CHYY Development Group Limited — Interim / Quarterly Report 2014

Aug 8, 2014

==> picture [60 x 60] intentionally omitted <==

==> picture [328 x 39] intentionally omitted <==

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8128)

INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2014

CHARACTERISTICS OF THE GROwTH ENTERpRISE MARkET (THE “GEM”) OF THE STOCk EXCHANGE OF HONG kONG LIMITED (THE “STOCk EXCHANGE”)

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

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

This announcement, for which the directors (the “Directors”) of China Ground Source Energy Industry Group Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this announcement is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this announcement misleading.

• 1 -

HIGHLIGHTS

Revenue for the six months ended 30 June 2014 (the “Review Period”) amounted to approximately HK$136,277,000.

Net profit after tax of the Group for the Review Period amounted to approximately HK$8,903,000.

No dividend was declared for the Review Period.

FINANCIAL REVIEw

The following table provides a brief summary of the financial results of China Ground Source Energy Industry Group Limited (the “Company”) and its subsidiaries (collectively the “Group”). For more detailed information, please refer to the unaudited consolidated financial statements for the Review Period and the six months ended 30 June 2013.

Revenue – Shallow ground source energy – Rental income Total revenue Profit for the period Profit attributable to owners of the Company	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 26,399 92,946 1,072 2,311 27,471 95,257 4,354 25,972 2,146 27,626	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 134,288 129,187 1,989 4,595 136,277 133,782 8,903 28,722 2,803 29,132	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 134,288 129,187 1,989 4,595 136,277 133,782 8,903 28,722 2,803 29,132
			133,782
			28,722
			29,132

During the Review Period, the Group’s revenue amounted to approximately HK$134,288,000 which was mainly contributed by shallow ground source energy utilisation business as compared with that of approximately HK$129,187,000 for the corresponding period last year. The revenue increased by approximately HK$5,101,000 as compared with that of corresponding period last year. The increase in revenue was mainly attributable to the fact that, the Group provided to its existing customers with free upgrade and transformation of the geothermal energy collection equipment last year in order to meet the new standards of “The Technical Code for Single Well Circulation Heat Exchange Geothermal Energy Collection Well” which received good response and increased customers’ loyalty to the enterprise. Hence, the Group secured more projects and completed by stage in the period

• 2 -

under review. The Group’s gross profit margin decreased from 55.5% in last corresponding period to 43.1% in the current period, that was mainly due to the expansion of business in districts other than Beijing with more competitive prices which caused the decrease in gross profit margin.

Other income increased from approximately HK$4,363,000 in the corresponding period last year to approximately HK$51,450,000 for the six months ended 30 June 2014. The increase was mainly attributable to the one-off government incentive for development of the integration of heating and cooling emerging industry and the increase in interest income due to the increased bank balances for the Review Period.

Selling and distribution expenses amounted to approximately HK$13,170,000 and HK$32,602,000 for the six months ended 30 June 2014 and 2013 respectively. In order to ensure the completed projects to meet the new standards, the Group committed to provide an one-off free modification, installation and testing of the customers’ shallow ground source energy collection equipment so as to optimizing/improving of the customers’ shallow ground source energy utilisation system during the six months ended 30 June 2013, thereby enhancing the promotional effect. Excluding this oneoff impact in last year, thus the selling and distribution expenses dropped in this Review Period.

During the Review Period, administrative expenses increased by approximately HK$3,472,000 or 7.9% as compared with that of six months ended 30 June 2013. Administrative expenses increased mainly due to the increase in staff costs and depreciation expenses arising from the Beijing office which was acquired at the end of last year.

During the Review Period, 恒有源科技發展集團有限公司, a subsidiary of the Group, completed the acquisition of the remaining 62.03% of the issued share capital of 恒有源投資管理有限公司 (formerly as an associate of the Group) from 北京市四博連通用機械新技術公司, a related company of the Group, this led to the “loss on deemed disposal of an associate” amounted to approximately HK$5,877,000.

Finance costs amounted to HK$27,060,000 for the six months ended 30 June 2014 as compared with approximately HK$2,593,000 for the last corresponding period. The increase in finance costs was mainly due to the increase in interest expense on bank loans.

Profit attributable to owners of the Company was approximately HK$2,803,000 for the six months ended 30 June 2014 (2013: approximately HK$29,132,000). The decrease in profit attributable to owners was due to the decrease in gross profit and increase in finance costs.

Order Book

As at 30 June 2014, the Group has contracts on hand of approximately HK$311,533,000.

Investment properties

The Group’s investment properties as at 30 June 2014 were valued at approximately HK$307,175,000. This resulted in an increase in fair value of investment properties of approximately HK$6,481,000 (2013: approximately HK$7,757,000) which was recognised directly in income statement for the Review Period.

• 3 -

Liquidity, Financial Resources and Capital Structure

Net current assets of the Group as at 30 June 2014 was approximately HK$870,669,000 (31 December 2013: approximately HK$938,779,000). As at 30 June 2014, the Group had cash and bank balances of approximately HK$530,539,000 (31 December 2013: approximately HK$541,930,000). Cash shown on our statement of financial position include funds available for general corporate purposes.

Non-controlling interest amounted to approximately HK$42,625,000 which mainly represents the interest attributable to non-controlling shareholders of the Group’s subsidiaries in the PRC.

Charges on asset

As at 30 June 2014, no Group’s asset has been charged.

Gearing Ratio

The gearing ratio of the Group was maintained at 31.0% as at 30 June 2014 (31 December 2013: 31.2%).

Foreign Exchange Exposure

The Group continues to adopt a conservative treasury policy with all bank deposits being kept in either Hong Kong dollars, or in local currencies of the operating subsidiaries, keeping a minimum exposure to foreign exchange risks.

Contingent Liabilities

As at 30 June 2014, the Group had no material contingent liabilities (31 December 2013: Nil).

