experienced.

Investment Banking

This segment, which encompasses the Equity Capital Market and Corporate Finance teams, contributed HK$10.9 million in revenue and losses of HK$0.4 million to segment results of the Group this Period. In comparison with the same period last year, the lower income was due to the poor receptivity for placement deals this Period, which was the result of a fairly high degree of market uncertainty. With less placement deals in the pipeline than usual, the team was able to focus much of its efforts into the IPO market. XinYi Glass, one of our IPO clients, was listed on 3 February 2005, and is expected to bring improved fee income in the third fiscal quarter. The size of the offering before exercising over allotment options is about HK$750 million.

The XinYi Glass transaction represents a major milestone for the Group as it is the Group’s largest deal by far to date. It is also evidence of our ability to execute a key element of our growth strategy: To service larger capitalized mid-market clients.

Two more IPO clients have submitted listing applications to The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). In addition, the team is working on four other IPO projects.

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Wealth Management

The division contributed HK$6.2 million in profits to the Group during the Period. Assets under management for MPF increased by 49% when comparing the end of December position to that of the end of June.

For the period under review, Kingsway Hong Kong SAR Fund achieved a return of approximately 21% and was the Best Performing Fund among the 327 MPF authorised in Hong Kong. In addition, Kingsway Hong Kong SAR Fund was also ranked 3rd for the cumulative performance since inception amongst the 287 MPF launched at the introduction of the Mandatory Provident Funds Schemes Ordinance in December 2000. Kingsway Middle Kingdom Fund was ranked the 3rd Best Performing Fund in the Hong Kong Equity category (over 5 years) in 2004. (Source: S&P Micropal)

Private Equity

The division contributed a loss of HK$0.6 million to the Group’s results. The higher loss was due to an increase in staff costs during the Period in preparation for the launch of additional private equity funds, which is expected to generate steadier fee based income for the Group and also serve as a deal origination channel for our Investment Banking division and vice versa. The Group expects to benefit from the following three sponsored funds during the 2005 calendar year:

• Private Equity Gold Fund focused on the developing gold/precious industry in China’s newly opened mining sector. The fund is expected to launch in 2005.

• Kingsway SBF Investment, co-sponsored by the Softbank Investment Corporation, which is being structured to invest in pre-IPO China based securities. The fund, which invested in XinYi Glass at the end of the 2004 calendar year, is expected to produce good results.

• Sinochem Kingsway Capital Inc made a major investment in a formerly state owned steel plant in China.

The management fee income will increase upon the funds’ successful launch and/or investment. The Group also provides seed investment in these funds through its Merchant Banking division and is positioned to share in the potential capital gain.

Investment in Securities and Merchant Banking

These divisions contributed a total gain of HK$50 million to the Group’s earnings this Period. The segment was divided in two in 2004/05 to reflect the performance of two different functions. The Investment in Securities segment summarizes the Group’s treasury performance, that is, the return from short term investments financed by surplus

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APPENDIX II

funds. The Merchant Banking segment reflects the performance of specially structured transactions, including block structured trades and investments in third party private equity and venture capital funds in which the Group has made capital contributions.

Outlook

The market retreated in January 2005 and, unfortunately, it appears that the year ahead will be very challenging. The Group has prepared itself to meet increased competition and volatility in the financial market and subject to any unforeseen major market corrections, we are confident in our ability to perform well in the second half of our current fiscal year ending 30 June 2005.

As previously detailed, the IPO of XinYi Glass was a very important milestone for the Group. The Investment Banking team will continue to pursue similar quality, large capitalized mid-market clients. With a number of sizable corporations in the PRC planning to list in Hong Kong in 2005, we expect the capital markets to be very active in coming months. We are well positioned and have every intention to capitalize on as many of these opportunities as possible.

Liquidity and Financial Resources

Total assets as at 31 December 2004 were HK$798 million, of which approximately 93% was current in nature. Net current assets were HK$596 million and accounted for approximately 97% of the net assets of the Group as at the end of December 2004.

The Group generally finances its operations from internal resources. The Group has drawn approximately HK$56 million of credit facilities. The funding was mainly used for financing the business of the Group. All of the borrowings at the end of December 2004 were short term in nature and were denominated in Hong Kong dollars to match the funding requirements of our business operations. The net cash position remained strong at HK$122 million at the end of December. The Group’s gearing ratio, calculated as a percentage of bank borrowings over shareholders’ funds, was approximately 9% at the end of December.

The Group’s marketable securities with a carrying value of HK$13 million were pledged as security against bank overdrafts and short term loan facilities granted to the Group.

Foreign Exchange Exposure

The Group’s assets are mainly in Hong Kong and most of the monetary assets and liabilities of the Group are denominated in Hong Kong dollars. The Group also has monetary assets denominated in Canadian dollars. Other than assets denominated in Canadian dollars, the Group does not have exposure to material fluctuation in exchange rates.

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APPENDIX III

1. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at the Latest Practicable Date, the interests and/or short positions of each director and chief executive in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Hong Kong Securities and Futures Ordinance (“SFO”)), as recorded in the register maintained under Section 352 of the SFO or as notified to the Company were as follows:

(i) Interest in long positions of ordinary shares of the Company

		Number of	% of total
	Type of	ordinary shares	issued
Name of director	interest	in the Company*	shares*
Mr. Jonathan Koon Shum Choi**	Corporate	2,411,661,327	74.3%
Mr. William Ka Chung Lam**	Corporate	2,411,661,327	74.3%
Mr. William Ka Chung Lam	Family	7,500,000	0.2%
Ms. Rebecca Yuk Fung Lau	Personal	4,200,000	0.13%
Mr. Michael Wai Chung Wu	Personal	2,514,000	0.1%
Mr. Stanley Kam Chuen Ko	Corporate	1,200,000	0.04%

• Excludes interest in options to acquire ordinary shares of the Company which is disclosed in section (iv) below.

• ** Mr. Jonathan Koon Shum Choi and Mr. William Ka Chung Lam are deemed to be interested in 2,411,661,327 ordinary shares by virtue of the SFO. Such interest in shares is also set out under the section “Persons Having Notifiable Interests” shown on page 109.

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APPENDIX III

• (ii) Interest in long positions of common shares of Kingsway International Holdings Limited (“Kingsway International”), the ultimate holding company of the Company

					Total	% of
					number of	total
	Personal	Family	Corporate	Other	common	issued
Name of director	interest	interest	interest	interest	shares*	shares*
Mr. Jonathan Koon	10,101,596	—	26,828,055	—	36,929,651	46.1%
Shum Choi**			(Note (1))
Mr. William Ka	9,726,750	9,790,507	—	12,915,060	32,432,317	40.5%
Chung Lam**		(Note (2))		(Note (3))
Mr. Michael Koon	106,937	—	—	—	106,937	0.1%
Ming Choi
Mr. Stanley Kam	20,400	—	—	—	20,400	<0.1%
Chuen Ko
Ms. Rebecca Yuk	100	—	—	—	100	<0.1%
Fung Lau

• Excludes interest in options to acquire common shares of Kingsway International which is disclosed in section (v) below.

• ** By virtue of their interest in Kingsway International, Mr. Jonathan Koon Shum Choi and Mr. William Ka Chung Lam are deemed to be interested in the shares of the subsidiaries (including the Company as disclosed in section (i) above) of Kingsway International under the SFO.

Notes:

• (1) Of these, 12,750,000 shares are held by Sun Wah Capital Limited. Mr. Jonathan Koon Shum Choi is deemed to be interested in these shares as he is entitled to exercise or control the exercise of one third or more of the voting power at general meetings of Sun Wah Capital Limited.

• The remaining 14,078,055 shares are held by Scarlet Red Limited. Mr. Jonathan Koon Shum Choi is deemed to be interested in these shares as he is entitled to exercise or control the exercise of one third or more of the voting power at general meetings of Scarlet Red Limited.