Employees

As at 30 June 2014, the Group has approximately 540 employees in total (31 December 2013: approximately 510). The remuneration package of the employees is determined with reference to their performance, experience and their positions, duties and responsibilities in the Group.

• 4 -

BUSINESS REVIEw AND pROSpECTS

Under the Beijing-Hong Kong integrated management framework, the Group has developed into an enterprise by using accelerated development to solve problems arising from the development. In the last decade, the headquarter in Beijing named Ever Source Science and Technology Development Group Co., Ltd. (“HYY”) of China Ground Source Energy Industry Group Ltd. (HK Stock Code 8128, referred as CGS) under the hierarchy of China Energy Conservation and Environmental Protection Group has been one of the emerging enterprises engaged in the exploration and utilization of shallow ground source energy (heat). Combining its indigenous technology “Single-Well Heat Exchange Circulation for Ground Source Energy Collection” and the mature heat pump technology, it has provided heating in winter and cooling in summer to buildings of over 10,000,000 m[2] which proved that shallow ground source energy (heat) has successfully substituted the traditional combustion heating (which features combustion, emission and pollution) for buildings and has developed to be the emerging industrial of Integrated Heating and Cooling System with ground source energy which is free of combustion.

I. Introduction of Combustion-free Integrated Heating and Cooling System with ground source energy

(1) Shallow ground source energy (heat)

Shallow ground source energy (heat) normally refers to the low-grade heat of 25°C or less (according to the relevant laws and regulations, geothermal energy of above 25°C is the mineral resources of the country) which is mainly stored in the rock and soil of the land, the river water, the lake water, the sea water, the residual heat water, the water, the waste heat water.

(2) The industrialization development of the indigenous technology

The Single-Well Heat Exchange Circulation for Ground Source Energy Collection technology of Combustion-free Integrated Heating and Cooling System has realized the industrialization development. It is applicable under any geological conditions, free of pollution and with cost equivalent to traditional heating in exploration of shallow ground source energy stored in the soil and rock to be the substitute energy of heating for buildings. Combined with the mature heat pump technology, it can extract massive amount of free natural energy in dynamic equilibrium at cost of very small amount of electricity and it is renewable and free of pollution and emission. Hence, graded heating energy utilization and heating provision to buildings at cost equivalent to traditional heating can be achieved.

• 5 -

II. The advantages of Combustion-free Integrated Heating and Cooling System

(1) Environmental advantages

Combustion-free Integrated Heating and Cooling System has achieved ecological civilization construction and further accelerated the transformation and upgrade of the traditional industries and gradually led to a new way for China to cure haze problem.

An important cause to haze pollution is the low-altitude emission discharged by enormous fuel-combustion for heating. The emission containing harmful gas, dirt and vast heat when encountering typical weather condition transforms into haze. Using Combustionfree Integrated Heating and Cooling System for heating provision to buildings can achieve no pollution and emission for the regions during the whole heating process. It can improve the economic development and the people’s quality of life while addressing the ecological problems. In addition, It can eliminate the conditions of haze produced from the source so as to pursue harmony between human and nature.

(2) Technical advantages

The Single-Well Heat Exchange Circulation for Ground Source Energy Collection is the core technology of Combustion-free Integrated Heating and Cooling System. The technology patent is wholly owned by HYY. The characteristic of the industrialization is the strong designability of the system. At the premise of no pollution, no water loss and no potential danger to geological situation, it realizes the extraction of shallow ground source energy under different geological conditions at cost equivalent to the traditional heating.

(3) Cost advantages

• a. Initial investment cost advantages

The initial investment cost of Combustion-free Integrated Heating and Cooling System with ground source energy is equivalent to that of conventional airconditioning system. Without incurring additional heating cost to buildings, it can achieve three functions, i.e. provision of heating, cooling and domestic water.

• b. Operating cost advantages

Combustion-free Integrated Heating and Cooling System with ground source energy as alternative energy for heating, its operating cost is equivalent to 25% of the cost of traditional electric boilers. When providing cooling, it can save 15-20% energy as compared to the conventional central air-conditioner. Besides, free domestic water can be obtained during the heat re-collection process. When boiling of domestic water, only 12kWh electricity will be consumed for every ton of domestic water.

• 6 -

(4) Safe operation advantages

As compared with the traditional heating by coal, oil, gas which required for fire and explosion prevention. Combustion-free Integrated Heating and Cooling System with ground source energy only need to ensure the electricity safety which is easy for operation, safe and reliable.

(5) Standardization advantages

To realize the marketization development of the emerging industrial of Integrated Heating and Cooling System with ground source energy, there must be standards to follow. The Beijing local standard “The Technical Code for Single Well Circulation Heat Exchange Geothermal Energy Collection” (DB11/T935-2012) was implemented on 1 April 2013 which marked the industrialization development of the indigenous technology.

HYY has passed the rigorous inspection and obtained several international standard certifications, such as ISO9001, ISO14001, OHSAS18001 etc.

(6) Main industrial chain advantages

Combustion-free Integrated Heating and Cooling System with ground source energy is a development mode pursuant by HYY for group development & emerging industrial development with professional support. The Group inherited the fine tradition of the traditional heating industry by adoption of the products production suitable for energy regions to secure the promotion of the regional applications and by adoption of the regional service assurance system to ensure safe regional heating operation. By possession of the main industrial chain featuring the research and development, ground source energy collection, system design, equipment manufacturing, engineering installation, operation and maintenance assurance, a total solution for combustion-free heating supply of Integrated Heating and Cooling with ground source energy can be provided to the customers.

(7) Advantages of products series under industrialization development

• a. HYY 5-900MW Dispersed Ground Source Station for Cooling/Heating, being heating station for new towns and cities, can achieve heating, cooling and domestic water provision to regional constructions of 100,000 m[2] – 15,000,000 m[2] by Combustion-free Integrated Heating and Cooling System with ground source energy.