• (2) These shares are held by Ms. Mary Yuk Sin Lam who is the spouse of Mr. William Ka Chung Lam.

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GENERAL INFORMATION

• (3) Of these, 10,515,060 shares are held by Dynasty International Holdings Limited which is a wholly owned subsidiary of Global Fame Limited. Global Fame Limited is wholly owned by The WKC Lam Family Trust which is a discretionary trust with Mr. William Ka Chung Lam and his two children as the beneficiaries.

  • The remaining 2,400,000 shares are held by Abundant World Limited. Abundant World Limited is wholly owned by The Mary Lam Family Trust which is a discretionary trust with Ms. Mary Yuk Sin Lam and her two children as the beneficiaries. Ms. Mary Yuk Sin Lam is the spouse of Mr. William Ka Chung Lam who is a trustee of The Mary Lam Family Trust.

• (iii) Interest in long positions of ordinary shares of HK Weaver Group Limited, a fellow subsidiary of the Company

		Number of	% of total
	Type of	ordinary	issued
Name of director	interest	shares	shares
Mr. William Ka Chung Lam	Personal	59,620	4.6%
Mr. William Ka Chung Lam	Family	28,518	2.2%
Mr. Michael Wai Chung Wu	Personal	39,474	3.0%
Ms. Rebecca Yuk Fung Lau	Personal	5,000	0.4%

• (iv) Interest in options to acquire ordinary shares of the Company

Details of the Directors’ interests in options under the Scheme are as follows:

		Exercise		Exercised	Lapsed	At
		price	At 1 July	during	during	18 May
Name of director	Exercise period	per share	2004	the period	the period	2005
		HK$
Mr. Jonathan Koon	9 April 2001	0.2333	45,000,000	—	(45,000,000)	—
Shum Choi	to 8 October 2004
Mr. William Ka Chung	29 March 2001	0.2333	45,000,000	—	(45,000,000)	—
Lam	to 28 September 2004
Ms. Mary Yuk Sin Lam*	29 March 2001	0.2333	15,000,000	—	(15,000,000)	—
	to 28 September 2004
	1 March 2002	0.3233	18,000,000	—	—	18,000,000
	to 31 August 2005

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GENERAL INFORMATION

		Exercise		Exercised	Lapsed	At
		price	At 1 July	during	during	18 May
Name of director	Exercise period	per share	2004	the period	the period	2005
		HK$
Mr. Michael Koon Ming	4 April 2001	0.2333	16,500,000	—	(16,500,000)	—
Choi	to 3 October 2004
	1 March 2002	0.3233	1,500,000	—	—	1,500,000
	to 31 August 2005
Mr. Michael Wai Chung	2 December 2003	0.3833	30,000,000	—	(30,000,000)	—
Wu	to 1 June 2007
Ms. Rebecca Yuk Fung	31 August 2001	0.2333	2,400,000	(2,400,000)	—	—
Lau	to 28 February 2005
	22 December 2001	0.3433	1,500,000	—	—	1,500,000
	to 21 June 2005
	1 March 2002	0.3233	900,000	—	—	900,000
	to 31 August 2005
	5 October 2003	0.363	24,000,000	—	—	24,000,000
	to 4 April 2007

• Ms. Mary Yuk Sin Lam is the spouse of Mr. William Ka Chung Lam.

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GENERAL INFORMATION

APPENDIX III

(v) Interest in options to acquire common shares of Kingsway International

Pursuant to a share option plan operated by Kingsway International, certain Directors had been granted options to subscribe for the shares of Kingsway International as follows:

			At 1 July
	Exercise		2004 and	At
	price	31	December	18 May
Name of director	per share	Exercise period	2004	2005
	C$
Mr. William	1.92	4 March 2002	500,000	—
Ka Chung Lam		to 1 March 2005	(Note (1))
Ms. Rebecca	2.6	14 January 2002	125,000	—
Yuk Fung Lau		to 14 January 2005	(Note (2))

Notes:

• (1) These options were exercised on 1 March 2005.