• 7 -

• b. HYY Ground Source Heat Pump System, being self-supply heating system, for single building or building blocks which can provide heating, cooling and domestic water for building area of 2,000 m[2] – 500,000 m[2] .

• c. HYY Ground Source Heating Devices capable to serve 50 m[2] – 2,000 m[2] rural household by provision of heating, cooling and domestic water which can solve the different heating needs in a low energy consumption manner.

III. Emerging Industrial of Combustion-free Integrated Heating and Cooling System with ground source energy made substantial progress

Combustion-free Integrated Heating and Cooling System with ground source energy has been promoted nationally and covered over 10 million m[2] which is equivalent to construction of a 780MW Dispersed Ground Source Station for Cooling/Heating. Compared with heating by electric boiler, it can save 975 million kWh electricity per annum (0.37 million tons standard coal), 0.943 million tons/year CO2 reduction, 8,900 tons/year SO2 reduction, 5,900 tons/ year NOx reduction, 16,000 tons/year particles reduction, 5.02 billion m[3] smoke reduction, equivalent to reducing construction of a 580MW power plant, saving investment of about 2.3 billion yuan.

During the review period, the promotion and development of the utilization of shallow ground source energy by the Group has well received attention by the community and the experts and the continuous support from the leaders. In the afternoon of 3rd June, State Councilor, Mr. Wangyong visited our project site in person and gave high comments to the projects of combustion-free heating provision to buildings by shallow ground source energy. State-owned Assets Supervision and Administration Commission of State Council, National Energy Administration and other governmental departments joined the Group’s conferences for special topic to further explore the emerging industrial of combustion-free Integrated Heating and Cooling System with ground source energy from the perspectives of policy and market support.

With the continuous improvement of the Group’s business models and main industrial chain, the Group further enhanced its core competitiveness. It is believed that, with the unremitting efforts of the management team and the solid foundation, the Group’s operating results will be further improved.

• 8 -

FINANCIAL RESULTS

The Board of Directors (the “Board”) of China Ground Source Energy Industry Group Limited (the “Company”) is pleased to announce the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the three months and six months ended 30 June 2014 together with the unaudited comparative figures for the corresponding periods in 2013 as follows:

CONDENSED CONSOLIDATED STATEMENT OF COMpREHENSIVE INCOME

For the six months ended 30 June 2014

Notes Revenue 3 Cost of sales Gross profit Other income Gain on disposal of a portion of investment properties Fair value changes on investment properties Selling and distribution expenses Administrative expenses Profit from operations Loss on deemed disposal of an associate Share of results of associates Share-based payments Finance costs Profit before tax Income tax expense 4 Profit for the period 5	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 27,471 95,257 (25,664) (31,975) 1,807 63,282 47,058 3,301 – – 6,481 7,757 (6,986) (1,683) (21,449) (24,218) 26,911 48,439 – – (545) 276 – (4,770) (15,074) (1,292) 11,292 42,653 (6,938) (16,681) 4,354 25,972	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 136,277 133,782 (77,612) (59,593) 58,665 74,189 51,450 4,363 – 51,573 6,481 7,757 (13,170) (32,602) (47,634) (44,162) 55,792 61,118 (5,877) – (1,645) 79 (1,371) (11,477) (27,060) (2,593) 19,839 47,127 (10,936) (18,405) 8,903 28,722

• 9 -

Notes Other comprehensive income (expense): Exchange differences arising on translation of foreign operations Total other comprehensive income (expense) for the period Total comprehensive income (expense) for the period Profit (loss) attributable to: Owners of the Company Non-controlling interests Total comprehensive income (expense) attributable to: Owners of the Company Non-controlling interests Earnings per share 7 Basic (HK cents) Diluted (HK cents)	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 465 10,211 465 10,211 4,819 36,183 2,146 27,626 2,208 (1,654) 4,354 25,972 2,570 36,615 2,249 (432) 4,819 36,183 0.074 0.952 0.074 0.951	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) (24,027) 14,386 (24,027) 14,386 (15,124) 43,108 2,803 29,132 6,100 (410) 8,903 28,722 (19,791) 42,104 4,667 1,004 (15,124) 43,108 0.097 1.004 0.096 1.003

• 10 -

At 30 June 2014

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL pOSITION

Notes Non-current assets Property, plant and equipment 8 Investment properties 8 Deposit paid for acquisition of land use rights 16 Goodwill Interests in associates Available-for-sale investments Prepayments Deferred tax assets Current assets Inventories Properties held for sales under development Trade and retention receivables 9 Prepayments, deposits and other receivables Consideration paid for the acquisition of a subsidiary Refundable deposit paid for setting up of a joint venture Amounts due from customers for contract work Amount due from an associate Amount due from related companies Held-for-trading financial assets Cash held at non-bank financial institutions Short-term bank deposits Bank balances and cash	30 June 2014 HK$’000 (Unaudited) 276,520 307,175 244,377 466,115 23,978 499 18,710 22,262 1,359,636 22,331 108,771 136,180 142,102 – – 380,450 5,130 7,153 196 1,262 – 530,539 1,334,114	31 December 2013 HK$’000 (Audited) 233,434 308,776 244,377 445,850 57,570 512 20,841 22,262
		1,333,622
		17,166 106,005 129,237 73,022 62,759 38,424 389,506 2,323 – 40 1,262 484,763 57,167
		1,361,674

• 11 -

Notes Current liabilities Trade payables 10 Accrued liabilities, deposits received and other payables Amounts due to customers for contract work Amounts due to related companies Amounts due to associates Tax payable Net current assets Total assets less current liabilities Non-current liabilities Receipt in advance Deferred income Borrowings Deferred tax liabilities Net assets Capital and reserves Share capital 11 Reserves Equity attributable to owners of the Company Non-controlling interests Total equity	30 June 2014 HK$’000 (Unaudited) 125,155 196,750 12,167 4,006 21,672 103,695 463,445 870,669 2,230,305 10,901 7,545 499,310 60,246 578,002 1,652,303 226,053 1,383,625 1,609,678 42,625 1,652,303	31 December 2013 HK$’000 (Audited) 125,463 169,946 18,956 560 9,279 98,691
		422,895
		938,779
		2,272,401
		11,633 7,741 512,321 60,136
		591,831
		1,680,570
		226,053 1,416,559
		1,642,612 37,958
		1,680,570

• 12 -

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2014

At 1 January 2013 (Audited) Profit (loss) for the period Other comprehensive income for the period: Exchange differences arising on translation of foreign operations Total other comprehensive income for the period Total comprehensive income for the period Recognition of share-based payment expenses Dividends recognised as distribution (note 6) Appropriation At 30 June 2013 (Unaudited)	Share capital HK$’000 226,053 – – – – – – – 226,053				Attributable	Attributable	to owners of the Company	to owners of the Company	to owners of the Company			Total HK$’000 1,500,138 29,132 12,972 12,972 42,104 11,477 (11,611) – 1,542,108	Non– controlling interests HK$’000 39,680 (410) 1,414 1,414 1,004 – – – 40,684	Total equity HK$’000 1,539,818 28,722 14,386
			Share premium HK$’000 (Note a) 903,241 – – – – – (11,611) – 891,630	Statutory reserve HK$’000 (Note b) 2,211 – – – – – – 9 2,220	Assets revaluation reserve HK$’000 24,162 – – – – – – – 24,162	Contributed surplus HK$’000 (Note c) 154,381 – – – – – – – 154,381	Special reserve HK$’000 (Note d) (1,694) – – – – – – – (1,694)	Capital reserve HK$’000 (Note e) 32,235 – – – – – – – 32,235	Share- based payment reserve HK$’000 33,196 – – – – 11,477 – – 44,673	Exchange translation reserve HK$’000 42,968 – 12,972 12,972 12,972 – – – 55,940	Retained earnings HK$’000 83,385 29,132 – – 29,132 – – (9) 112,508
														14,386
														43,108
														11,477 (11,611) –
														1,582,792

• 13 -

Attributable to owners of the Company

									Share-
					Assets				based	Exchange			Non–
	Share	Share		Statutory	revaluation	Contributed	Special	Capital	payment	translation	Retained		controlling	Total
	capital	premium		reserve	reserve	surplus	reserve	reserve	reserve	reserve	earnings	Total	interests	equity
	HK$’000	HK$’000		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(Note a)		(Note b)		(Note c)	(Note d)	(Note e)
At 1 January 2014 (Audited)	226,053	891,630		2,346	25,255	154,381	(1,694)	32,235	52,972	74,011	**185,423 **	1,642,612	**37,958 **	1,680,570
Profit for the period	–		–	–	–	–	–	–	–	–	2,803	2,803	6,100	8,903
Other comprehensive expense for
the period:
Exchange differences arising on
translation of foreign operations	–		–	–	–	–	–	–	–	(22,594)	–	(22,594)	(1,433)	(24,027)
Total other comprehensive expense for
the period	–		–	–	–	–	–	–	–	(22,594)	–	(22,594)	(1,433)	(24,027)
Total comprehensive (expense) income for
the period	–		–	–	–	–	–	–	–	(22,594)	2,803	(19,791)	4,667	(15,124)
Recognition of share-based
payment expenses	–		–	–	–	–	–	–	1,371	–	–	1,371	–	1,371
Dividends recognised as distribution
(note 6)	–	(14,514)		–	–	–	–	–	–	–	–	(14,514)	–	(14,514)
Appropriation	–		–	589	–	–	–	–	–	–	(589)	–	–	–
At 30 June 2014 (Unaudited)	226,053	877,116		2,935	25,255	154,381	(1,694)	32,235	54,343	51,417	**187,637 **	1,609,678	**42,625 **	1,652,303

Notes:

• (a) The share premium of the Group includes (i) the excess of the issue price over the nominal value of the Company’s shares issued at a premium and (ii) the difference between the nominal value of the share capital of the subsidiaries acquired pursuant to the Group’s reorganisation scheme in preparation for the public listing of the Company’s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “Reorganisation”) in 2001 over the nominal value of the share capital of the Company issued in exchange therefore.

• (b) In accordance with the relevant People’s Republic of China (the “PRC”) regulations and joint venture agreements, the Sino-foreign joint ventures established in the PRC shall set aside a portion of their respective profit after tax, if any, to the statutory reserve. Such amount will be determined at the discretion of the board of directors of the respective entity.

• (c) Contributed surplus represents the cancellation of the paid-up capital and set off against the accumulated losses in prior year.

• (d) Special reserve represents the reserve arising from acquisition of additional interests of a subsidiary from non-controlling interests in prior year.

• (e) Capital reserve represents the deemed contribution from a substantial shareholder arising from the waiver of the convertible notes in prior year.

• 14 -

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOwS

For the six months ended 30 June 2014

Net cash (outflow) inflow from operating activities Net cash inflow (outflow) from investing activities Net cash (outflow) inflow from financing activities Decrease in cash and cash equivalents Effect of foreign exchange rates changes Cash and cash equivalents at the beginning of the period Cash and cash equivalents at end of the period	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) (15,392) 85,156 29,870 (131,897) (25,415) 3,013 10,937 (43,728) (454) 1,548 541,930 156,459 530,539 114,279

• 15 -

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2014

1. BASIS OF pREpARATION

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Charter 18 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with Hong Kong Accounting Standard 34 (“HKAS 34”), Interim Financial Reporting, issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

The condensed consolidated financial statements have not been audited by the Company’s auditor, but have been reviewed by the Company’s audit committee.