• (2) These options lapsed on 14 January 2005.

There were no options granted to the Directors during the period.

Save as disclosed above, none of the Directors and chief executive of the Company or any of their spouses or children under 18 years of age has interests or short positions in the shares, underlying shares or debentures of the Company and associated corporations as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

Save as disclosed above, as at 18 May 2005, none of the Directors and chief executive had any interests or short positions in the shares of the Company and its associated corporations as defined in the SFO, and none of the Directors and chief executive or their spouses or children under 18 years of age had been granted any rights to subscribe for the shares of the Company, or had exercised any such rights during the period.

Save as disclosed above, at no time during the period was the Company or any of its holding companies, subsidiaries and fellow subsidiaries a party to any arrangements to enable the Directors or chief executive of the Company to hold any interests or short positions in the shares or underlying shares in, or debentures of, the Company or any other body corporate.

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APPENDIX III

2. PERSONS HAVING NOTIFIABLE INTERESTS

As at the Latest Practicable Date, the register of substantial shareholders’ maintained under Section 336 of the SFO shows that the Company had been notified of the following substantial shareholders’ interests, being 5% or more of the Company’s issued share capital. These interests represents long positions in the shares of the Company.

		Number of	Number of		% of
		ordinary shares			total
	Country of	in the Company			issued
Name of shareholders	incorporation	Direct interest	Deemed interest	Note	shares
World Developments	British Virgin	2,411,661,327	—	(a)	74.3%
Limited	Islands
Innovation Assets	British Virgin	—	2,411,661,327	(a)	74.3%
Limited	Islands
Kingsway International	Bermuda	—	2,411,661,327	(a)	74.3%
Holdings Limited
Ms. Mary Yuk Sin Lam	N/A	25,500,000	2,411,661,327	(a) & (b)	75%

Notes:

• (a) These shares represent the same interest and are therefore duplicated amongst World Developments Limited, Innovation Assets Limited and Kingsway International. World Developments Limited is a wholly owned subsidiary of Innovation Assets Limited whose entire issued share capital is beneficially owned by Kingsway International. Mr. Jonathan Koon Shum Choi beneficially owns or has control of approximately 46.1% of the issued share capital of Kingsway International and therefore is deemed (by virtue of the SFO) to be interested in these 2,411,661,327 shares. Mr. William Ka Chung Lam and his spouse, Ms. Mary Yuk Sin Lam, beneficially own or have control of approximately 40.5% on a combined basis of the issued share capital of Kingsway International and therefore are deemed (by virtue of the SFO) to be interested in these 2,411,661,327 shares.

• (b) The direct interest held by Ms. Mary Yuk Sin Lam includes 7,500,000 shares and options to subscribe for 18,000,000 shares, details related to options are disclosed in the section “Directors’ and chief executive’s interests and short positions in the shares, underlying shares and debentures of the Company or any associated corporation” shown on page 106.

Save as disclosed above, the register of substantial shareholders maintained under Section 336 of the SFO shows that the Company had not been notified by any substantial shareholders’ interests and short positions, being 5% or more of the Company’s issued share capital.

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APPENDIX III

3. SERVICE CONTRACTS OF DIRECTORS

Mr. Stanley Kam Chuen Ko, an independent non-executive director, has been appointed for a fixed term of two years, commencing on 22 September 2004, subject to retirement in accordance with the provisions of the Company’s Bye-Laws. The two remaining independent non-executive directors, namely Mr. Robert Tsai To Sze and Dr. Raymond Wai Yung Wu, have not been appointed to any fixed term but shall be subject to retirement in accordance with the provisions of the Company’s Bye-Laws.

Mr. Michael Wai Chung Wu, a non-executive director, has been appointed for a fixed term of two years, commencing on 1 January 2005, subject to retirement in accordance with the provisions of the Company’s Bye-Laws.

Apart from the foregoing, no director or proposed director has a service contract with the Company which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.