2. pRINCIpAL ACCOUNTING pOLICIES

The condensed consolidated interim financial statements have been prepared on the historical costs basis expect for certain financial instruments and investment properties, which are measured at revalued amounts or fair values, as appropriate.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2013.

3. SEGMENT INFORMATION

The Group’s reportable and operating segments, based on information reported to the chief operating decision maker, being the chief executive officer of the Company, for the purpose of resource allocation and performance assessment are as follows:

• (a) Shallow ground source energy segment – provision, installation and maintenance of shallow ground source energy utilisation system;

• (b) Securities investments and trading segment – trading of investment securities; and

• (c) Properties investment and development segment– investment in properties for its potential rental income and sales;

No operating segment identified by the chief operating decision maker have been aggregated in arriving at the reportable segment of the Group.

• 16 -

(a) Segment revenue and results

The following is an analysis of the Group’s revenue and results by reportable and operating segment.

				Securities		properties
	Shallow ground		investment and		investment and
	source energy			trading		development		Total
	Six	months ended	Six	months ended	Six months ended		Six	months ended
		30 June		30 June		30 June		30 June
	2014	2013	2014	2013	2014	2013	2014	2013
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Revenue
External customers	134,288	129,187	–	–	1,989	4,595	136,277	133,782
Segment results	41,360	12,130	(509)	(6,526)	19,164	60,414	60,015	66,018
Share of results of associates							(1,645)	79
Unallocated other income							5,707	2,335
Unallocated expenses							(17,570)	(21,305)
Unallocated finance costs							(26,668)	–
Profit before tax							19,839	47,127

(b) Segment assets

The following is an analysis of the Group’s assets by reportable and operating segment:

Shallow ground source energy Securities investment and trading Properties investments and development Total segment assets Unallocated corporate assets Consolidated total assets	30 June 2014 HK$’000 (Unaudited) 1,270,866 5,793 761,475 2,038,134 655,616 2,693,750	31 December 2013 HK$’000 (Audited) 1,264,449 7,018 698,142
		1,969,609 725,687
		2,695,296

• 17 -

4. INCOME TAX EXpENSE

PRC enterprise income tax Deferred tax	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 5,294 14,741 1,644 1,940 6,938 16,681	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 9,292 16,465 1,644 1,940 10,936 18,405	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 9,292 16,465 1,644 1,940 10,936 18,405
			18,405

Hong Kong profits tax has not been provided as the Group did not generate any assessable profits arising in Hong Kong during the six months ended 30 June 2014 (2013: Nil).

PRC enterprise income tax has been provided at the relevant tax rate of the net assessable profits attributable to the Group’s operations in the PRC during the six months ended 30 June 2014.

5. pROFIT FOR THE pERIOD

Profit for the period has been arrived at after charging:

	Three months ended	Three months ended	Six months ended	Six months ended
	30	June	30	June
	2014	2013	2014	2013
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Cost of inventories sold	24,933	31,324	76,580	57,796
Staff costs
(including directors’ emolument)	10,934	9,765	28,161	23,056
Depreciation and amortisation	3,286	964	7,215	2,317
Minimum lease payments
under operating leases in
respect of land and buildings	2,637	3,201	4,878	6,278

• 18 -

6. DIVIDENDS

The Board does not recommend the payment of an interim dividend (2013: nil) for the six months ended 30 June 2014.

	Six months ended	Six months ended
	30	June
	2014	2013
	HK$’000	HK$’000
	(Unaudited)	(Unaudited)
Final dividend recognised as distribution during the period_(note)_	14,514	11,611

Note: On 13 June 2014, a dividend of HK 0.50 cents per share (2013: HK 0.40 cents per share) was paid to the shareholders of the Company as the final dividend for the year ended 31 December 2013.

7. EARNINGS pER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

Earnings Earnings for the period attributable to owners of the Company and for the purpose of basic earnings and diluted earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares: Share options_(note)_ Weighted average number of ordinary shares for the purpose of diluted earnings per share	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,146 27,626 ’000 ’000 2,902,827 2,902,827 14,290 3,634 2,917,117 2,906,461	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,803 29,132 ’000 ’000 2,902,827 2,902,827 6,498 1,580 2,909,325 2,904,407	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,803 29,132 ’000 ’000 2,902,827 2,902,827 6,498 1,580 2,909,325 2,904,407
			’000 2,902,827 1,580
			2,904,407

8. MOVEMENT IN pROpERTY, pLANT AND EQUIpMENT AND INVESTMENT pROpERTIES

During the Review Period, the Group incurred approximately HK$2,161,000 (2013: HK$7,177,000) on acquisition of property, plant and equipment.

The Group’s investment properties as at 30 June 2014 were fair valued by Peak Vision Appraisals Limited, an independent professionally qualified valuer not connected to the Group. The resulting increase in fair value of investment properties of approximately HK$6,481,000 (2013: HK$7,757,000) has been recognised directly in the income statement for the Review Period.

• 19 -

9. TRADE AND RETENTION RECEIVABLES

Trade receivables Less: allowance for doubtful debts Retention receivables	30 June 2014 HK$’000 (Unaudited) 98,473 (10,151) 88,322 47,858 136,180	31 December 2013 HK$’000 (Audited) 103,026 (10,416
		92,610 36,627
		129,237

The Group generally grants credit period of 30 to 180 days to its customers. The Group may, on a case by case basis and after evaluation of the business relationship and creditworthiness, extend the credit period upon the customers’ request and normally within 365 days. The Group does not hold any collateral over these balances. The retention receivables credit period were usually one to two years from the completion and inspection of the construction projects, and different on case by case basis. The following aging analysis of trade receivables is presented based on the invoice date, at the end of the reporting period.

Within 90 days 91 to 180 days 181 to 365 days Over 365 days	30 June 2014 HK$’000 (Unaudited) 8,651 12,168 63,809 3,694 88,322	31 December 2013 HK$’000 (Audited) 23,749 44,336 6,479 18,046
		92,610

10. TRADE pAYABLES

The following is an aged analysis of trade payables presented based on the invoice date at the end of the reporting period.

	30 June	31 December
	2014	2013
	HK$’000	HK$’000
	(Unaudited)	(Audited)
Within 90 days	5,785	16,369
91 to 180 days	13,394	3,302
181 to 365 days	8,785	21,839
Over 365 days	97,191	83,953
	125,155	125,463

• 20 -

11. SHARE CApITAL

Ordinary shares Authorised: At beginning of the period/year and at end of the period/year Issued and fully paid: At beginning of the period/year and at end of the period/year	Number of shares US$0.01 each 30 June 31 December 2014 2013 ’000 ’000 (Unaudited) (Audited) 16,000,000 16,000,000 2,902,827 2,902,827	Share capital 30 June 31 December 2014 2013 US$’000 US$’000 (Unaudited) (Audited) 160,000 160,000 29,028 29,028	Share capital 30 June 31 December 2014 2013 HK$’000 HK$’000 (Unaudited) (Audited) 1,248,000 1,248,000 226,053 226,053	Share capital 30 June 31 December 2014 2013 HK$’000 HK$’000 (Unaudited) (Audited) 1,248,000 1,248,000 226,053 226,053
				226,053

12. COMMITMENTS

i) Operating lease

The Group as lessor

The Group sub-leases part of the building and leases the investment properties under operating lease arrangements, with leases negotiated for terms ranging from one to twenty years. The terms of the leases generally also require the tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. At the end of reporting period, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:

	30 June	31 December
	2014	2013
	HK$’000	HK$’000
	(Unaudited)	(Audited)
Within one year	9,748	10,058
In the second to fifth years, inclusive	42,336	43,265
Over five years	71,263	80,646
	123,347	133,969

• 21 -

The Group as lessee

At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth years inclusive Over five years	30 June 2014 HK$’000 (Unaudited) 3,182 2,582 1,900 7,664	31 December 2013 HK$’000 (Audited) 3,299 3,960 2,339
		9,598

Operating lease payments represent rentals payable by the Group for certain of its office properties and staff quarter. Leases are negotiated for an average term ranging from one to eight years. No provision for contingent rent was established in the leases.

ii) Others

Commitments contracted but not provided in the condensed consolidated financial statements in respect of: – Investment properties under construction – Acquisition of property, plant and equipment	30 June 2014 HK$’000 (Unaudited) 2,943 1,885 4,828	31 December 2013 HK$’000 (Audited) 3,020 1,934
		4,954

13. SHARE-BASED pAYMENT TRANSACTIONS

The Company has a share option scheme for eligible employees and business associates of the Group. Details of the share options outstanding during the Review Period are as follows:

Outstanding at 1 January 2014 Lapsed during the period Outstanding at 30 June 2014	Number of share options 352,492,000 (4,000,000)
	348,492,000

• 22 -

14. ACQUISITION OF A SUBSIDIARY

On 24 January 2014, the acquisition of the remaining 62.03% of the issued share capital of 恒有源投 資管理有限公司（「恒有源投資」） by 恆有源科技發展集團有限公司（「恒有源」）, a subsidiary of the Group, from 北京市四博連通用機械新技術公司（「四博連」）was completed, a related company of the Group, at cash consideration of RMB49,000,000 (approximately HK$62,759,000) was completed. The Group’s equity interest in 恒有源投資 had been increased from 37.97% to 100% and 恒有 源投資 became a wholly-owned subsidiary of the Group. This acquisition has been accounted for using the purchase method. The amount of goodwill arising from the acquisition was approximately RMB15,840,000 (equivalent to HK$20,294,000). 恒有源投資 is principally engaged in business planning, consulting and management services and promotion. 恒有源投資 was acquired to act as investment platform for the future expansion of the Group’s investment operations.

Assets acquired and liabilities recognised at the date of which control was obtained are as follows:

	HK$’000
	(Unaudited)
Property, plant and equipment	57,289
Amount due to a holding company	19,085
Prepayments, deposits and other receivables	3,693
Bank balances and cash	309
Amount due to a holding company	(11,877)
Accrued liabilities, deposits received and other payables	(9)
	68,490
Goodwill arising on acquisition
	HK$’000
	(Unaudited)
Cash Consideration	62,779
Add: fair value of the associate	26,005
Less: recognised amount of identifiable net assets acquired (100%)	(68,490)
Goodwill arising on acquisition of a subsidiary	20,294
Net cash outflow arising on acquisition:
	HK$’000
	(Unaudited)
Cash Consideration	62,779
Less: bank balances acquired	(309)
	(62,470)

Impact of acquisition on the results of the Group

Included in the profit for the period is approximately HK$2,425,000 (equivalent to approximately RMB1,935,000) loss attributable to 恒有源投資. No revenue for the period is attributable to 恒有源投資.

• 23 -

15. RELATED pARTY TRANSACTIONS

• (a) During the periods ended 30 June 2014 and 2013, the Group entered into the following transactions:

Operating lease payments paid to a non-controlling shareholder Rental income from an associate Purchase from an associate	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,193 1,031 80 80 – 1,640 1,273 2,751	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,386 2,061 160 160 – 1,640 2,546 3,861	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 2,386 2,061 160 160 – 1,640 2,546 3,861
			3,861

(b) Remuneration of key management personnel

The remuneration of directors and other members of key management during the periods ended 30 June 2014 and 2013 was as follows:

Short term benefits Retirement benefits scheme contributions	Three months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 1,852 1,622 12 15 1,864 1,637	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 4,002 3,742 23 30 4,025 3,772	Six months ended 30 June 2014 2013 HK$’000 HK$’000 (Unaudited) (Unaudited) 4,002 3,742 23 30 4,025 3,772
			3,772

16. EVENTS AFTER THE REpORTING pERIOD

Up to the date of this announcement, the deposit paid for the acquisition of land use rights had been fully refunded by Dalian Land and Housing Authority.