4. COMPETING INTERESTS OF DIRECTORS

As at the Latest Practicable Date, none of the Directors and his or her respective associate, had interests in a business which competes or in likely to compete, either directly or indirectly, with the business of the Group, as defined in the Listing Rules.

5. DIRECTORS’ INTEREST IN CONTRACT

As at the Latest Practicable Date, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to the business of the Group.

6. DIRECTORS’ AND EXPERTS’ INTEREST IN ASSETS OF THE GROUP

As at the Latest Practicable Date, none of the Directors or the experts (as named in this circular) has any interests, direct or indirect, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX III

7. EXPERTS’ QUALIFICATION AND CONSENT

The qualification of the experts who have given opinions which are contained in this circular are as follows:

Name Qualification KPMG Certified Public Accountants Lei Jie Law Office PRC Lawyers Sallmanns (Far East) Limited Chartered surveyor and independent valuer

As at the Latest Practicable date, each of KPMG, Lei Jie Law Office and Sallmanns (Far East) Limited had no shareholding in any member of the Group and had no right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the group.

KPMG, Lei Jie Law Office and Sallmanns (Far East) Limited have each given and have not withdrawn their respective written consent to the issue of this circular with the inclusion of their respective letter, report and/or references to their names in the form and context in which respectively appear.

8. MATERIAL CONTRACTS

The following contracts (not being contracts entered into the ordinary course of business) had been entered into by the Company or its subsidiaries within two years immediately preceding the issue of this circular:

• (a) An agreement dated 26 November 2003 entered into by and among Kingsway Financial Services Group Limited, an indirect wholly-owned subsidiary of the Company, Shanxi Securities Company Limited and China Gaoxin Investment Group Corporation for the formation of a PRC joint venture company for providing fund management services in the PRC; and

• (b) a subscription agreement dated 23 April 2004 entered into between Softbank Finance Corporation, as subscriber, and the Company, as the issuer, for subscribing for 102,631,579 shares in issued share capital of the Company.

9. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at 5th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong during the normal business hours on any weekday (Monday to Friday), except public holidays, for a period of 14 days commencing from the date of this circular:

• (a) the memorandum of association and bye-laws of the Company;

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GENERAL INFORMATION

APPENDIX III

• (b) the material contracts disclosed in the paragraph under the heading “Material Contracts” in this Appendix;

• (c) the valuation report set out in Appendix I to this circular;

• (d) the written consents referred to in the paragraph under the heading “Experts’ Qualification and Consent” in this Appendix; and

• (e) the annual reports of the Group for the two years ended 30 June 2003 and 2004.

10. LITIGATION

As at the Latest Practicable Date, none of the members of the Group is engaged in any litigation or claims of material importance and no litigation or claims of material importance is known to the Directors or the Company to be pending or threatened by or against any member of the Group.

11. COMPANY SECRETARY AND QUALIFIED ACCOUNTANT

Mr. Vincent Wai Shun Lai is the company secretary and the Director of Legal and Compliance of the Company. Mr. Lai is a qualified solicitor in Hong Kong and is admitted to practice law in the United States of America. Mr. Lai holds a Bachelors of Science degree in economics from the State University of New York at Albany and a Juris Doctor degree from Albany Law School.

Mr. Eric Kwok Keung Chan, is the Chief Financial Officer and qualified accountant of the Company. Mr. Chan is a fellow of the Association of Chartered Certified Accountants (UK). Mr. Chan is also a member of the Hong Kong Institute of Certified Public Accountants, the Hong Kong Securities Institute and a Certified International Investment Analyst.

12. REGISTERED OFFICE, HEAD OFFICE AND TRANSFER OFFICES

• (a) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

• (b) The head office and principal place of business of the Company is situated at 5th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong.

• (c) The Company’s principal share registrar is Butterfield Fund Services (Bermuda) Limited, Rosebank Centre, 11 Bermudiana Road, Pembroke, Bermuda.

• (d) The Company’s branch share registrar is Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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