• 24 -

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS OR SHORT pOSITIONS IN THE SHARE CApITAL OF THE COMpANY AND ITS ASSOCIATED CORpORATIONS

As at 30 June 2014, the interests or short positions of the directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) which will be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short position which they are taken or deemed to have taken under such provisions of the SFO), or which will be required to be entered into the register kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, were as follows:

(a) Long positions and Short positions in Shares and Equity Derivatives

Name of director Ms. Chan Wai Kay Katherine_(Note 1) Mr. Xu Shengheng (Note 2) Mr. Jia Wenzeng(Note 3) Mr. Wu Desheng(Note 4)_

Number of issued ordinary shares of US$0.01 each in the Company held and the capacity Capacity Interests in shares Approximate percentage of interests in shares Interests under equity derivatives Aggregate interests Approximate percentage of the aggregate interests Beneficial owner 34,000,000 (L) 1.17% 28,700,000 (L) Interest of spouse 10,074,000 (L) 0.35% – 72,774,000 (L) 2.51% Beneficial owner 508,319,000 (L) 17.51% 23,300,000 (L) 532,321,000 (L) 18.34% Beneficial owner 508,300,000 (S) 17.51% – 508,300,000 (S) 17.51% Interest of spouse 702,000 (L) 0.02% – Beneficial owner – – 4,000,000 (L) 4,000,000 (L) 0.14% Beneficial owner – – 2,500,000 (L) 2,500,000 (L) 0.09%

(L): Long position, (S): Short position

• 25 -

Notes:

1. Ms. Chan Wai Kay Katherine (“Ms. Chan”) is interested in 34,000,000 shares and 28,700,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section and Mr. Chow Ming Joe Raymond (“Mr. Chow”), spouse of Ms. Chan, holds 10,074,000 Shares of the Company (“Shares”). Under the SFO, Ms. Chan is deemed to be interested in 10,074,000 Shares in which Mr. Chow is interested.

2. Mr. Xu Shengheng (“Mr. Xu”) is interested in 508,319,000 Shares and 23,300,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section. Ms. Luk Hoi Man (“Ms. Luk”), the spouse of Mr. Xu, holds 702,000 Shares. Therefore, under the SFO, Mr. Xu is deemed to be interested in 702,000 Shares in which Ms. Luk is interested.

3. Mr. Jia Wenzeng is interested in 4,000,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section.

4. Mr. Wu Desheng is interested in 2,500,000 Shares issuable pursuant to exercise of share options of the Company, details of such share options can be referred to part (b) of this section.

(b) Long positions under Equity Derivatives

The Share Option Plan

On 28 July 2010, the Company, by a shareholders’ resolution, conditionally adopted a new share option scheme (the “Share Option Plan”) for a period of ten years from the date on which the Share Option Plan became unconditional. On 7 August 2010, the Share Option Plan became unconditional and effective. Pursuant to the Share Option Plan, the board of directors was authorised, at its absolute discretion, to grant options to eligible participants, including directors of the Company or any of its subsidiaries, as defined in accordance with the terms of the Share Option Plan, to subscribe for shares in the Company under the terms of the Share Option Plan. As at 30 June 2014, the following directors of the Company were interested in the following options under the Share Option Plan:

• 26 -

				Number of
				share options
			Exercise price	outstanding as
Name of director	Date of grant	Exercise period	per share	at 30 June 2014
			HK$
Ms. Chan Wai Kay	9 September 2010	9 September 2010 to	0.426	17,000,000
Katherine		8 September 2020
	6 February 2013	6 February 2013 to	0.426	11,700,000
		5 February 2015
Mr. Xu Shengheng	9 September 2010	9 September 2010 to	0.426	11,600,000
		8 September 2020
	6 February 2013	6 February 2013 to	0.426	11,700,000
		5 February 2015
Mr. Jia Wenzeng	9 September 2010	9 September 2010 to	0.426	1,500,000
		8 September 2020
	6 February 2013	6 February 2013 to	0.426	2,500,000
		5 February 2015
Mr. Wu Desheng	6 February 2013	6 February 2013 to	0.426	2,500,000
		5 February 2015

Save as disclosed above, as at 30 June 2014, none of the directors, chief executive of the Company or their respective associates had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which will be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short position which they are taken or deemed to have taken under such provisions of the SFO), or which will be required to be entered into the register kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the minimum standards of dealing by directors of the Company as referred to in Rules 5.46 to 5.67 of the GEM Listing Rules.

• 27 -

INTERESTS DISCLOSEABLE UNDER SFO AND SUBSTANTIAL SHAREHOLDERS

So far as is known to the directors of the Company, as at 30 June 2014, persons (other than directors or chief executive of the Company) who had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required pursuant to Section 336 of the SFO, to be entered into the register referred to therein, were as follows:

Long positions and Short positions in Shares and Equity Derivatives

Name China Energy Conservation and Environmental Protection (Hong Kong) Investment Company Limited_(Note 1) China Energy Conservation and Environmental Protection Group(Note 1) Ms. Luk Hoi Man(Note 2)_	Name China Energy Conservation and Environmental Protection (Hong Kong) Investment Company Limited_(Note 1) China Energy Conservation and Environmental Protection Group(Note 1) Ms. Luk Hoi Man(Note 2)_	Number of issued ordinary shares of US$0.01 each in the Company held and capacity Capacity Interest in shares percentage of interests in shares Interests under equity derivatives Aggregate interests percentage of aggregate interests Beneficial owner 850,000,000 (L) 29.28% – 850,000,000 (L) 29.28% Interest of controlled corporation 850,000,000 (L) 29.28% – 850,000,000 (L) 29.28% Beneficial owner 702,000 (L) 0.02% – Interest of spouse 508,319,000 (L) 17.51% 23,300,000 (L) 532,321,000 (L) 18.34% Interest of spouse 508,300,000 (S) 17.51% – 508,300,000 (S) 17.51%
		Beneficial owner 702,000 (L) 0.02% – Interest of spouse 508,319,000 (L) 17.51% 23,300,000 (L) Interest of spouse 508,300,000 (S) 17.51% –

(L): Long position, (S): Short position

Notes:

1. China Energy Conservation and Environmental Protection (Hong Kong) Investment Company Limited is a wholly-owned subsidiary of China Energy Conservation and Environmental Protection Group (“CECEP”), therefore, under the SFO, CECEP is deemed to be interested in 850,000,000 Shares.

2. Ms. Luk Hoi Man (“Ms. Luk”), the spouse of Mr. Xu Shengheng (“Mr. Xu”), holds 702,000 Shares. Mr. Xu is interested in 508,319,000 Shares and 23,300,000 Shares issuable pursuant to exercise of share options of the Company. Therefore, under SFO, Ms. Luk is deemed to be interested in 508,319,000 Shares and 23,300,000 underlying shares issuable upon the exercise of the share options of the Company in which Mr. Xu is interested.

3. 28 -

Save as disclosed above, as at 30 June 2014, the directors of the Company were not aware of any other person (other than directors or chief executive of the Company) who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required, pursuant to Section 336 of the SFO, to be entered into the register referred to therein.

OUTSTANDING SHARE OpTIONS

As at 30 June 2014, options to subscribe for an aggregate of 348,492,000 shares were outstanding (including the directors of the Company as disclosed above). Details of which as at 30 June 2014 were as follows:

Date of grant of share options 9 September 2010 9 September 2010 9 September 2010 9 September 2010 6 February 2013 6 February 2013	As at 1 January 2014 66,992,000 31,666,667 31,666,667 31,666,666 31,900,000 158,600,000 352,492,000	Granted during the period – – – – – – –	Exercised during the period – – – – – – –	Lapsed during the period 4,000,000 – – – – – 4,000,000	As at 30 June 2014 Vesting period of share options Exercise period of share options Exercise price per share HK$ 62,992,000 – 9 September 2010 to 8 September 2020 0.4260 31,666,667 9 September 2010 to 8 September 2011 9 September 2011 to 8 September 2020 0.4260 31,666,667 9 September 2010 to 8 September 2012 9 September 2012 to 8 September 2020 0.4260 31,666,666 9 September 2010 to 8 September 2013 9 September 2013 to 8 September 2020 0.4260 31,900,000 – 6 February 2013 to 5 February 2015 0.4260 158,600,000 6 February 2013 to 5 February 2014 6 February 2014 to 5 February 2015 0.4260 348,492,000

COMpETITION AND CONFLICT OF INTERESTS

None of the directors, the management shareholders or substantial shareholders of the Company or any of their respective associates has engaged in any business that competes or may compete with the business of the Group or has any other conflict of interests with the Group.

• 29 -

CORpORATE GOVERNANCE CODE

During the Review Period, the Company has complied with the code provisions of the Corporate Governance Code (the “Code”) set out in Appendix 15 of the GEM Listing Rules, except for the deviations as follows:

Under code provision A.6.7 of the Code requires that independent non-executive directors and other non-executive directors shall attend general meetings and develop a balanced understanding of the views of shareholders.

Under code provision E.1.2 of the Code requires that the chairman of the board should attend the annual general meeting. He should also invite the chairmen of the audit, remuneration, nomination and any other committees (as appropriate) to attend.

Mr. Jia Wenzeng, an independent non-executive Director and the chairman of the Audit Committee, and Mr. Hu Zhaoguang, an independent non-executive Director and the chairman of the Remuneration Committee, did not attend the annual general meeting held on 9 May 2014 due to their engagement in other business.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference which deal clearly with its authority and duties. The audit committee’s primary duties are to review and to supervise the financial reporting process and internal control system of the Group and to provide advice and comments to the directors of the Company.

The audit committee currently comprises three independent non-executive Directors, namely, Mr. Jia Wenzeng, Mr. Hu Zhaoguang and Mr. Wu Desheng. Mr. Jia Wenzeng is the chairman of the audit committee. The audit committee has reviewed the Group’s unaudited results for the Review Period and has provided advice and comment thereon.

SECURITIES TRANSACTIONS BY DIRECTORS

The Company has not adopted its own code of conduct regarding securities transactions by directors, but having made specific enquiry of all directors and the Company was not aware of any noncompliance with the required standard of dealings as set out in Rules 5.48 to 5.67 of the GEM Listing Rules and its code of conduct regarding securities transactions by directors during the Review Period.

• 30 -

pURCHASE, REDEMpTION OR SALE OF LISTED SECURITIES OF THE COMpANY

During the Review Period, neither the Company nor any of its subsidiaries purchased, redeemed or sold any of the Company’s listed securities.

As at the date of this announcement, the Board comprises Mr. Zheng Qiyu, Ms. Chan Wai Kay, Katherine, Mr. Xu Shengheng and Mr. Zang Yiran as executive Directors, Mr. Zhao Youmin and Mr. Daiqi as non-executive Directors, Mr. Jia Wenzeng, Mr. Wu Desheng and Mr. Hu Zhaoguang as independent non-executive Directors.

By Order of the Board of China Ground Source Energy Industry Group Limited Zheng Qiyu Chairman

Hong Kong, 8 August 2014

This announcement will remain on the GEM website with the domain name of www.hkgem.com on the “Latest Company Announcement” page for at least 7 days from the date of publication and on the website of the Company at www.cgsenergy.com.hk.

• 31 -